Articles by Tim Berry

Up-to-date Investors Want Social Proof from Startups

I just read Social Proof Is the New Currency on the Social Media Today blog. Author Daniel Lay writes: 

Whether you like Mark Zuckerberg’s mug or not, the social web is here to stay, and businesses that can integrate social proof into their marketing efforts seamlessly will join this new “socially rich” class. We mean richness in fans and followers, not number of zeroes in your bank account. Social proof is the new currency of credibility.

I don’t agree completely — I think a fat bank account is a really good thing too — but I do think it summarizes an important truth: All startups looking for investment need to deal with what that post is calling social proof. To me, the underlying reality is that startups and their founders are traceable on social media. There are footprints to track, or — far worse — no footprints. 

Take it to the pitch moment, say a startup pitching a group of angel investors, which is a scene I see often. Startup founders will be judged by their social media footprint. The startups themselves, as businesses, will be judged by their social media footprints, alias social proof. A founder basing projections on social media marketing will look good if she has thousands of Facebook likes and Twitter followers, bad if she has none or only a few. The social proof, or lack of it, is evidence. Up-to-date investors understand that.  

Social proof can’t be manufactured from one day to the next. It takes time to create a credible footprint. It’s one of the first activities to start as you get rolling. Somebody among the founders should have a stream established from a few years back; and the company itself should have a stream that is at least a few months old, with credible updates, and something to show for itself. 

Tim Berry , Founder, Palo Alto Software
December 3rd, 2013

Startups: A Verbal Wave at Social Media Means Diddly

Startups: Investors expect new marketing. The fundamentals still apply but tools and realities are different now. If you don’t understand the broader implications of social media, content marketing, curation, engagement, and relationships, then you desperately need a great reason why not. And don’t think you can just wave your hands at it.  You have to really know it.

Here’s are some things I think every startup founder needs to keep in mind:

  • You still need to deal with marketing. Investors will expect marketing to show up in your pitch, and if they like your pitch they’ll want your business plan and marketing better be there too. Be sure to include credible target market focus, matching and synchronized product-market focus. The fundamentals still apply.
  • However, your marketing better make it clear that you really know what century and what decade we’re in; that you understand how much your customers, contacts, reviews, and relationships control your brand; that advertising is changing as quickly as anything; and that content is everywhere and curation the real power.
  • There are exceptions of course. I’ve seen startups whose product is their marketing, and that’s hugely powerful. If that’s your case, own it. If your startup is an exception to the rule, make it clear that you understand the rule(s) you’re breaking.
  • Don’t think for a second that a verbal wave at “social media” means anything anymore. I’ve seen startup founder annoy entire rooms of investors, instantly, by saying “we’re going to use social media to market this” as if that were enough. Knowing tools isn’t enough. Know why, when, and how they work, what they can do, and what they can’t do. Have strategy, tactics, and specific activities. And time and money to match.

To make this less abstract: Imagine a startup founder, standing up in a meeting room, surrounded by a couple dozen potential investors, with slides projected on the wall. When investors drill down into marketing, a wave of the hand and the simple phrase “social media” doesn’t work the way it might have five years ago. Saying “SEO” or “banner advertising” or “pay-per-click” isn’t enough, not even all these terms together. It takes a combination of focus, strategy, and tactics; a real plan.

Also: Just for the record, these various points I’m presenting here as fact, they’re really just my opinion, and I want you to know that I do know the difference. But I also know a lot of angel investors, most of those in my group, who would agree with what I’m saying.

 

Tim Berry , Founder, Palo Alto Software
November 12th, 2013

What are good questions to answer for business plans?

This is my answer on Quora to ‘what are good questions to answer in a business plan?’

Congrats on your question. Basing your planning on what questions to answer, as you suggest, is a really good way to do it. Everything in business planning is case by case, and every plan is unique, so you’re on the right track.

First answer these core fundamental questions: Read more

Tim Berry , Founder, Palo Alto Software
September 3rd, 2013

Good Advice, Bad Advice, Land Mines on a Path to Heaven

Having just read James Altucher’s Ultimate Cheat Sheet for Starting and Running a Business, I’m fascinated by a collection of bold, very well written, and remarkably unambigious advice, most of it great, some of it terrible. The effect is like a path to heaven with hidden land mines.

Read it, but don’t believe it. Think about each of the 100 points. Reject a lot of them. Be especially careful with the ones that are usually true but not in your specific case. 

And you’ll enjoy it thoroughly. Sometimes right, sometimes wrong, sometimes hilarious, it’s great thought-provoking writing on this subject. It’s one of the best blog posts I’ve ever seen, especially on this topic.   

That’s so hard to explain that I’ll just give you some examples, 10 of the 100 numbered pieces of advice, in no particular order:

  • Should founders vest? Yes, over a period of four years. On any change of control the vesting speeds up.
  • Should I ever focus on SEO? No. 
  • Should you go for venture capital money? First build a product, then get a customer, then get friends-and-family money (or money from revenues which is cheapest of all) and then think about raising money. But only then. Don’t be an amateur.
  • When should you have sex with an employee? When you love her [SIC] and the feeling is mutual.
  • Should you patent your idea? Get customers first. Patent later. Don’t talk to lawyers until the last possible moment.
  • Should you require venture capitalists to sign NDAs? No. Nobody is going to steal your idea.
  • My wife/husband thinks I spend too much time on my startup? Divorce them or close your business.
  • How do you get new clients? The best new clients are old clients. Always offer new services. Think every day of new services to offer old clients.
  • Should I do social media marketing? No.
  • How much equity should you give a partner? Divide things up into these categories: manage the company; raise the money; had the idea; brings in the revenues; built the product (or performs the services). Divide up in equal portions.

See what I mean? Good advice, and bad advice. Which is which? That’s up to you. 

The “funny” doesn’t show fully in those 10 examples, so look at these:

  • My customer called me at 5 p.m. on a Friday and said, “We have to talk.” And now I can’t talk to him until Monday. What does it mean? It means you’re fired.
  • Why didn’t the VC or customer call back after we met yesterday and it was great? They hate you.
  • Should I have sex with an employee? Stop asking that.

Take my advice. Read his advice. 

Tim Berry , Founder, Palo Alto Software
August 27th, 2013

Paul Graham Predicting New Opportunities in Angel Investment

In his essay published last month, Startup Investing Trends, Paul Graham (that’s this Paul Graham, Y Combinator co-founder) says “one of the biggest unexploited opportunities in startup investing right now is angel-sized investments made quickly.” Here’s the full quote: 

I think one of the biggest unexploited opportunities in startup investing right now is angel-sized investments made quickly. Few investors understand the cost that raising money from them imposes on startups. When the company consists only of the founders, everything grinds to a halt during fundraising, which can easily take 6 weeks. The current high cost of fundraising means there is room for low-cost investors to undercut the rest. And in this context, low-cost means deciding quickly. If there were a reputable investor who invested $100k on good terms and promised to decide yes or no within 24 hours, they’d get access to almost all the best deals, because every good startup would approach them first.

That’s an interesting thought, but I wonder: Can anybody do any kind of due diligence in 24 hours? And wouldn’t the access to “almost all the best deals” be drowned in the noise of all the worst, bad, and not-so-bad deals too? 

Graham does address this. He adds: 

It would be up to them to pick, because every bad startup would approach them first too, but at least they’d see everything.

At the very least, it’s an interesting thought. 

Graham goes on to predict a change in the patterns of success in startups, which will result in more opportunities for early stage investment, and more opportunity for new investors. 

Mostly because of the increasing number of early failures, the startup business of the future won’t simply be the same shape, scaled up. What used to be an obelisk will become a pyramid. It will be a little wider at the top, but a lot wider at the bottom.

What does that mean for investors? One thing it means is that there will be more opportunities for investors at the earliest stage, because that’s where the volume of our imaginary solid is growing fastest. Imagine the obelisk of investors that corresponds to the obelisk of startups. As it widens out into a pyramid to match the startup pyramid, all the contents are adhering to the top, leaving a vacuum at the bottom.

That opportunity for investors mostly means an opportunity for new investors, because the degree of risk an existing investor or firm is comfortable taking is one of the hardest things for them to change. Different types of investors are adapted to different degrees of risk, but each has its specific degree of risk deeply imprinted on it, not just in the procedures they follow but in the personalities of the people who work there.

Paul Graham does essays, not blog posts. Whether you’re a startup founder, angel investor, or just interested in the topic, this most recent essay makes very interesting reading. To prove that point, I end with this quote: 

The empirical evidence on that is already clear: investors make more money as founders’ bitches than their bosses. Though somewhat humiliating, this is actually good news for investors, because it takes less time to serve founders than to micromanage them.

Tim Berry , Founder, Palo Alto Software
July 16th, 2013

Which is Better? The Whole big Market or the Strategic Niche?

True story: After this particular startup team pitched a couple dozen investors, many of the investors told them their strategy was too narrow and too focused. One comment: “there’s a huge potential market, and you’re boxed into a niche.” 

maze, strategy, route, flickrcc jen_tik

Later, when I talked to the startup founder about it, she was disappointed. “The last time we pitched they all said we were trying to do too much,” she said. “They told us we shouldn’t talk about the big market, but identifiable, defensible niche instead.”

I see this a lot. It’s a bit of a “grass is greener” problem. Potential investors, trying to help, and with all the best intentions, make suggestions. And quite often it’s like focus groups, in which the conclusion is determined by the most vocal member. So different groups have conflicting recommendations. I’ve seen this on other issues, but the whole-market-vs-niche is the most common. 

My preference is a so-called beachhead strategy, in which the startup focuses on a strategic niche first, but is already thinking about how to move from strength in the niche to other contiguous markets, growing the market as they go. I think validation is easier to get in a niche. And sales. And cash. 

Done right, that’s the best of both worlds. 

(Image: Jen Tik, Flickr cc)

Tim Berry , Founder, Palo Alto Software
July 9th, 2013

Is Connecting People a Business Model? I Doubt It.

Is connecting people a business model? I don’t think so.

Connecting people is what happens when the entrepreneur gets recommended to the investor, or group of investors. It’s an introduction. In some cases it’s a door opener. And it can seem like the connection leads to investment that might not have happened otherwise.

The startup and angel investment ecosystem in this country is a web and network of connections. Some people are natural connectors. They want to help. They introduce people who should know each other. What would be called networking if it were conscious is a natural result of people trading favors and making recommendations.

Read more

Tim Berry , Founder, Palo Alto Software
May 28th, 2013