VC Whisperer Thought #1 - It's Not The Size Of The Boat, But The Motion Of The Ocean

Motion is important. I see too many entrepreneurs focused solely on the "boat" - their product, their business, whatever problem is nagging at them in that moment. If it's a problem, they spend too much time thinking about it. If it's a product, they spend too much time perfecting it, designing it, and adding to it. They think that success depends on some specific output, or one specific result.

In reality, none of these things matter. The only thing that matters is motion. What I mean by that is that it's important to be doing something, and not so much what that something is. In a startup, you often never know where things will lead. But when you're out there, talking to people, doing things, releasing product, getting feedback...when you're moving...that's when good things happen. You talk to a guy, who knows another guy, who connects with a potential customer, who gives you great feedback, etc...

This is not only good advice for entrepreneurs, but for the thousands of bright people looking for work.

Don't stay still. 
Don't be paralyzed. 
Keep moving and good things will happen.

Startups Fueling Corporate Growth - IBM Banks On Small Start-Ups For Big Growth

People often ask me:

"VC Whisperer, what can big companies do to grow sales? Where can they find growth?"

I saw this article on the Wall Street Journal a few weeks ago. It discusses how IBM was looking to startups to fuel sales growth:

IBM Banks On Small Start-Ups For Big Growth

The reality is that this is IBM paying lip service to the startup community, and getting some good press. There is very little entrepreneurial that goes on at a company like IBM (or any other big company - not meaning to single out IBM). However, I think the idea is a good one. Big companies (like IBM) need to not only look at startups as potential growth engines, but rely on startups to fuel future growth. Many of these big companies have stagnated, and only with fresh ideas will they be able to find new revenue.

It's a major shift in thinking and a major shift in behavior that's required. Big companies need to partner with more startups. Big companies need to acquire more startups. Big companies need to allow more of their employees and business units to be entrepreneurial and operate outside of standard processes. Only by doing all of these things will they avoid the inevitability of stagnating revenues that plagues so many corporate giants.

Too Many Old People Running Companies - Canadian Businesses Slow To Act On Social, Study Finds

People often ask me:

"VC Whisperer, why don't big (Canadian) companies understand social media?"

The following study is worrisome. And the problem is likely not uniquely Canadian (but definitely worse in Canada).

Canadian businesses slow to act on social, study finds

The problem is two-fold.

1. Most companies just aren't acting or taking advantage of social media. 
2. And the ones that are, just aren't engaging sufficiently or correctly to make it effective. 

The first problem is an issue with many big companies. They usually don't act or take advantage of social media out of fear. Social media is "new" to these companies and they fear anything that's new. They fear the impact on their brand, and they fear loss of control.

The second problem is also a common issue. The root cause of this ineffectiveness is usually process. Big companies just aren't set up to allow for new ideas or new processes. Everything has to be done according to a long-established process. A month to approve a newspaper story might be acceptable, but requiring that same time to approve a blog post or a tweet would be debilitating.

The solution in both cases is to get rid of the old people. This doesn't necessarily mean the people who have been around 20 years (although it might). It means get rid of the people who have old thinking. Get rid of old processes. Start thinking young, start thinking new.

If Canadian companies (and all big companies) don't get younger, they will die, or become irrelevant. 

The 5 Steps to Making Successful Comebacks - Listen Up RIM

People often ask me:

"VC Whisperer, are comebacks possible?"

The short answer is yes, but not without quite a bit of effort. That question and the following article on Engadget got me thinking about comebacks:

Shareholder calls for RIM to sell itself or its patents, in critical open letter -- Engadget

RIM shareholders are furious, and demanding change. They want to believe in comeback potential for the business, but many are losing hope. Startups are notoriously good at re-inventing themselves and big companies like RIM could learn a thing or two. Only then will they have a chance at making a comeback. Here are the VC Whisperer's 5 steps to making a comeback (and advice that RIM is surely hearing many times over from its shareholders):

1. Vision. Comebacks often require companies to change direction. And they always require everyone to be moving in the same direction. None of that is possible without a compelling vision being communicated from the top. 
2. Focus. It's hard to be good at everything. Paring down projects, focusing on strengths, getting scrappy. These are all important to staging a comeback. Focus not only on the high level, but on the nuts and bolts as well. 
3. Fresh Ideas. Clearly the status quo is not working. That means you need to bring in people with fresh thinking. Or encourage it from your existing employees. Stop worrying about process or "how things are done" here. Throw everything you knew about your business out the window and start with a fresh slate and fresh perspective. Hire MBAs from top tier schools who have crazy ideas and the energy to make them happen. 
4. Risk-taking. Comebacks often require swinging for the fences, and that's not without risk. It's the homerun plays that will turn a company around. Risk-taking also means sometimes sacrificing a profitable (but declining) business in the short term, to ensure long term success. For publicly traded companies, this is especially difficult, when analysts only care about your next quarter. 
5. Listen. To what people are saying about your failing business. They might have good ideas. And listen to your customers. They're the ones who are going to fund the comeback. 

What's most interesting to me is these happen to be all the things startups are really good at. Take note RIM, telcos, traditional media, and any other company/industry under fire: Companies in turnaround or comeback situations would be well served to learn from the startup world. 

Romance Isn't Dead - The Passion of The Entrepreneur

People often ask me:

"Paul, what is the first thing a VC like you looks for in an entrepreneur?"

So much can go wrong in a startup - problems with technology, customer, market, execution etc... And in adherence with Murphy's Law, if something can go wrong, it will go wrong. Successful entrepreneurs are able to navigate those issues, often with different backgrounds and skillsets. The common thread is always the passion that they bring to the table, to get through the hard times, and supercharge a company's growth when times are good.

Thus, when a first-time entrepreneur walks through the door, VCs are looking for a little romance. They are looking for someone who loves what they do, who is passionate about their business. VCs are actively judging you on this. Be respectful and polite, but if a VC doesn't feel like you even care, then why should he? The passion for your business should ooze out of every pore, and affect not only what you say, but how you say it. If you are passionate about your business, there is a much greater chance the VC will become passionate about it as well. 

To hammer the point home, let's look at this from an economic perspective. The reality is that VCs can't be satisfied with returning 5 or 6 percent to their limited partners. Venture capital funds must produce returns (IRR) of 30% or more over their lifetime. The consequence of that is that the average exit needs to be very big. A 10M-20M exit on a 4M investment just doesn't cut it unless the VC is holding 95% of the company. The reality is that VCs make their living on the homeruns. Therefore, we look for entrepreneurs who have the passion, drive and vision required to swing for the fences.

Be realistic in your assumptions and projections, but don't be afraid to think big. Passion will get you everywhere, and most importantly, it is contagious. Passionate CEOs create a culture that not only attracts the best people, but imbues them with a passion of their own. Prove to the VCs you meet that romance isn't dead.

Walk The Factory Floor And You Might Not Get Fired

People often ask me:

"Paul, what is one thing I can do to avoid getting fired as CEO after I get funded?"

Most VCs know that the entrepreneur who walks in the door will likely not stay on as CEO forever. Most first-time entrepreneurs have deep domain knowledge, but lack the leadership qualities that are necessary at that stage. However, this doesn't mean that an entrepreneur shouldn't work to develop their leadership and CEO qualities.

One quality in particular that might keep you in the CEO job longer is the ability to "walk the factory floor". At the highest level, it means that you're a leader who is engaged with and aware of everything going on in your business. On a more practical level, here are some steps you can take to be a CEO/entrepreneur/leader who walks the factory floor:

• Be open. Keep your office door open 90% of the time.
  
• Be visible. Make sure you're the first one in and the last one out of the office.
  
• Be there. Don't be away from the office if you don't have to be. Generals direct best on the battlefield.
  
• Be mindful. Always be conscious of how people react to your words and your presence. Never shoot the messenger.
  
• Hold Monday meetings. Take a couple of hours to catch up at the beginning of the week.
  
• Take the company's pulse. Know the mood of your employees. You're only going to accomplish this by talking to them (and not just your senior executives).
  
• Speak their language. If you're going to walk the factory floor, make sure you speak the factory worker's language. Understand your employees' needs and talk to them about things that matter to them, not to you.
  
• Listen. Your employees know what your customers want better than you do. If you're going to take the time to walk the factory floor, the least you can do is listen. More about the importance of being a great listener in a future post. 

If you've got the experience to back it up, make sure you articulate to your VC how deftly you walk the factory floor. Walking the factory floor is a major component in the creation of a corporate culture. Showing that you can do it well is music to a VC's ears...