Fryer's Blog in the Mountains

Start up basics: Managing the Money

As COE (chief officer of everything) you are also the CFO.   We're not talking about budgets today, instead, where did the money go?   Here are some things I have learned:

1) Set up a business bank account for company money transactions only.

2) Only 1 person has checks.  You never know when your co-founder may decide to write himself a check to cover a credit card bill (actually happened to me).

3) No debit cards.   Ever.   You need a paper (or electronic paper trail).   

4) Get bill pay service (should be free) to automatically write and record checks.  

5) Download and use a simple expense report form that everyone uses.

6) Before any check is processed there must be a corresponding invoice or expense report form.

7) Use dropbox and create a banking folder.  All statements, bills, etc. go in here.  Now you have a backup of these transactions and if you want to use an accountant, you can share it with them.

I also like to use a separate credit card which has good tracking when I travel or buy anything.  That way you always have an electronic receipt.   I prefer American Express.  One of the better deals is getting a Costco True Earnings American Express Business card.  It's free with your Costco membership.  As long as you only use this for business activities, finding receipts to support those expense reports is quite easy.

Part 2:  If you're Venture backed you need to submit financial reports to your investors on a periodic basis.  I tried something a little different this year and it seems to be working.  First off, buy the latest Quickbooks.  For our purposes, doesn't matter which level.   Next, make sure you have a good spreadsheet for your capital showing who paid what, when, for the number of shares of stock.

Instead of doing it yourself and messing it up, or hiring a bookkeeper to mess it up, I'm doing it myself with a black belt in Quickbooks looking over my shoulder.  Since they work remotely, this works well.   We spent an hour setting it up.  And if I need a little help each month, he charges a very reasonable rate in 15 minute increments.   In the beginning, doing it yourself, and spending $15 - $30 / month for a coach makes a lot of sense.  

When you need to do your taxes or hire a full blown accountant, everything will be in perfect order.

Experience vs Experts

Experts are great when you have a well defined problem and need a quick solution.   Which is why I like union journeyman electricians.  But not so hot with ill-defined problems you tend to find in start up companies.  Experts tend to be very deep in their field but not very wide.  The classic "if all you have is a hammer, the whole world looks like a nail".

Experienced people are much better at ill defined problems.  They have a large tool kit of pre-made partial solutions from which they can build a custom solution.   In the food world Sandra Lee prepares fantastic meals, but not from scratch.  She calls it " semi-homemade cooking".   I never realized Bisquick was so versatile.

It's very frustrating to deal with both ends of the spectrum in a startup:  On one hand you have the talented "build everything from scratch", which constantly re-invents the wheel and takes forever, and on the other side you have the "experts" who have one solution for everything.   Finding that experienced middle is a task in itself.  

But once you find them, keep them close and keep them happy.

Funding a Start up: Lessons from The Brothers Bloom

I watched the Brothers Bloom a couple of days ago.   Quirky but entertaining.   It the story of two brothers who become the worlds best con men.  (no, raising money is not a con job)  Three things were interesting about their approach:

1) The older brother Stephen would build a complete storyboard of the con, usually consisting of 15 parts.

2) They would spend a lot of time understanding their target (mark), hopes, dreams and desires.

3) The last part was always an exit, but the mark would have their dreams realized, so even though they were in reality conned, the mark never complained, because they got everything they wanted.

Business is always personal.  First off, do have to have a well developed thought out story about the journey an investor will have with you?   The next step is the one most founders ignore.  Understand your investors hopes, dreams and desires.   Does your story deliver on those?  If not, no deal.  And finally have a good exit where everyone gets what they want and need.   If you don't deliver on this, you'll be a one trick pony.

This is hard.  But it does work.   

Doing a Presentation: Dealing with the Hecklers

It's been a long time since I've done a presentation to a general audience.   But last week I did one at the University of New Mexico about doing a startup on the cheap.   50% of the people in attendance came from outside the University.  It was a lot of fun. 

From past experience I knew there would be a ringer in the crowd who would ask me deep questions to see if I knew my stuff.  Sure enough, there was one, and I answered all of his questions.   So far, so good.

Then I kept getting questions from someone who kept challenging me on corporate entity types.  For investors, you always do a "C" corporation.  Period.  They insisted that an LLC was a better format.  I strongly disagreed because we were talking about venture type businesses, not lifestyle.  After about the third time an angel investor in the audience stood up and said they would never invest in an LLC and explained why.  Finally that ended that discussion.

Never ran into that before, but it was good that the audience was engaged enough to back up the key points.  

Afterward I decided to check up on the heckler's company.   They did "Internet marketing" and "Search Engine Optimization".   So just for grins, I put in those key words in Google and added "Albuquerque".   Guess which company did not show up in the search results?  And I looked back three pages.  

So here are my definitions.  A heckler just makes noise but has no substance.  A ringer has substance and just wants to make sure you do too.  So if you run into a heckler, ask them to see you after the presentation.  If that doesn't work, walk up to them and ask them to leave.   You owe that much to the people who want to learn something.

The Perils of Outsourcing vs. Localsourcing Software Developemnt

I'm always hesitant to engage in a project with people I haven't met face to face.  Especially when out of the country.   But I did it.   It took me a couple of months but I realized that the software crew I had were programmers, not software architects, software managers or systems analysts.  I had the marketing requirements nailed and had discussions about product requirements hoping to work them out as a team.

Turns out they were waiting for me to deliver them specifications.   End result?  No usable code and a more complicated architecture than was needed.  

So last week I had a couple hour meeting with a local shop.   By the end they had a complete understanding of what was needed and the most efficient way to get there.  And a very fast delivery date (e.g. had I gone this route originally, we would be done).

What did I learn?  First off, you have to meet the team.  By doing so you will get an understanding of just what kind of talent you have to work with.  Secondly, you need to be crystal clear about expectations and written deliverables.   And always have a plan B.

Funding a Startup

I dropped a note to an associate of mine telling him we were closing our Series A (it's the seed round).   And he asked how did we do it.

That got me to thinking about what the key factors where. This of course assumes you've got all the fundamentals down: product, market, barriers to entry, cash flow break-even analysis and management.

1) Find people who are as passionate as you, are thought leaders and are willing to put their own money in.   No one wants to be first.  They all ask "if this is so good, why am I the first?" .  This is key.

2) Show significant progress while you're talking to investors.   This can be a 3-6 month process easily.  During that time, can you show more development, more customer interest?   I've said this before, but execution is the new strategy.  

3) Be generous.  In your business plan, be generous to your customers and their customers.  Be generous to your investors.   And I mean real generous.   Founders are their own worse enemies.   They want control, they want to minimize dilutions (they're sitting at home playing with spreadsheets and PowerPoints as we speak).   The only good idea is one that is used.   By the time a liquidity event happens, the vast majority of founders end up with 8-15% of the company.  So why are you fighting to have 60%.   You don't ever get to keep it.   Show your investors how they get 1,000% ROI in 4 years with very low sales numbers.  Set that bar so low you can fall over it and make it.

4) Be at the right place at the right time with the right people.  

Cockroach Companies

I borrowed that title from a very interesting Time magazine article.  While they were talking about pure play web companies, a lot of the concepts ring true.   Starting a company today can be done without committing a lot of money over a long period of time.  The trick is keeping fixed costs extremely low and pegging your variable costs to measurable results.

 Freelance everything in the beginning.   (and btw pure sweat equity is soooo 90's)  That way you get the necessary level of talent early on.  Be generous to your early investors and adopters.   If it works, you can start scaling and increase your fixed costs.

By doing this you can weather erratic sales cycles without driving off the cliff.  Hence the name "Cockroach Companies".  They don't die easily.