Strategic Advisory Boards

I started my first strategic advisory board (SAB) in 1989 at my first VC-back company, Course Technology, Inc., an educational publishing company. I formed SABs at the three VC-backed companies that followed: Mainspring, Throughline and Mobile-Mind.

There are multiple objectives for an SAB:

  1. To gain varying perspectives on your business strategy from experts in your market
  2. To add credibility to the image of the company through the stature and reputation of your advisors
  3. To have your SAB members introduce you to important contacts
  4. To have your SAB members vouch for you during VC due diligence
  5. To have fun

The last – to have fun – may seem quite out of place. But in talking with every strategic advisor I’ve ever had – from Sir Tim Berners-Lee, inventor of the Web; to Brad Feld, one of the most successful VCs in the country (and one of the most responsive and generous in sharing his deep knowledge of the start up world); to eminent professors, including Lynda Applegate of HBS, Mary Cronin of BC , and Bill Graves of UNC-  they all agreed that getting to know each other during our twice a year in person SAB meetings was great fun and the prime reason they joined the SAB and stayed as members.

When I was at Mobile-Mind I was asked by one of our investors to put together a presentation about SABs that he could share with his portfolio companies, which I was glad to do. My apologies in advance for the all bullet point, very dated and boring look of this PowerPoint presentation, but its many points are still valid. It got a slight up date with the help of Alex Karys, a fellow TechStars mentor, before i presented it at TechStars several years ago . No changes since.Advisory Boards 7.31.13.ppt

One amusing story about SABs, and why you might want to name yours “Group” or “Panel”, instead of “Board”: one day at Mainspring Roger Heinen, the Chairman of the Mainspring SAB, came into our office laughing heartily and waving a sheet of paper in one hand. It turns out we had been hiring staff from a local consulting company, they had gone to our web site, and erroneously concluded that Roger was Chairman of our Board of Directors, and therefore directed their law firm to send Mr. Heinen a nasty letter threatening us with legal action if we didn’t immediate cease and desist from hiring away their employees. After passing this legal missive around we all had a good laugh before carefully filing it in the corporate circular file.

Trying to mentor post-doc scientists

A few weeks ago I was invited to a team mentoring session to help MIT post-docs, many of whom have problems finding work in their field. So a special program has been developed at MIT to help them  to raise capital to create products and/or companies from lab work or invention. The idea was to give them feedback on their investor pitches that they would be delivering at an upcoming meeting.

I found it very taxing trying to follow the post-docs presentations. They tended to have very complex, very technical slides which they then proceeded to explicate in great detail while passing a laser pointer over pertinent areas of the slide.

During a break I happened to walk by a classroom where I heard a professor lecturing. The door to the classroom was slightly ajar, so I stopped to observe what he was doing – which  was standing in front of a white board which was covered with a very complex diagram and lecturing, while he illuminated various sections of his diagram with a laser pointer.

It then dawned on me that these post-docs, who were going to be talking to a
non-technical, non-scientific audience and asking for money to fund the transformation of the lab work into commercial product, were delivering not pitches, but academic lectures. That’s not a good way to raise money, and I told the group as politely as I could that they needed to redo all their presentations from lectures to fellow scientists into pitches for a non-academic audience , including a concluding “ask.”

Whether my advice was heeded, I don’t know, but it was heard. The moral of this story is to know the audience and know the purpose of your mentee’s presentation  or meeting. Without this key information, your mentoring will be wasted.

Deliver bad news quickly, good news slowly

No executive likes to hear bad news, whether it’s a failure to meet revenue projections, a very significant slip in a product ship schedule, or a key team member leaving for a competitor.

But delivering bad news to one’s “superiors”, to the CEO or from the CEO to the Board, is much harder in startups, where optimism reigns king and gallons of corporate Kool Aid are consumed daily.

Having served on the boards of four VC-backed companies and two non-profit boards, I can tell you that the Board wants to hear bad news immediately. Why? That gives them the best chance, and most time, to help you recover from it. Trying to keep the bad news from your Board will only severely erode your credibility and trust with them if they find out the news from some other channel, which is all too likely.  You’ll do the same damage to your reputation if by the time they are informed the problem has mushroomed from serious to critical.

Obviously you don’t want to go to your Board every time an engineer finds a bug. But I remember being told my Bill Kaiser of Greylock, that what VCs want most from entrepreneurs is predictability. So when unpredictable things happen, like not meeting revenue targets, severe schedule slippage or loss of an important executive to a competitor, your Board will probably want to know about it – immediately – not a month later at the Board meeting. So if you’ve gotten bad news that’s worthy of Board level attention and a Board meeting is not imminent, pick up your cell phone and start calling. Be prepared not to just deliver the bad news, but to explain why the incident happened, and what you plan to do about it. If you don’t have the answers to those questions, don’t fake it, ask for their help. Don’t be defensive, don’t be verbose, and listen to whatever advice you are given.

Conversely, go slowly with good news. Make sure it’s thoroughly vetted and you can be confident about communicating it. As Wayne Oler once told me, “Don’t tell me what you are going to do, tell me what you have done.” So good news is not that the VP of Engineering just told you he’s going to beat the ship schedule by two weeks. Good news is that he actually did, that the product is in the hands of your customers AND that they are happy with it.

A good way to start the next Board meeting.

Finally this principle needs to be inculcated throughout your startup – it’s not just for the CEO, executives or founders, everyone needs to learn that bad news is not like wine – it does not get better with age. The sooner others know about it, the sooner they can help fix the problem.

And it goes for everyone in the organization, that just delivering bad – or good news – is necessary, but not sufficient. The reasons behind the news, and at least tentative plans on how to handle it should be communicated as well.

 

Mentorship: advocating for a better relationship How a company full of great advocates creates an ever better people culture

Richard Banfield, CEO of Fresh Tilled Soil, a leading design firm in the Boston area, kindly sent me this article. While its focus is on mentors inside a company – the author terms them “advocates” – many of the principles of mentoring  he outlines apply to those of us who mentor multiple companies.

Mike Auraz, the author of the article, concludes the piece on the value of mentorship:

But, when it’s  [mentoring] done right, it creates an incredibly virtuous cycle for both the organization and the people who inhabit it. It creates a thriving culture of high-performers, who are fulfilled and engaged by their work, and who get better and better at an exponential pace. It’s the secret ingredient that makes great workplaces great.

B2C – build in virality or bust

virality

My experience  with consumer -facing products is limited to iShop, a mobile shopping app developed by Smartworlds in the early 2000’s, and Endorfyn, from PopSleuth, Inc., a web app designed to keep fans up to date on new releases from their favorite artists, developed three years ago.

iShop never got any further than a very positive article, with accompanying cartoon, in
The Wall Street Journal, and Endorfyn, while nicely executing on its mission, remains a niche product.

So what have I learned from these experiences, as well as advising and mentoring various B2C companies over the years? One thing: the cost of customer acquisition is very high, close to astronomical, which is one reason why you see companies like Uber raising billions of dollars; the second is is a correlative of the first: you must build virality into your product from from the get-go. It can not be pasted on later and no amount of Tweeting or SnapChatting can make up for lack of built in virality.

So what do I mean by virality? It’s simply the oldest and best method of marketing, word of mouth, digitized, and its effect amplified by several orders of magnitude by the power of social media marketing, led by Facebook, a colossus with well over a billion connected users the world over.

Connection is the secret sauce of virality. We never designed Endorfyn with virality built it. It’s an anonymous service, there’s no direct way to share your favorite finding on Endorfyn with your friends, no way to import your address book, no way to Like a finding and share that across your network, and many other ways we could have, but did not, built in virality. I had originally viewed Endorfyn as a utility, much like Evernote and like Evernote, it totally lacks viral features.

Another key aspect of virality is sharing. If you think about old fashioned word of mouth what does it mean? Sharing your opinion with other people. The huge successes in social media: Facebook, Twitter, SnapChat, Instagram, et al all have built in sharing and highlight and reinforce that feature.

The third key factor in virality is following – the ability to get notifications on new posts, comments, likes, ratings or whatever from people you care about – from friends and relatives to celebrities. Following is a key feature of Twitter and Instagram, for example.

One of my visions for Endorfyn was that we would get the artists themselves to use it, and thus people would sign up to Endorfyn just to find out what their favorite musicians were listening to, what their favorite authors were reading, what films their favorite actors and directors were watching, etc.

Notifications are an ancillary, but important part of virality. They make sharing, recommendations, and other viral features frictionless. Instead of having to hunt down the latest photo from a friend, you can opt-in to being notified on your smartphone when that friend posts a new photo.

A fourth component of virality is personal brand building. YouTube has made stars of many of its users, as it has brilliantly facilitated their ability to build their personal reputation or brand. This creates a virtual  circle, where the  more attention a YouTuber gets, the more video they create, the more views and followers they accumulate.

A fifth component is ratings. Facebook has made “Like” ubiquitous. eBay makes its users far more comfortable with doing business with strangers through its buyer and seller rating system. Uber has copied that feature: riders rate drivers and vice versa.

One of the most powerful drivers of virality, utilized by virtually all the successful social networks, is user contributed content. The content cost is virtually zero and contributors are motivated to share their photos, blog posts, videos, and other contributed content with their friends and followers. YouTube and Instagram would cease to exist if they shut down UCC. UCC is their growth engine and also enables personal brand building.

Recommendations are another driver of virality as again it is is digitization of typical consumer behavior. When I discover a great restaurant or watch a great movie I naturally want to recommend it to my friends. And vice versa. Given the ever growing plethora of media, finding stuff you like – which is the mission of Endorfyn – gets harder and harder. Yet we didn’t have the resources to add this viral component to the app.

Identity is vital to virality. Endorfyn requires a login and password, but like Evernote, your identity is a secret. There’s no way you can discover friends who are using Endorfyn and share your likes about favorite artists, their new releases or news about them. Whether that identity is “real” like on Facebook, or created by you like on Reddit, having a known persona is critical to enable all the others aspects of virality, from sharing to ratings.

Finally the important of all forms of virality – and one you have no direct control over -is the network effect. Metcalfe’s law states that the  value of a network equals the square of the number of its users. The law was originally applied to telecommunications systems and “nodes”, but has since been found to apply to social networks. By building in virality you create the opportunity to benefit by the network effect. And the network effect drives growth more effectively than any marketing technique ever created, and growth is the number one goal of all startups.

I’m far from an expert on either consumer customer acquisition or social media, so I’m sure there are other ways to build in virality. If you’re not a an expert on both those subjects it may be very worth your while to consult experts before you build your product.

Because if you get anything out of this post, it’s that virality must be built in from the get go. You can progressively add viral features, but you’ll never acquire enough users to get that far without going viral from the start.

Stages of a company

As MIT mentors we usually see very early stage companies, in contrast to the mature organizations at the Social Innovation Forum. Here’s a rough guide to a startup’s life stages. In startups many things go on in parallel, not serially – such as product development and customer development. So this list is fluid, your MVP might get you paying customers. Companies have been bought before even releasing an MVP! So keep in mind that this is just a list of phases and the order may well not apply to you as listed.

The Business idea

Typically ideas are either how to solve a problem or how to create an opportunity. Google solved the problem of finding stuff you were looking for on the ever growing Internet, quickly and accurately. Facebook created the opportunity to connect with friends, former classmates, acquaintances, friends of friends and keep up on their activities.

As Bill Gates and others have said, “ideas are cheap, it’s all about execution.” I tend to agree with that, though occasionally I do see an idea that looks valuable and the execution straightforward.  The canonical example of this was Hotmail, the idea being creating a
web-based email system. The founders knew they had a hot idea, kept in total stealth mode, and coded like madmen to get to market before anyone else. Evidently in a matter of days it was up, went viral and then was bought by Microsoft for $4oo million if I recall correctly.

Entrepreneurs tend to worry too much about others stealing their ideas and far too little about finding customers. While big companies do steal ideas, it’s much more common that they wait until the idea becomes successful, then build it into their products. The classic example of this are operating system vendors like Microsoft and Apple that spot useful utilities and then build them into their OS.

So get out and develop customers and worry less about your protecting idea, unless you’ve truly got an invention, in which case you should probably consult a patent attorney.

The Presentation and Executive Summary

While you are developing your product, and I hope testing the idea with potential customers to validate your idea, it’s common practice to produce a slide deck and a
one-page executive summary. I’m not a fan of decks – people have seen far too many of them, most cram too much information into every slide – and take up valuable time, time better used to create products and customers. What I do recommend, and I just did this myself, is to create a one-page process flow diagram of how your business works and how it delivers benefits and makes money. You can print this out on a extra large piece of paper at Staples or elsewhere, then talk you way through the diagram with your prospective customer, partner or whomever is sitting beside you. I promise they won’t fall asleep while you do this as they might during your slide show.

I do recommend a leave-behind one-page executive summary with the standard elements of a business plan. It should be terse, clear, and preferably illustrated. The exec sum and flow diagram can serve as pass alongs within your target company, acting as information emissaries on your behalf. Your goal is to arm anyone who likes your product with the tools to champion it within their organization, as your initial contact will rarely be the decision maker.

The Demo

I have a simple definition of a demo: it’s a simulation of your product that usually requires you to present it, as it will have bugs, missing features etc. that only you or one of your colleagues know how to navigate around. The sooner you can show, rather than tell, how you solve a customer problem or create a great opportunity the better. Video demos have pros and cons. The pro is you know there won’t be any glitches in the demo, the con is that the audience will probably assumed you just did it all through clever editing. But if you have a complex and dynamic process to demonstrate, like some new type of water filtration system, a video demo may well be the way to go.

The Prototype

Unlike a demo, a prototype is a functioning version of your product that a prospect can test drive for themselves. That does NOT mean it’s feature/function complete NOR free from bugs, cosmetic and/or functional. The idea is to have the prospective customer experience your product for themselves.

The sequence through these phases so far is tell, show, experience. If you’ve validated your idea to the extent you and your colleagues and backers feel confident in continuing to invest in product development, then do.  But sometimes at this stage it may be time to pivot, e.g. change direction, or even fold your cards.

Testing

Back in the old days of assembly language, then C and C++, when the cornucopia of tools and open software that exist to day weren’t even a glimmer in the eye of the most farsighted software seer, beta testing was a very distinct phase. I believe Netscape pioneered today’s mode of a constant stream of releases, letting the customers act as the QA department.

Of course, with products like medical devices the testing, validation and acceptance phase is vitally important and may even be government regulated. So how much you test, how and how long, are largely determined by the type of product you are producing.

The MVP

Whether or not you’ve done beta testing, by this stage your customer development process should give you the confidence to create what is called the Minimal Viable Product. The MVP includes only enough features to be a useful product and to test the market, with your constant aim being market validation and customer acceptance. The MVP is showtime!

Product Launch 

Assuming your MVP meets with success, you’ve gotten feedback from your early adopters about what is lacking or flawed in the MVP and have used your customer base to help your prioritize your feature list, your bug list, optimizations, extensions, etc. Once you have added your top priorities to the MVP you are ready for your full product launch, which means a go-to-market strategy. That usually means social media, PR, trade shows, analyst meetings, Facebook ads, etc. Obviously your go-to-market strategy has to be developed in parallel with product development and take into account what’s been learned about customers during the MVP phase.

First Customer

No one likes to go first! So getting that first customer is orders of magnitude harder than 2 through N. You should bend over as far backwards as you can without injuring yourself to make that first customer happy. Especially now in the heyday of social media, there’s nothing better than a satisfied customer and nothing more deadly than a dissatisfied one – never has it been easier to complain about a product or service to thousands or even millions of people. So under promise and over deliver. Double and triple check your product or service. Provide the highest level of support you can. As you grow you’ll probably have to move from, say phone support to email or forum support, but you won’t have a chance to grow without getting that vital first customer.

First Revenue

There’s a reason you see those dollar bills framed in old mom and pop shops. No bigger milestone than first customer revenue! Just be careful about payment terms and cash flow. The bigger the company, the slower they pay. 90 or even 120 days is not uncommon. So remember that booking, billing, and receiving cash in the door are three different things. And as the saying goes, “in startups, cash is king.” It sure does help to meet payroll!

Scaling

Ok. so you have your first customer and your first revenue. You just made it through spring training and now the real season begins. If you have investor money they are interested in two things: growth, then a liquidity event. So figuring out how to scale your business, get economies of scale, drive down customer acquisition costs, optimize your supply chain, get volume discounts and more are the new challenges once you have a product that sells.Not to speak of the need for customer support and the rise of competition.

Profitability

Profitability hasn’t been in vogue since Netscape went public as a money-losing company decades ago. But with the recent tech bubble seeming to be deflating it may come back into vogue. Knowing when to take a profit and when to re-invest it into the company’s growth is a complex topic for another day. Suffice to say, generating a real – not an accounting-generated – profit, is perhaps the ultimate milestone short of a liquidity event.

Liquidity

Liquidity refers to turning the company’s assets – products, customers, IP, etc. – into a form that can be easily transferred. That usually means cash, but it could mean stock in a publicly traded company. If you have taken investment from angels, VCs or other investors they expect and deserve a return on their investment. Depending on investor patience you’ll have roughly five to seven years to return their investment with interest, either by selling all or part of the company to another party, or by going public.

Check out the book Nail It then Scale It: The Entrepreneur’s Guide to Creating and Managing Breakthrough Innovation by Nathan R. Furr and Paul Ahlstrom for help in finding your product/market fit, then growing profitably. Highly recommended by my serial entrepreneur friend, Giuseppe Taibi.

 

 

Outside contributors to startups

I had a stimulating conversation yesterday with Richard Banfield, CEO of Fresh Tilled Soil., a premier Boston area design firm. The first thing Richard said was, “don’t pay any attention to anything I say after I give you referrals to two corporate incubators. You can use my name when contacting them or I’ll make introductions. He then proceeded to look up the names and send me an email with their contact info in mere moments. I like people who not only do what they say they will do, but do it very quickly!

We then proceeded into a lengthy dialog about his taxonomy of outside contributors to startups.  We agreed to disagree on his definitions. I’m going to proceed with my definitions, but I want to thank Richard for taking the time to talk with me and give me detailed feedback on our business concept of improving the results of corporate incubators by providing mentoring service. Long story short, Richard agreed with the problem, but not with our solution. Sorry for not taking your advice Richard to ignore everything you told me after the names of the incubator contacts!

Every startup needs varying types of outside advice, counsel, and even work done by people outside the company, depending on the startup’s stage in life.

Mentors

Mentors are experienced and trusted advisors who often belong to mentoring organizations and do pro bono mentoring for academic and social benefit entrepreneurs.The MIT Venture Mentoring service is now 16 years old and is one of the most successful mentoring organizations of its type in the company. Mentors almost always have experience starting and running startup companies. Virtually all are successful entrepreneurs. Mentors may also be senior staff in a company who see it as part of their responsibility to help develop the company’s talent by mentoring.

Coaches

In Richard’s definition, coaches help the startup achieve a specific outcome. They may work one to one, such as executive coaches often do with CEOs or one to many. Coaches get paid market rate for their assignment. Their role is similar to sports coach, but they don’t often have a continuing role with the company. See my post about the difference between coaches and mentors.

Advisors

Unlike mentors, advisors aren’t necessarily former or current entrepreneurs. Rather they have specific domain expertise relevant to the company’s mission, such as deep knowledge and experience building supply chains for perishable products. Advisors often belong to a company’s strategic advisory board and are compensated in several ways: they get a ringside seat at the creation and growth of a startup; they get to work with fellow advisors and senior staff of the company which is both fun and intellectually stimulating; they build their personal brand, increase their network of contacts, and generally they receive stock options in the company. Look for a future post on advisory boards.

Professional Service Firms

Every startup at some point needs a law firm, accounting firm and perhaps other professional service firms, such as investment bankers. These firms perform specific assignments, such as incorporating the startup, setting up its books, helping to acquire another company, etc. They are usually paid market rate, but may offer discounts to a startup in the hope they’ll get future business. In some cases they will defer their fees until the startup completes a funding round. Many professional service firms, such as the law firms and accounting firms, have special programs tailored specifically for startups. These programs are worth searching out and evaluating.

Consultants

Consultants have deep and specific expertise. That expertise may be technical, scientific, financial,  design or any type of expertise that the startup either lacks or needs to bring more firepower to. Consultants may have short term or long term relationships with the firm and generally are paid market rate. Occasionally individual consultants end up as employees because they fit so well with the company, which is win win situation.

Contractors

Contractors for startups are a hot topic these days, as they tend to perform very similar tasks to employees, but do not receive any company benefits. Each state has its own definition of contractor, which makes it difficult for a company like Uber, which employs thousands of contractors across the country (and the world). You may need advice from your legal firm before you start hiring contractors. Generally contractors are paid by the hour, or the day and may have long term relationships with the company. Companies like to use contractors because they are less expensive – no costly benefit plans – and terminating a contractor is far less messy than terminating an employee. Contractors tend to like the flexibility of hours and the ability to work from home or their own office.

Role Models

This role is courtesy of Richard Banfield and I agree with him on this one. Richard advises startups to have two role models: one living, one dead. We didn’t get into why he recommends this specific arrangement, but one advantage of a dead role model is you won’t get to know them and discover their feet of clay. I think Steve Jobs served as a role model for many CEOs, though only a few ever worked with him and saw the “dark side” of his personality.

Finding role models might be a good team exercise in company values clarification. Give it a try.