Read ‘Painting with Numbers.’ Please.

If you’re doing investment pitches, you should read this book. If you’re doing a pitch I’m going to see, I want you to have read this book. And if you’re a startup CFO, finance lead, bean counter, or presentation slide deck preparer, then you should read this book. Painting with Numbers, by Randall Bolten. And it has a subtitle that exactly explains why I recommend it: 

Presenting Financials and Other Numbers So People Will Understand You. 

The bad news: it’s produced like a textbook, and laid out like a textbook, and priced like a textbook, $28.00 for the hard copy and $19.99 for the Kindle edition. 

The good news: 

  • It includes a good practical treatment of how to do it with spreadsheets and slide decks. It has lots of tips and lots of examples. 
  • It also includes some really important discussion of why terms and details matter. 

I’ve deal with people who think GAAP (generally accepted accounting principles) and terminology are nits that only nit pickers care about. Numbers are numbers, after all. But in the real world, when you get to business numbers, sales are not accounts receivable and revenue isn’t income and people who read financial projections need to know that an apple is an apple, and not an orange. 

Bolten does a really good job on why, what, and how to present numbers, just as in his subtitle, so people will understand you. And I think this topic matters. 

Tim Berry , Founder, Palo Alto Software
June 13th, 2012 0

The Cost Equation for a Startup is Better Than Ever

The Cost Equation for a Startup is Better Than EverI come from a high-tech software background, and only a few years ago, it would cost at least a million dollars ($1M) for a team of professionals to produce any commercial software product. Now, with open source software components, and low-cost development tools, the same job can be done by one good hacker for a few thousand dollars.

Even for low-tech startups, the scope of information available on the Internet, and its global reach, has had a similar financial impact on the many other challenges facing every startup founder. Here are a few examples: Read more

Mark Suster’s “Never Negotiate Piecemeal”

Nothing tells a truth better than a good story. Especially when it’s true. Read Mark Suster’s Never Negotiate Piecemeal. Here’s Why on his Both Sides of the Table blog for a good read and a good lesson.

He tells the story of his baptism by fire in startup-dom, a series of negotiations including office rent, sublet, getting people on board, getting the media to care, dealing with recruiters, dealing with the tech prima donnas, and (a favorite of many) “dealing with pesky VCs.” He summarizes:

As unpleasant as people find the thought of it – life is a negotiation. And no life is more of a constant negotiation than that of an entrepreneur. And most of us start with zero training. One of the big mistakes I used to make (and still sometimes do, frankly) was to negotiate piecemeal. I think it actually comes naturally to the uninitiated and it’s suboptimal.

Then he introduces Stuart Lander, who taught him a lesson. But before we get to the lesson, I just plain like this intro into his negotiation strategy:

Like a machismo first-time CEO I thought I should handle the negotiation myself. Their CEO was equally bravado and dumb. He openend with his first issue. I listened to why he didn’t agree to that particular term and what he preferred in stead. Like the problem solver I had been trained as in my software development days, I parsed his issue. I saw where he was coming from and from our side why our ask was what it was. I talked too much. I looked for middle ground. He talked too much. He haggled with me. We both felt good. And smart. We agreed a compromise. Then on to the next issue.

Stuart, however, had a better idea. Don’t negotiate point by point. Negotiate by line. He said (key thought here):

If you negotiate piecemeal you end up compromising on everything. That’s not very smart.

So he came up with this instead:

The problem with negotiating piecemeal as Stuart taught me is that you trade on every item. You don’t prioritize the issues which you really care about. If you don’t want to give a millimeter on one item you have a hard time doing that point-by-point. Done as a “package deal” you can say, “I gave in on these 5 issues that you asked for. On this issue I can’t give.” That’s much harder to pull off piecemeal.

I like that. It seems like good advice to me.

Tim Berry , Founder, Palo Alto Software
June 5th, 2012 0

Entrepreneurs: Don’t Quit Your Real Job Too Early

Many entrepreneurs I know feel guilty about not quitting their day job when initiating their startup, worrying about not giving their all to an employer, juggling the multiple roles, or even a legal conflict of interest. I’ll try to offer some guidelines to address these issues, but I generally recommend you keep the day job until your new company is producing real revenue.

The exceptions to this advice would be if you are being paid for your startup position by external funding, or if you have enough money in the bank for both you and the startup to survive for at least a year. Otherwise, I suggest that founders be up-front with their employers, with an honest commitment that the “side” work on the potential startup will not jeopardize committed results. Read more

10 Things I Look for When Reading a Business Plan

It’s the end of May as I write this so I’ve just finished my annual April-May business plan marathon reading more than 100 business plans for my angel investment group and four different business plan contests. This seems like a good point to summarize here what I look for in a business plan. 

  1. Don’t push adjectives. Let me assign my own. This year for every plan that really looks like it might be disruptive or game changing I saw 20 or so that claimed to be. 
  2. Tell stories. A story tells market need way better than general market numbers. Write about problems you solve and who has them, how you solve them, and why you do it better than anybody else.  
  3. I want a forecast that starts with specifics like channels or traffic and conversions or segments and builds up. I hate the forecast that assets some huge market and takes a small percentage of it. It seems like every time I read “this is a $X-billion-dollar market” the surrounding discussion lacks depth and credibility. 
  4. I want unit economics. Often this is part of a good forecast. Tell me what it costs to produce one unit, what the channel pays for it (if channels are relevant) or what the buyer pays for it, what it costs to ship, and so on. 
  5. I want realistic expenses. Most plans are pretty good about estimating direct costs but bad about underlying expenses. You can’t have a $20 million sales estimate with 10 employees in the company and a few hundred thousand dollars of marketing expense. It just doesn’t happen. 
  6. Never write that you have no competition. Having no competition means one of two things: either your business sucks, or you haven’t done your homework and you don’t know your business. Even the most amazing disruptive game-changing plans have competition. If not now, then tomorrow. Who’s going to enter this market?  
  7. I want good positioning. Don’t try to please everybody. Start with a relatively narrow product-market fit and, if you can, move it gradually up to more markets and more segments. Explain in your plan which segment is first and why. Explain who you’re leaving out of your market and why. 
  8. I want to see basic numbers. I expect projected monthly income, balance, and cash flow for the next year and annual projections for the second and third year. And I want to see them, as in useful business charts, but I want to be able to see the numbers in detail too. 
  9. I want to see milestones: dates and deadlines. And progress made. What have you actually done in the recent past? Write about achievements. 
  10. By far the best validation of a plan is actual sales made already. People have written checks. Second best are letters from future customers promising future business. 
  11. (Bonus point) Don’t muck it up with too much science. It’s not a research plan, it’s a business plan. Summarize the science so I have some idea and then tell me about the business. 
  12. (Bonus point) Don’t let the document get in the way. I don’t want to think about formatting or editing, I want to read your stories and imagine your future. Keep it moving and keep my mind on the business, not the misspellings or repetitions. 
Tim Berry , Founder, Palo Alto Software
May 29th, 2012 2

8 Attributes of a Real Entrepreneur That Run Deep

Business success begins in the mind of the startup founder and his team. A winning startup is a team of entrepreneurs who build and run the business as an extension of who they are, rather than some extrapolation of the Google or Facebook model.

It’s not so easy to fake the important attributes when the going gets rough. So before you risk it all by jumping into a startup, do a reality check on your own mind to see if you can find a majority of the following attributes, summarized from the book “You Can Win” by Shiv Khera: Read more

Second-Class Investor Citizens: Facebook’s IPO and Dual-Class Equity Structures

Dual-class voting structures are receiving a lot of attention these days along with intense publicity related to the Facebook IPO, following in the wake of other recent tech IPOs with a similar structure such as Zynga and LinkedIn.  This is nothing new; long favored by family-controlled media empires such as Rupert Murdoch’s News Corporation, among Internet firms alone, Google took a dual-class approach when going public in 2004.  Some commentators have suggested this is the wave of the future, signifying a shift in the balance of power from investors to founders of the relatively small, elite group of growth companies that make it to public markets.  Yet I’m skeptical that a widespread shift will occur anytime soon, and for reasons discussed below, as much as I admire and advocate for talented entrepreneurs, I believe it would be a losing proposition for nearly all involved. Read more

Antone Johnson , Founding Principal, Bottom Line Law Group
May 24th, 2012 1