Industry Experts

The Marketing Devil is Really in the Details

It’s a fine line between an audacious-yet-successful marketing stunt and a total disaster. So fine that most marketing executives in charge of brands who have anything at all to lose often defer to safer approaches. Recently though a couple of daring and brilliant stunts have caught my attention, deserving a post with some deeper insight.

Much has been written about TriNet’s Yam Trader idea. Gust was among the hundreds of companies that received a yam in the mail (literally), prompting our CEO to stop by and visit their booth at SXSW. I later connected with TriNet’s Director of Marketing Ken Narita, who was wonderfully open to share their experience. As Ken described, the idea came about when they were faced with the reality that it would not be easy to break through the clutter at SXSW. A bold and funny execution would fit well with SXSW, where creativity abounds and formalities are practically non-existent, enabling companies to go a little wild with very limited negative repercussions to their brands. Hundreds of CEOs of target companies were sent yams, along with an offer to bring them to their SXSW booth to redeem their gift certificate. In addition, people were directed to YamTrader.com, a campaign micro site that re-directed them to TriNet’s real website. Ken reported that the initiative was very successful, with a conversion rate (herein defined as people who brought their yam to the SXSW company booth) in the double digits. While the definition of conversion here does not equate converting a prospect into a customer, Ken estimates TriNet was able to schedule at least 50 meetings as a result of this stunt, in addition to all the great publicity and increased brand awareness that was generated as a result of this bold direct marketing initiative (isn’t it great when a side effect of a direct marketing effort is brand awareness?). Similarly, Unreal Candy had the Easter Bunny go around SXSW apologizing to people for all the bad candy he’d been giving them all these years (Unreal Candy is the maker of all-natural, unprocessed candy). Albeit practically risk-free, this stunt was remarkably simple and creative, generating huge word-of-mouth activity and positive brand coverage.

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Invested Interests

The Democratization of High Returns

Today, more than one third of the United States population falls into a financial demographic known as the “mass affluent”. Unlike the headline-grabbing ultra-rich, the mass affluent are people with assets between $100,000 and $1 million, or annual incomes over $75,000. Historically, the 33 million American households in this category have invested for their future in one of three ways: by putting most of their money into personal hard assets such as a primary or secondary residence; by investing their liquid assets into professionally managed mutual funds or their employer’s 401K program; or, for the more adventurous and/or sophisticated, by investing directly into specific stocks and bonds purchased through (and often recommended by) a large brokerage firm. Read more

Invested Interests

Do You Have What it Takes to Attract Investors?

Image via Schedule.SXSWcom

I’ve noticed that some entrepreneurs seem to have no trouble attracting investors, while others with a great business plan struggle with it. The reality is that angel investors are humans, and personal traits often make or break the relationship, even before the investment is considered.

On the top line, angel investors look to invest in entrepreneurs that have an almost unwavering passion and sense of urgency. In the business, this is commonly called “fire in the belly.” If you don’t have it, you probably won’t succeed, even with funding. Read more

Invested Interests

The Right Way to Not Pay Yourself

Today I received an email asking me to clarify what I wrote last month in Why sweat equity often stinks. The person quoted the sentence in italics below and asked “what does that mean, exactly?” I’m including the whole point because the context helps: 

Founders work for less than fair value and record the difference between actual pay and fair value as owed to founders, a liability on the balance sheet. This has the advantage of recording real expenses into the financials, so I like it. But founders asking for outside investment should expect to capitalize that and swallow the liability. You can’t use founders’ labor to justify the valuation ask, and then turn around and get it paid too. You know: cakes and eating?

So here’s a true story, an actual case, one I know very well because it was my money and my sweat equity. While I was bootstrapping Palo Alto Software I couldn’t afford to pay myself what I was worth. But I didn’t pretend I wasn’t an expense. I practiced what I preach by recording the market value of my work, month by month, as an expense called unpaid Tim salary. And I balanced every month’s entry into expenses (a debit) with a corresponding entry to liabilities (a credit).

(By the way, important warning: I didn’t report my unpaid compensation as an expense for tax purposes. You can’t deduct compensation to yourself unless it’s paid; and when it’s paid, you have to pay payroll taxes. This is not trivial.) 

(Oh, and a disclaimer: I’m neither attorney nor CPA. I don’t give tax advice, accounting advice, or legal advice. I’m just telling you a true story.) 

As time went by, I accumulated an interest-free liability that was a serious amount of money, more than six figures, as debt owed to me. And that still on the books years later when I brought in venture capital money.  

When that turned up in due diligence, my investors said:

Tim, that’s not going to fly. If we’re investing, you have to swallow that. Capitalize it. Take it off the books.

And so we did. The money owed to me became another version of sweat equity. It was in the valuation we negotiated with the investors. It disappeared. It was never paid. 

Would I do that — keep track of unpaid salaries — again? Yes. Would I recommend you do it? Yes. It gives a better picture of real expenses, break-even, and so forth. It might be useful for some future close-in negotiation with partners, people close to you, perhaps divorce court or inheritance tax. But investors won’t want to pay it back. 

That’s what I meant. I hope that clears that up 

Tim Berry , Founder, Palo Alto Software
April 9th, 2013 0

Invested Interests

7 Entrepreneur Attributes Imply Execution Ability

Shark Tank photo by Sarah Hummert for Daymond John

After the idea, it’s all about execution. In fact, it’s not clear that even the idea is all that important. Most investors tell me that an A entrepreneur with a B idea is much more fundable than a B entrepreneur with an A idea. It’s great to be a visionary, inventor, thinker, or a dreamer, but none of these matter in the business world if you are not also a do-er.

According to Professor Sean Wise, who claims to have worked with more than 15,000 entrepreneurs (including many with the popular TV shows Shark Tank and Dragon’s Den), no matter how great the idea and the opportunity, in the end it is only the execution that creates change and generates wealth. Read more

Invested Interests

US Angel Groups vs. European Business Angel Networks (BANs)

There seems to be a subtle but significant operational difference between many European BANs and US angel networks.  This is an attempt to describe those differences.

In general, BANs seem to have two primary focuses:

(1)   Soliciting a large mailing list of potential angel investor members (and others, such as service providers) and organizing pitching meetings for them.    Members have limited obligations to the group, that is, small or no annual dues, no duty to invest as part of the group (versus pocketing deals for themselves), no participation requirements (attendance, due diligence), no leadership mandate and no minimum investment expectations.

(2)   Engaging with the entrepreneurial community, sometimes by providing investor-ready services and pitch coaching, with a focus, for the most qualified entrepreneurs, on inviting them to pitching events.

After the pitching session, the entrepreneurs and investors are left to their own devices to do a deal.  There is no organized group deal processing; instead each angel engages with the entrepreneur, finds co-investors (within or outside the BAN), completes due diligence, negotiates a term sheet and closes the deal.

There appear to be two models for the BAN operational platform:  (a) a not-for-profit model, often driven by economic development agencies and (b) a for-profit model pursued by experienced investors and funded by success fees and tolls charged to entrepreneurs and investors.

Angel networks* in the US (and in some other countries) are primarily focused on recruiting members and managing deal flow for those members.  Education, social engagement, pitch coaching entrepreneurs and other activities may also be important functions.

(1)   Members are recruited to join the group, appealing to accredited investors with the deal flow and best practices offered by the network.  Members are often required to sign a rules of membership agreement stipulating their expected engagement (meeting attendance, participating in due diligence, annual investment numbers, etc.) and committing neither to “steal deals” nor to solicit entrepreneurs for consulting or members of business.

(2)   Entrepreneurs are solicited to pitch to the group, through websites and other networking activities in the community.   A small group of members or staff pre-screen deals for presentation to the members.  Investor-readiness training is seldom provided by US angel networks.

(3)   Once an entrepreneur has pitched to the members, a due diligence committee of members (and perhaps staff) is initiated, representing the group.  The deal lead negotiates a single term sheet for the round of investment with the entrepreneur.   Once the term sheet and due diligence are complete, the deal is offered to all members of the network for investment.  In some cases, very popular deals may offer a limited investment amount or time, on a first come, first served basis.  Members are investing for their own accounts, consequently members can invest larger or smaller sums, or pass on a deal.

There are several models for managing angel networks, including both member management and manager management.  The angel network does not make investments or recommend investments to members, rather members make their own decisions based on the shared due diligence and term sheets.

Both the BAN and the US network models result in entrepreneurs receiving funding from angel investors.  To outsiders, the models may seem quite similar but, to members and entrepreneurs, the two models are quite different.

*About 20% of US angel groups are organized as angel funds in which monies are pooled in advance of need and members vote up or down on deals.  Generally, the processing of deals by angel funds is similar to US angel networks.

Bill Payne , Angel Investor , Frontier Angel Fund
April 5th, 2013 3

Invested Interests

How to Set a Growth Culture in Your Startup Early

Image via ChannelNewsAsia.com

One of the big advantages of being an entrepreneur and starting your company from scratch is that you get to set the culture, which is much easier than changing the culture of an existing business. The challenge is how to do it, and how to do it right. Why not learn what you can from companies like Apple, who are leading the way with great growth and a great culture?

Jim Stengel, in “Grow: How Ideals Power Growth and Profit” chronicles a ten-year study of the world’s fifty best businesses, including Apple, and concludes that those who centered their businesses on a culture of improving people’s lives had a growth rate triple that of competitors in their categories. Read more