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Archive for the ‘Advice for Start-ups’ Category

Startup.com – Essential viewing for anyone considering setting up in business

In Advice for Start-ups on January 2, 2013 at 11:01 pm

I recommend this documentary to all my mentees – it’s available from Amazon – http://amzn.to/UnseBq

The real life nature of the film work as it chronicles the dot-com start-up of 2 aspiring entrepreneurs. It is a real eye opener as it follows them from them debating over the name to call it (they ultimately called their e-commerce website govWorks) to the founders Kaleil Isaza Tuzman and Tom Herman falling out after raising over $60 million dollars as the Internet bubble was bursting.

The guys were very well intentioned and had great ability but the documentary is a cautionary tale of what mistakes to avoid. Tom Herman documented what he learnt and the pitfalls he recommends avoiding here – Startup.com Tom Herman’s Lessons Learnt

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My 10 golden rules for start-ups

In Advice for Start-ups on December 28, 2012 at 7:41 pm

1. Be careful what you sign and check for the notice terms and length of the agreement.

2. If it’s not in writing it never happened.

3. Equity is blood, preserve it for as long as possible before giving any of it away.

4. Don’t rush into gold plating the first version – Fail early, fail cheap.

5. Cart before the horse – do the feasibility research (including asking customers how much they would pay you for it) before writing any specifications documents. When talking to your customers think about the parallel between a sales pitch and telling your child a bed time story, when you start telling them a fairy tale the first question they ask is “Who am I in your story”? They want the story to be about them, not you or some third party.

6. Don’t re-invent the wheel, outsource anything you can and check http://portal.enterprise-europe-network.ec.europa.eu/  for any possible duplication of what you intend working on. I asked one of my mentees to bear this in mind, but like all of us,  the best lessons are learnt the hard way. He called me recently saying “You know the way you were always saying “Can it be done easier”, well now after 9 months I’ve figured out that I can poll the data I need without wasting time coding the software myself!”.

7. Make sure you keep 50% of your resources for marketing/sales etc – Secrets of Software Success ( http://www.amazon.com/Secrets-Software-Success-Management-Insights/dp/1578511054 ) finds that the most successful software companies are those that spend a high % on marketing.

8. Look to automate/streamline standard processes from the word go. Many companies fail to scale as the early entrepreneur gets bogged down in admin stuff.

9. If you can build your business from cashflow without equity investment do so until you need to scale. Clean shareholding registries are a big benefit.

10. Start with the end in mind – have a clear plan of why you are doing it and what you want to get out of it – write it down too.

Opportunity recognition – my rule of thumb for new start-up ‘opportunities’

In Advice for Start-ups on December 28, 2012 at 6:12 pm

How do you accesses whether your ‘opportunity’ has the potential to be a commercial venture or is it just a good ‘idea’

When I worked on the London Stock Exchange a key part of my role as fund manager was to rapidly assess whether a proposed business venture/diversification stacked up. My rule of thumb for my initial scan was based on a funnel similar to that used in Innovation processes, with a number of gates the opportunity must get through.

 

Also want to make sure it is a sector that has long term demand rather than a facilitating technology that has a finite life.

In terms of those start-ups that saw themselves as tackling a sector that they felt was ripe for dis-intermediation my heuristics for this were clear answers to the following questions:

1. The vendor, rather than the customer, is in control of the interaction due to knowledge asymmetry.
2. There is a cost layer of inefficiency and waste which keeps the cost base high and results in higher end prices.
3. There are variable outcomes for customers resulting in poor customer experiences.
4. Related technical innovations are taking place that traditional players are structurally slow to respond to.

A lot of my thinking on this is influenced by one of my favourite books – http://www.amazon.com/Innovators-Dilemma-Revolutionary-Change-Business/dp/0062060244

Some thoughts on early stage equity splits

In Advice for Start-ups on December 28, 2012 at 6:03 pm

Business is a random walk and the only way to win is to prepare for multiple scenarios at an early stage. At the start-up stage enthusiasm is high and the pressure is on to “get things done”. Sorting out the share capital amongst the founding team may feel like a low priority but it is a high cause for the failure of teams in the first 3 years.

Seed capital refund is based on the percentage of the business you have so it’s important to avoid early dilution.

Sit down with the potential team/shareholders at the start up stage and do up a 3 year plan that deals with the questions as to:

1. Who is driving it.

2. Who makes the ultimate decisions.

3. Who controls the bank account

4. Who does what, itemise the roles and individual responsibilities.

Titles matter, the controlling shareholder on many occasions be the CEO.

Many people commencing a start-up bring the same set of rules to the start ups as they do to their personal, romantic and work relationships however business is different. Integrity is important however trust sometimes only goes as far as what is written on the agreement (which is why it is important to have one).

The worst scenario is 50/50 split between the founding partners, as I found in my experience this can lead to futile competition leading to status quo and lack of leadership. Even if you agree 1/3 each split one person needs to be driving the business.

My advice is to always sit down at a very early stage (before the company is registered at the CRO) and write down your vision for the next 3 years under the headings –

  • Individual Roles and Responsibilities
  • Cash prepared to invest and leave in the business for 3 years
  • Desired  personal outcomes
  • Personal goals (what you want out of the business in terms of salary, hiring authority etc).

Then swop your replies and compare notes – then scan them so that you have a permanent record 🙂

 

Lessons Learnt at the Bord Bia Innovation Workshop I attended

In Advice for Start-ups on January 27, 2012 at 12:06 pm

 

Last Thursday I attended a great workshop moderated by PA Consulting and hosted by Bord Bia at their Vantage Programme day.

I learnt a lot from the PA Consulting talk, slides attached for the interest of all small businesses that want to get their “innovation function” functioning.

Bord Bia Vantage Innovation Programme Workshop Dublin 18 Jan 2012 (1)

Identifying the sweet spot for the services you offer is essential to growth in early stage businesses, here’s my guide…

In Advice for Start-ups on January 24, 2012 at 8:52 pm

Below is an extract from our former sales manual which I wrote for my business. Up until I wrote this document we had been trying to accept every incoming sales request. As a result was that we were un-differentiated, stretched and our internal processes were not optimal. After adopting the “Sweet Spot” approach we become much more focussed.

Identifying the sweet spot for our offerings

This is the process whereby we identify the type of customers we want to do business with in this business area. By doing this we can save a lot of time on sales quotes that are not going to turn into orders. It also means that we do not take on clients that are going to be more trouble than they are worth.

Guidelines for our ideal client:

  • We want to target clients with a minimum spend of E2,000 per annum.
  • We want clients that typically have some technical ability(i.e. will not be a massive drain on support)
  • We want clients that need us to perform some managed services for them(which are higher profit)
  • Client is in urgent need of the solution (i.e. we want to avoid spending a lot of time on clients that are only browsing or looking to screw their current provider at the renewal date with a cheaper quote).
  • We want to make a minimum gross profit of 50% on all services provided to the client. In some cases we will accept lower than this where we are not involved in much of the work(e.g. backups by Serve Centric).

What industry sectors would our ideal client typically be in:

    • Web developers
    • Media/advertising/PR
    • Software development
    • Web services providers
    • Clients that understand the quality proposition (i.e. that you get what you pay for) and are prepared to pay for a quality, reliable service.

What sectors would not represent our ideal client at this time

  • Slow decision makers/long sales processes such as government departments.
  • Low tech companies with no internal IT function.
  • Single server colo clients with low bandwidth usage and no scope for selling additional services.

 Devising the list of core versus custom features in dealing with sales quotes

 It is commonly accepted that when clients are considering a purchase they indulge their fantasies and dream up everything they would ideally like in the new service. However the client’s customer requirements list will rarely take account of how practical it is or how much it will cost to provide to them.

Therefore when assessing incoming sales quote requests it is important that we have a clear idea in our mind of which of the list of requirements are on our core list of supported items (e.g. hard drives, server space, bandwidth, power) and which are custom (load balancing, RAID 5,JSP, custom software installs etc). Having a core list enables us to turn around sales quotes faster and helps us standardise our offering.

What we need to do is draw up a list of Core Features that all clients would typically benefit from. Any requests that deviate from the Core Features list are then considered Custom Features and quoted for accordingly.

When deciding how to proceed in the case where the client has requested Custom Features the following will decided on whether we provide it or not:

1. Is the client prepared to pay a commercial price for it?

2. How many clients are seeking the same feature? If a lot of customers are requesting the same feature we may need to consider moving it to from the Custom list onto the Core List and pricing it accordingly.

What Venture Capitalists look for when investing

In Advice for Start-ups on October 6, 2011 at 8:45 pm

At the Sligo Seed Capital event I was helping run the Info2Innovate workshops with Enterprise Europe Network and had the opportunity to listen to presentations by Michael Murphy (NCB), Shay Garvey (Delta) and Conor O’Connor (Enterprise Equity).

Their presentations were extremely helpful to anyone seeking to raise money from venture capitalists.

Shay Garvey Delta Seed Capital Fund October 11

Michael Murphy NCBVenturePresentationOctober2011

Conor O’Connor Enterprise Equity presentation-Sligo-5 Oct 2011

A strategic toolkit for designing and delivering a breakout innovation strategy

In Advice for Start-ups on October 4, 2011 at 4:36 pm

Professor Thomas C. Lawton talk at Queen’s Belfast entitled “Innovate for Advantage A strategic toolkit for designing and delivering a breakout strategy”

1 Innovate for advantage_InterTrade Ireland_June 2011

Decision making for SMEs/Start-ups with a Decision Matrix – getting the important ones right

In Advice for Start-ups on October 1, 2011 at 6:58 pm

Decision making under conditions of uncertainty is a daily task for an entrepreneur according to Michael Dell.

I was working with a group on my Masters with a start-up and we had each researched a potential route to market but had no easy way of quatifying which route should be the recommended one so I said let’s identify the key objective of this start-up and then list the factors that are relevant to that objective and assign each factor a mark out of 10 based on our best estimate from our research. This way we were able to arrive at a preferred route on a basis other than who shouted the loudest 🙂 Here is the Decision Matrix I put together.

Route to Market Decision Matrix table – The row which refers to FIT is based on this model: https://eoinkcostello.wordpress.com/2011/10/01/startups-getting-the-right-fit/

I recommended this approach to one of my Mentees on the Enterprise Ireland Mentor Programme and he came up with a great decision matrix which he kindly let me reproduce here:

Startups – Getting the right FIT

In Advice for Start-ups on October 1, 2011 at 6:23 pm

Making decisions about your strategy as a start-up

According to Timmons and Spinelli the resources necessary to new venture creation include the entrepreneurial team, financial resources, outside people, legal and financial advisors, technology and patents. What their research has show is that on average the better fit there is between the components of Team, Resources and Opportunity the more likely it is that the venture will be successful.

So, for example, if you are a 2 person team with some, but limited, contacts in the area your opportunity occupies, and you have little or no money, the FIT model suggests that on average the target opportunity should be proportionate (say €1m). It is all about being realistic, and this in turn being a good guide to likely success.

The equation might be expressed as TEAM (Number, relevant experience and track record) + RESOURCES (Money, contacts, beta/existing clients) = SCALE OF ACHIEVABLE OPPORTUNITY (in $,€ or £).

Click here for an image of the Timmons model Timmons model of making the best choice of start-up formulation
Source http://www.amazon.com/New-Venture-Creation-Entrepreneurship-Century/dp/0073381551

The FIT Model for Start-Ups