January 2010 Archives

With lots of talk about "cloud-this" and "outsourced-that," it's becoming easier than ever for an entrepreneur to start their journey. While these tools are probably best suited to online or technology companies, many of these same things apply to any new business venture.

• "Cloud" or "shared infrastructure"
  There's no need have a datacenter with fixed costs when you can pay for what you need when you need it "in the cloud". As an added bonus, working in the cloud allows you to make use of others' expertise in running what you need. Whether it's storage from Amazon AWS, or Ruby on Rails hosting from EngineYard, infrastructure can be a variable cost with little to no capital investment.
• Remote employees, worldwide
  Offshore resources have been available for a while, but Amazon Turk and oDesk have widened the market for remote employees and provided important systemization to the process. It is now possible to give tiny tasks to a massive worldwide workforce to complete almost anything. Assign automated tasks or hire developers from anywhere in the world. Scale your team up or down, the choice is yours. Some of these changes have also started to influence the testing or QA market place, another incredible advantage for building an "ultra light start up."
• Outsourced services
  Very similar to cloud resources, but these services have been around longer and just don't have the buzz word of cloud. Despite not being new, outsourced services still provide infrastructure at lower rates, and access to features not otherwise available. From phone systems and email to accounting.
• Crowdsourced design
  Despite their abundance, entrepreneurs still tell me they have a tough time coming up with logos or brand identities at good prices. Now, thanks to sites such as 99Designs and crowdSPRING, getting great logos, corporate identity and other design services are becoming much cheaper. While you may eventually need the design skills of a well-honed (and more expensive) design professional, if you're just starting out, crowdsourced design is the way to go.
• Community
  There is a growing community talking about how to quickly and profitably launch a startup with groups like Ultra Light Startups and lean startup movement with local meetups all over the world. Take advantage of these groups, concepts and lessons learned from people that have been there and done that.

With all these great resources, it's easier (and cheaper) than ever to start a business. It can be a side venture while you work another full-time position, or if you're ready for some sacrifice, you can pursue an "ultra light" venture full-time. The best part is that, moving forward, entrepreneurs have made traditionally fixed cost become variable, which only increases your ability to be profitable very quickly.

What resources do you use, or what is missing from the entrepreneurial toolkit?

Everyone has predictions for 2010; I've read many blog posts about the top M&A deals that will happen, what industries will be hot for VC money, and what will happen in social media. So I've decided to throw my hat into the ring and put out my own prediction:

2010, the first year of the new decade, will be the year of monetization.

Everyone is tired of gobbling up great ideas that are really just based in theory and not in practice. 2010 will be the year of practical application, and subsequently, monetization.

Why this sudden shift, you ask? Simple: times are tough and it has underscored the need for viable business ventures, not just pie-in-the-sky dreams. People don't want to be involved only in speculative ventures at the moment, and this feeling is fueling the move towards monetization. These sorts of things also seem to be cyclical and we're at a point in the cycle where we've already seen a lot of media mega-start-ups, big investments, and an entire book written on the freemium model. Now it's time to move forward. To put it simply, we're finally reaching the, "Crap, we need to actually make money!" stage.

Want proof? It seems that the struggling newspaper industry is finally realizing that giving away content for free on the web doesn't make any sense, and even though actual implementation of a paying model doesn't start until 2011, the move is beginning in 2010. The New York Times just announced, "Starting in early 2011, visitors to NYTimes.com will get a certain number of articles free every month before being asked to pay a flat fee for access." And this is just the beginning.

It may have taken a while for the Times to realize this, but the movement towards monetization won't be as delayed for other industries. As VCs get better valuations for themselves, tighter on deals (and hopefully smarter on them, too) we're going to see actual monetization occur more and more. The monetization of the Times is just the beginning. It's also the least exciting, in my book. What will be more interesting? The push for more bootstrapped companies, and for growing profitable ideas that actually charge customers money. Revolutionary concepts, huh?

With the shift towards monetization, we will see companies become agile and get a minimum viable product to market quickly while focusing on value generation. This is a movement I hope to contribute to with some of the companies I've founded. For example, with Chargify, we'll be giving companies of any size and stage an easy way to utilize a recurring billing or freemium model with managed billing.

I'm really looking forward to watching what happens this year, especially if we finally get to see some businesses that aren't just supported by advertising, but rather, real value and solid product offerings.

Goals and resolutions run rampant this time of year. For entrepreneurs, aspirations for our companies in the year ahead, and thoughts about how to get there, loom large. Sitting on the plane on the way back from a five day off-site executive planning retreat, I thought I would write about two great questions every entrepreneur should ask themselves, and their teams.

1. How do we double sales this year?
   A lot of people's response to this question is, "Spend more on marketing!" But that's the easy way out. I urge you entrepreneurs to consider another angle and think about approaching sales by looking at relationships and expectations. What can you do today that you are not doing, or even thinking about, that will have massive impact? Add an amazing new service that will enhance customer perception of your company? In your position of power as an entrepreneur and business owner, what new strategic relationships can you put in place that will benefit your customers? Make sure you remove all limitations of the current reality to get your thinking to the next level.
2. If you were starting a business that would compete with the one you currently run, what would you do to put YOURSELF out of business?
   Crazy concept, huh? But if you spend time thinking about it, answering this question can be an incredible tool for thinking about your goals in 2010. It forces you to think about what you're doing right as a company, and what you're doing wrong. I guarantee if you truly are honest with this question you will find amazing insights, both positive and negative.

I personally found these questions powerful, useful and the results very insightful over the past five days and so did the rest of the executive team.

I want to take this opportunity to thank Mark Moses, who facilitated and participated in our retreat. Mark challenged us to think about these questions and to be brutally honest with ourselves.

"We're looking for angel investment, who should we talk to?"

I get this question a lot (and I mean a lot). As a result, I thought it would be useful to write a post about the three main types of angel investors and how to figure out which one you want.

The other reason I'm writing this post is because way too many young entrepreneurs become obsessed with raising angel and venture capital (VC). When this happens, these folks lose sight of the real reason they became entrepreneurs: to launch and grow their company. It's pretty similar to what happened during the last tech bubble and it's bad news, unless you remember that raising money is not a sport. If you treat it like one, you'll undoubtedly end up on the losing side.

If you really have no option but to raise money, angels can be a good alternative to smaller VC rounds, but you want to make sure you're working with the right investor. How do you do it? Keep reading to find out the three main types of angel investors.

Angel Investor #1: "I like money and need more."
There are too many of these "professional angel investors" out there, and they're the worst. Their only goal is increasing their wealth. This type of investor is actually a person that wanted to be a VC, but couldn't raise enough capital. The reason they are so dangerous is that they have too much vested in the small amount of money they give to your business, which then leads to over-involvement and pressure on you for all the wrong reasons.

Angel Investor #2: "I have so much money, I don't know what to do with it."
Every entrepreneur has met one of these investors: it's the person who has already generated significant wealth and has no real need for more money, and can be a lot less selective in funding ventures. They're probably in the stage in life when they're giving back, and part of that can be angel investments. This type of investor is ok if you're looking for just money and maybe some general advice about the start-up process. But don't expect incredible moral support or stellar advice from this kind of investor on a regular basis--he or she is likely over-extended in that realm due to their involvement in multiple ventures.

Angel Investor #3: "I'm passionate about a specific industry, and have tons of connections in it."
This is the best angel investor, and a selective one, but the kind you should absolutely target. Why? Because this person already has money and isn't looking to get involved in angel investing to generate more wealth as the ultimate goal. Instead, they're hoping to serve as a true angel and really come through for your business by offering both funding and insight. Best of all, he or she has clear passion for the industry you're in, and probably the connections that will indirectly help you succeed. They'll also have something money can't buy: credibility in your industry and the connections to make good things happen.

My simple advice is to look for angels that fall into either #2 or #3. Stay away from #1 no matter how desperate you get.

Before you even begin to consider outside investment, consider how you can launch the company and get to revenue before you have to raise money. Although it seems hard in the short-term, it'll be better for you in the long-run in terms of your knowledge of the process, and building your own equity.