Monday, January 21, 2008

Martin Plaehn's Quick Hits: Do's and Don'ts of Entrepreneurship

I spent last Thursday and Friday in Utah attending the University Venture Fund's Annual Conference.

The conference brought undergraduate and graduate students from around the country interested in entrepreneurship and venture capital to SLC for a two-day event. The speakers included Bill Price (co-founder of TPG), Brad Feld, and other noted investors and entrepreneurs.

A side benefit - the Sundance Film Festival started the night we arrived and Brad and I got a chance to the see the world premier of In Bruges.

One of the panelists was Martin Plaehn, a former HWVP company CEO and current CEO of Utah-based Bungee Labs. Martin is a very sharp guy and he passed around his list of start-up do's and dont's. I thought they were terrific and include them below.

Martin Plaehn’s Quick Hits: Do’s and Don’ts of Entrepreneurship

Do’s

1. Do ensure for yourself (as founder or chief) that you are addressing a real market and a sustainable one; where the exchange of value is transacted and measured in US currency
2. Do only hire for pre-identified expertise, operating need, and the energy to accomplish excellence; if you get more, great; don’t hire otherwise
3. Do always know your cash level, weekly cash spend and receipt rates, cash-runs-out date, and close-up liabilities amounts; start finding funding choices when you hit t-minus 6 months till operating cash runs out
4. Do money deals with money people (e.g. Angels, VC’s, banks, and credit unions); do product deals with product people (eg. Commercial companies); and do risk deals with risk people (e.g. Insurance companies). Don’t get these confused. If a product company wants to invest in your company, can they afford to take the whole thing? If not, then not.
5. Do ensure that at least one of your early formal investors has the financial wherewithal to keep investing in subsequent increasing rounds many years down the road; do make sure your different investors are really compatible
6. Do always accumulate choice; two by definition, three of four is better; then make decisions and have a back-up
7. Do let the stress of overload and/or capacity strain the triggers for expansion; demand flexing the edges of the system is usually the truest sign of real growth
8. Do track revenue and cost per employee; have trigger thresholds for when to add staff or subtract. Human efficiency and innovation is what creates value

Don’ts

1. Don’t hire of goodness of heart or friendship
2. Don’t hire anyone who you and your team are not genuinely excited about
3. Don’t tolerated mediocre engineers; for that matter, mediocre anyone. An early sign of mediocrity is when you downgrade tasks and expectations to align with an employee
4. Don’t count on your investors to take care of you when things get rough and/or protracted
5. Don’t over interpret or count on the stated operating “value-add” from investors during their solicitations during fundraising
6. Don’t build out your staff or infrastructure in expectation of rapid growth; be strong enough and tolerant of market back-pressure or order/service backlog
7. Don’t keep the same sales and marketing execs if the business isn’t growing or changing for growth; no sales and marketing VP was ever fired prematurely
8. Don’t over delegate to consultants, accountants, or lawyers; even the great ones are only as good as you are as an engaged client; read and understand everything; if left alone, you must have a point of view, right or wrong


Thanks to the students at BYU, Univ of Utah, and from around the country who worked hard to make the event a real success.

3 comments:

  1. Will,

    Almost agree with all, but except:
    "7. Don’t keep the same sales and marketing execs if the business isn’t growing or charging for growth; no sales and marketing VP was ever fired prematurely"

    In fact this may very well be good advise, but I have seen quite a few examples where blaming the lack of growth on sales and marketing, and the annual ritual of replacing these execs only masked the bigger problem, which was typically with the product/service itself.

    Of course this is getting into shaky territory, as all sales execs will use product weaknesses as excuse for non-performance, but the other side of the coin is the CEO using sales weakness to hide the deeper problem from the Board.

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  2. Hey Will -

    I take issue with point Do #2, "only hire for pre-identified expertise."

    I think it's a fallacy that a startup need hire some expensive expert programmer right off that bat. You want to hire a core team of people who believe in your product and are willing to kill themselves to see success. I know too many startups that go out and overspend on some "expert" who ends up abandoning ship after acting like a prima donna for several months.

    http://www.leveragingideas.com

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  3. Will:

    Thanks for highlighting Martin Plaehn’s do's and dont's. I'm not sure I agree with each and every point, but they are great food for entrepreneurial thought!

    I linked to your piece in my blog for the Innovators-Network. ( http://blog.innovators-network.org) in hopes that some of my readers will visit your blog to read the whole thing.

    Best wishes for continued success!

    Anthony Kuhn

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