Professor Raiton’s Inside Perspectives: Entrepreneurship, Creativity, Innovation

From Startup Company Lawyer by Yokum

CompStudy publishes an annual report of equity and cash compensation that provides compensation data on top management positions and Boards of Directors at private companies in technology and life sciences.  CompStudy covers more than 25,000 executives at 5,000 companies and is the largest study of its kind.

Data is analyzed by: founder/non-founder status, company revenue and headcount, geography, business segment, and number of financing rounds raised. Additional detail is provided on compensation for the Board of Directors, general organizational changes over time and other compensation trends.

The survey consists of a Web-based questionnaire, which can be filled out by a single member of a company’s executive team and takes approximately 45-60 minutes to complete.

CEOs or CFOs of startups in the US, China, India, Israel, or the UK in the technology or life science industry should consider taking the survey.   Participants who complete the survey will receive the full results at no cost. 

The 2008 results are available on Altgate and are also embedded below.

For example, below are the 2008 results for average equity granted at time of hire in IT companies:

For example, below are the 2008 results for average equity granted at time of hire in IT companies:

• CEO 5.40%
• President/COO 2.58%
• CFO 1.01%
• Head of Technology/CTO 1.19%
• Head of Engineering 1.32%
• Head of Sales 1.20%
• Head of Marketing 0.91%
• Head of Business Development 1.23%
• Head of Human Resources 0.24%
• Head of Professional Services 0.60%

2008 CompStudy Report in Technology

By CLAIRE CAIN MILLER, NYT

In October, when Wall Street was already wallowing in the financial crisis, many in the technology industry still thought they might be insulated from the worst of it.  

Sequoia Capital, the venture capital firm that backed Google, Yahoo and YouTube, scared them straight when it hastily gathered the chief executives of the 100 American companies in its portfolio for a stark wake-up call that rocked Silicon Valley as well as start-ups elsewhere.

The venture capitalists showed a slide show titled “R.I.P. Good Times” that began with a graphic photo of a dead pig with a butcher knife jabbed in its head. For start-ups, they said, it would be the survival of the quickest — the quickest to cut costs and get profitable.

Dave Hersh, the chief executive of Jive Software, arrived at the meeting knowing he would have to make cuts. He just didn’t know how deep and painful they would have to be. In the coming month, dozens of start-ups laid off about 1,000 people, scrapped new projects and hunkered down. Several closed for good.

Mr. Hersh had already been planning layoffs. After the Sequoia meeting, he decided, Jive would have to fire more people and overhaul its sales tactics to persuade strapped companies to buy software.

(Read More)

From Nesheim Online 

Focus is your startup weapon of choice during a recession.

What do you focus on? Simple: Focus on your Ideal Customer.

Ideal Customer is that specific person who you want to say “Wow!” when they see what you are selling. When you get that emotional response, you have just out-run your competition.

Ideal Customers are very specifically defined: Males, 19-29, living in China, middle-class income, young mobile professionals. Not all males in China. The more specific you define your Ideal Customer, the more compelling your offering will be to their emotions.

A 40-50 year old male in China is not the same as the precise profile I just described. They respond to different emotional probes. You cannot appeal well to both at the same time. Your marketing message looses its sting, its boldness, its persuasive power. Your competition will be able to be more focused and trigger the emotion you that have not. You lose.

Once tightly focused, you will find cousins related to your Ideal Customer. In my example, that would include Females, 17-29, living in China, with the rest the same profile. A second would include the Chinese males not living in China, but with the rest of the profile identical. These secondary profiles are like bowling pins lined up behind your first pin, the targeted Ideal Customer. Line them up and you will see how to gather sales momentum as you succeed with the first bowling pin.

These people are going to communicate with the people in your first bowling pin. That makes your marketing messaging more efficient. The same blogs will buzz and spread the word about your great product offering.

BOTTOM LINE: Focus is your best friend during a recession. Startups that win identify a very specific customer profile and aggressively drive to dominate that market segment (share of market around 30%). The CEO will then go after the next two related bowling pins and sales will gather momentum. Resources will be saved. Bloggers will not be confused about what your business is trying to do. Clarity will spread the word accurately and with the passion that comes from your Ideal Customer saying “Wow!” when they hear about what you are offering. That is a key element to use to build your unfair competitive advantage when doing a startup during a recession

By OM MALIKOm

If there is an economic crisis, then it isn’t impacting any of the startups making virtual goods, online games or virtual worlds. In just the last month alone, three companies have raised mega-millions from venture capitalists.

• Greystripe, a games-related advertising network, raised another $5.5 million in funding, bringing its total to $15.6 million. We have covered them in the past.
• SuperSecret, a San Francisco-based online social gaming company, raised $10 million in Series A funding led by Opus Capital. They are targeting the tween market and hoping kids graduate from Club Penguin or Webkinz to their offering.
• Offerpal, a startup that links virtual currency to real-world marketing deals, raised a whopping $15 million in funding late last month from D.E. Shaw Ventures and others.

The investor interest in these startups mirrors the growing popularity of social games and virtual worlds, especially among younger web users.

Investors are paying more attention than ever to startups’ business models. Here’s how to make yours bulletproof

By Tom Taulli, Business Week 

Portero, which operates an online market for luxury goods, secured $6.6 million in venture capital financing earlier this month. In the press release announcing the deal, one of the investors, LFE Capital Chief Executive Leslie Frécon, lauded Portero’s business model as a “strong competitive advantage.” That sort of comment may just sound like standard-issue boilerplate, and in many cases it can be. But it also points up an underlying truth that entrepreneurs need to understand: All successful ventures need a clear business model, and any qualified investor will want to see it before making an investment. The poor economic environment means even more emphasis will be placed on your business model.

But what is a business model? Investors and entrepreneurs throw this phrase around a lot, often without examining what it really means. On a basic level, a business model tells us how a business makes money. However, to get a deeper understanding—and to get investors excited—it’s important to break up this concept into some key elements:

Customer Value Proposition: A strong customer value proposition means your product or service helps to solve a problem or provide a benefit. For example, Skype provides easy voice communication for free. That’s tough to resist, even though the quality of the service is not up to that of a traditional telco. Athenahealth is another good example of a company that has a clear customer value proposition. Athena delivers a Web-based system to help physicians get higher reimbursements from insurance companies. It’s a huge headache for doctors to keep track of the mind-numbing rules and regulations applying to reimbursements. Athena helps doctors save on administrative costs and improve revenues. Again, who could resist that?

While these companies have sophisticated offerings, their customer value propositions are downright simple. Unfortunately, the temptation for many companies is to mention as many benefits as possible, which often clouds the core message, not only for customers but also for employees. That makes it tough to get traction in the marketplace.

A foothold: Your customer value proposition, no matter how powerful, is worthless unless you get customer adoption. But it’s often expensive to win customers, especially mainstream ones. One approach is to identify a niche customer segment of early adopters. These folks like experimenting with new things and can provide valuable feedback that improves your offering. This was the case with Facebook, which got its start at Harvard. Early adopters can also create lots of buzz, which is essentially cheap marketing.

Differentiation: In the 1990s, hundreds of companies entered the e-commerce space. But while many provided convenience and cost-effectiveness to customers, there was little differentiation. It was up to innovative companies such as Amazon.com to add unique functions setting them apart, such as user reviews, recommendations, wish lists, and speedy shipping. These all increased customer loyalty and made it difficult to switch to alternatives.

Pricing: Pricing can be another key way to build your customer value proposition. When Salesforce.com (CRM) launched in 1999, the company wanted to make it easier for customers to buy software. Until then, the typical strategy was to charge customers large up-front licensing payments on top of ongoing maintenance fees. Salesforce.com disrupted the industry by forgoing license fees and instead charging for the software as a service with a monthly subscription. That new business model helped turn Salesforce.com into a multibillion dollar company.

These characteristics form just a basic framework. Obviously, business models can take lots of work, and frequently evolve over time. However, in order to run a successful business, you need a clear understanding of your current business model. You certainly need it to impress investors, who are becoming more concerned about the viability of new ventures.

Entrepreneurs who helped build their startups into tech stalwarts—companies like Cisco, Oracle, and Google—share lessons on how to thrive during tough times

By Spencer E. Ante, Business Week 

December 1987 was no time to be raising money for a startup. Computer engineer Len Bosack was trying to attract funding for a young enterprise called Cisco Systems (CSCO). But the stock market had just crashed and the Dow Jones industrial average had plummeted 40% since October. Gun-shy venture capitalists either didn’t get the newfangled technology or deemed it too risky.

Making matters worse, Bosack was running low on the savings he had used to bootstrap the business, and competition was gaining steam. It wasn’t until this 75th meeting that he found a receptive audience. The willing financier was Donald Valentine of Sequoia Capital, a venture capital firm in Silicon Valley. On Dec. 14, two months after Black Monday, Sequoia invested $2.5 million in Cisco. “Valentine’s reasoning was pretty simple,” recalls Bosack, now CEO of telecom gear-maker XKL. “It doesn’t matter what they are. They are selling stuff in a bad market. With a little bit of capital and more experienced help they should be able to do better.”

Better is just what Cisco did. By the time of its initial share sale three years later, in February 1990—during a recession—the maker of telecom networking equipment was worth $224 million. Within a decade, Cisco Systems had become one of the world’s most valuable companies.

(Read More)

From Startup Spark by Stephen Kersey

When you are in the process of coming up with ideas for a startup business, there are many things you have to consider to figure out whether you have a viable idea. Here are five questions to ask yourself about your plan for a new business:

5. Can you make the time?
Not many people can quit their day job and focus strictly on a startup business. With that in mind, the first question you should ask yourself is whether you have the time to see your idea through to the end. Time is an essential yet underrated aspect of any successful business model.

4. Do you have the necessary knowledge?
Depending on the field, a lack of knowledge usually is a death knell for a startup. If you don’t have the knowledge yourself, you should have clear ways to add people to your team who can bring the necessary know-how.

3. Can you come up with the startup costs?
You can have the best business idea in existence but if you don’t have the means to come up with the needed startup money, the idea isn’t worth much to you. In fact, you could damage your personal long-term financial stability by trying to reach an unrealistic startup dollar number.

2. Do you understand your target demographics?
In just about any business, knowing your customer is extremely important. If you don’t know what and who you are targeting the other end of your business plan, you are basically just throwing pebbles in the dark.

1. Do you a passion for the idea?
This question is number one for a reason. Without passion, it’s almost impossible to head a successful startup business. You need the boundless motivation and drive to see the startup from its infancy to its growing stages and finally into adulthood.

From Nesheim Online

Doing a startup is like building a bicycle while you are riding it. Awkward, demanding, risky, exciting, fun and rewarding. Nothing else is like it. There is no school that teaches that. 

“Okay, we got our idea, wrote a plan with an unfair advantage, and raised our seed money. What’s next?” you ask.

“Woops! Surprise!” That’s what is next! The unexpected will arrive one moment after the seed round is in the bank. The written plan rapidly starts to become obsolete. You discover a similar startup. At first you have to update a few paragraphs. Days later your engineers tell you they their build plan is going to take twice as long to complete the first prototype. Whole chapters must be altered. A key employee does not show up for work. He has decided to join another company. Nothing is wrong. That’s just life in a startup. CEOs of giant multi-nationals expect plans to be predictions that are delivered on target, on time. Startup CEOs see plans as good intentions that are altered as the company progresses daily. There is a huge difference in what is required of a CEO to succeed in a startup.

Serial entrepreneurs and their investors know the original plan is organic, changing daily as execution runs into blocks, barriers and battering rams of the stealth startups that were lying in ambush along the planned path to victory. And the startup awakens giants like Google and aggressive public growth companies around the globe, each saying “Me-too, here we come!” They disturb the new market that the startup thought it has all to itself. Key employees leave. Customers-to-be delay signing and others cancel big contracts. The startup’s product completion is delayed. Its performance has to be double what has been agreed on. It is going to cost double what was anticipated. And so it goes in the daily life of the entrepreneur. Serial entrepreneurs expect the unexpected. That’s normal for startups.

Upset and off balance because of surprises, your startup now must quickly regain control of its destiny. Fast alterations of the plan are made immediately. That is what execution are like in a new enterprise.

From Nesheim Online

CHAPTER 1 (Continued)

Doing a startup is like building a bicycle while you are riding it. Awkward, demanding, risky, exciting, fun and rewarding. Nothing else is like it. There is no school that teaches that.

===============               

Some say “Execution is everything.” Because without doing it (the business plan), there is no world-class company. Dreams must become reality. They must be executed.

But there also must be an idea to get things started. A good idea. One that can be shaped into a business worth financing. An idea that can be altered and changed into a world-class new enterprise that becomes an initial public offering on NASDAQ within half a decade. The good idea is the starting point for the startup race run for the IPO, the gold medal goal of which dreams are made.

A good idea can be shaped into an unfair advantage. If not, stop immediately. Don’t try to force it. Seed funding a bad idea will result in disaster during execution. It will be like trying to fix a deformed child after it is born. It is impossible. Go find another idea. When you are confident that idea can be converted into an unfair advantage, then do the execution well and you’ll have a good chance of emerging as a world-class winner.

Execution is critical to startup success. “Execute or you will be!” say serial entrepreneurs. It’s a life or death game for startups and their investors. Deadly serious. It’s hard to do. Very hard to do well. The best plans poorly executed become funerals. End of life.

Chief Executor. That’s the real job of the CEO. Do it. The plan. Well. Very well. Very fast. On-the-fly, as the company is conceived, given birth and fed and nurtured until it becomes a world-class name. Branded a success. The gorilla of a new market. Lead by the Chief Executor. CEX.

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 From VatorNews

Tim Draper, Founder and Managing Director of Draper Fisher Jurvetson, shares with Reena Jadhav, CEO nuResume, his perspective on the impact of the current economic crisis on venture backed companies.  Bottom line: this is a crisis you can take advantage of and an opportunity to grab huge markets!

He draws a clear distinction between the current economic crisis and the 2000-2001 downturn by saying that while the last downturn had us firmly at the center of the vortex, this time we’re collateral damage. That translates to vastly different strategies for survival. Then, we were asking CEOs to layoff everyone in the company in order to survive but now we’re asking companies to survive but now we’re asking companies to take advantage through re-direction or growth. 

One factor driving differing recommendations is that now companies are running tight, they do have cash and might even be cash flow positive. Here are some tips for entrepreneurs:

1. Do those things you wanted to do anyway - such as letting certain people go
2. Redirect your business to take advantage of this opportunity
3. Scale back if it means staying in business or consider a whole new business based on this opportunity
4. Crisis like this flattens the whole economy giving rise to new businesses and new ideas that will pull it out
5. There are opportunities now for individuals to grab huge markets
6. View it as a unique opportunity rather than a problem

So what does Tim think will pull us out of this economic downturn?

He believes that the new Obama administration will lfocus on a feww specific areas of healthcare, clean tech and unions. So entrepreneurs in these areas will certainly have an advantage. 

In IT or communications, a natural next step is for social networks to get adapted into corporate networks, presenting an opportunity there.

The emerging world of iPhone and Blackberry provides a great new platform for software designers to design to and build new applications.

He’s enamored and remains bullish on the electric car.

(View the Video)