Setting a strategic course and vision for a startup is one of the most potent weapons to get your company on the right path, become capital efficient (because you will spend your resources wisely to reach your goal), and then get to a premium exit valuation. Yet, many startups don’t spend sufficient time early on setting their strategic course. This post offers some simple tips in doing this.
Since I am a professional angel investor, many people now see me through that lens a finance guy. People who have known me for some time would think that laughable. “Dan is a techie or a strategist,” would be a much more common refrain. Good angels must help their startups with more than just money startups need the benefit of the experience their professional angels can bring to bear.
The first step in setting a vision for you company is simple sit back in a quiet room and think about what you define as success. Write down all of the statements that come to mind. If there are several co-founders involved, do this as a team activity (or maybe do it individually and then come together and merge your visions). While anything is acceptable, specific statements are most helpful. Examples might be:
- Newco achieves $100M in revenue.
- Newco is recognized as the market leader in the emerging XXX category.
- Newco is acquired by XXX for $300M.
- Newco revolutionizes solar energy production with its latest generation of solar cells.
- Newco’s proprietary algae system creates the first commercially viable alternative to petroleum for gasoline.
- Newco buys Microsoft.
Several statements are probably better than one.
With these in hand, think about the date at which you hope to achieve those goals. Then comes the fun part.
Write the front page Wall St. Journal article that appears about your company on that day. Remember several things.
- The headline is important; it must reflect the story.
- Newspaper stories are written as an inverted pyramid structure. The most important information goes at the top of the story and the details follow.
- The total article must set out why the achievement is important in both a business and strategic sense. Why it is a milestone?
This will be fun, but it is often more challenging than it appears to be at the surface. Try it and post your feedback.
For extra credit, put together the time line of headlines/articles that get you there.
If done well, it will point out with a degree of precision where you are heading, what it will take to get there and if there are differences among the founders, or other key stakeholders.
Senator Dodd decided to take on an overhaul of banking regulations. In his massive 1300+ page bill (http://banking.senate.gov/public/_files/ChairmansMark31510AYO10306_xmlFinancialReformLegislationBill.pdf), he has slipped in an attack on angel investing. It would impose burdensome and unnecessary new legal and regulatory requirements on startup companies raising angel financing. A recent post by Joe Wallin and Bill Carlton on TechFlash (http://www.techflash.com/seattle/2010/03/congress_attack_on_angel_financing.html) outlines the issues.
The Alliance of Angels, through it national trade association, the Angel Capital Association, has been lobbying against similar proposals for the last two years. Sen. Dodd’s bill is by far the most serious threat to angel investing in quite some time.
The change in definition of accredited investor will cause many smaller angels to no longer be accredited. Particularly when angels work in groups like the AoA, the amount they invest in a deal might be small. Limited the capital capacity of a group like ours to help “protect our members” is both silly and dangerous.
But as Joe and Bill point out, the most troublesome part of the proposed legislation is inserting a new level of regulation. Many speculate that Sarbanes-Oxley killed the IPO market for small companies by imposing a new layer of regulation and cost on small companies. Sen. Dodd’s proposal to have the SEC and state regulators involved in angel financing is misguided. Very few startups can afford a 120 filing hurdle – they will run out of cash and go under. This is just absurd.
We urge everyone to write both of our Senators and your congress person to have these provisions removed and save angel investing.
Please act now!
I am often asked, as I was today, what are the biggest mistakes that startups make that cause failure. Among them is a lack of focus that can be characterized by the phrase: “more startups die of indigestion than starvation.” It is hard to raise money. Therefore common wisdom would indicate that “starvation” is the biggest risk. However, years of experience show that this is only a part of the truth. Very often when a startup runs out of cash, the root cause is a lack of execution against its plan that was brought on by trying to do more things than their plan or funding allowed.
Usually this is done for the best of reasons. For example, a large customer will ask for more features than were originally planned. Or, as the product develops, it becomes clear that the product can do lots of things that customers really do want. Or it will be harder to develop the product, so the company will try to do something different. Or the original marketing plan is harder to execute that originally contemplated, so the company will try to build a different products. Or
Bottom line: the company will try to do more than it possibly can, given the funding it raised.
And, understand, these words are easy to say, but hard to live. They always have been. In certain economic cycles, lots of VC funding has helped keep companies alive, but not necessarily better outcomes for investors or entrepreneurs. In the current economic cycle, markets are unforgiving. So, I have the following recommendations:
- Be realistic on you initial plan. See counsel from experienced entrepreneurs or business people.
- Be a great cheerleader externally, but keep a strong sense of realism about what is really happening with the business. A good, strong independent board and advisors help. But you must be willing to listen.
- Stick to the plan. Not blindly, but be careful not to churn plans.
- Don’t stop thinking about new ways your business can meet new customer needs, or ship new innovative products or technologies. But.. rather than trying to alter your plans, keep a notebook with each of the ideas. Review those ideas with your board and advisors and have a process that you agree to before going off plan.
While all of this may seem a little to regimented for a startup, the alternative leads to “indigestion” that can be fatal.