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Entrepreneur Insights

The Satisfaction of Bootstrapping

By At Work, Entrepreneur Insights No Comments

I've been fortunate to be involved in several business start-up. Some have done well, others flopped. Some were well-funded, others were not. A natural inclination is to think that those companies that were well-funded did the best, but that's not always the case. Some of the most rewarding companies start off in a spare bedroom with a dream, and no cash.

There is something I find stimulating and satisfying when bootstrapping a company – at least while it's getting started.The peril of struggle builds character, will, determination, and a scrappy sense of perseverence. It allows you to trust yourself more, focus on what you can change, and build a team that will fight with you – even in the bad times.

Of course, cash is the blood of any business. Without it, you die. Guy Kawasaki has written a good post about bootstrapping at Always On. A couple of his key points:

  • Forecast from the bottom up. Build conservative cash-flow models and focus on generating cash. NOTHING trumps cash. If you're still living on investors, do whatever you can to get to cash flow. Don't fool yourself into thinking that because you've done a round, you've made it. That's not your money. You haven't earned it yet.
  • Ship then Test. Which is the equivalent of saying that your product or service doesn't have to be perfect. I always tell my team that this is the worst our service will ever be. Tomorrow, we will be a little better. And next week, month, year, we'll be incredible.
  • Pick a few battles. This is absolutely key. I've heard so many presentations where the entrepreneur knows they are going to be able to tackle 18 different opportunities at once – all for a $1.5mm Series A. Hello? Lights on. It's not going to happen. Focus down and do one thing really, really well. Also, don't try to go head to head with a bigger, more funded Fortune 500 company. Find a niche for starters and exploit it.

Macro Economic Understanding of What’s Going On

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I admit, I have an affinity towards macro economics. The study of how actions or inactions are interrelated on a global scale can keep my head buzzed for hours. Everything is connected. Perhaps there should be a "six degrees of separation" model made for finance and trade. That would be cool to see…

One of my favorite macro guys is Nouriel Roubini, a professor of economics at NYU and a well-respected forecaster of global economic conditions. His insight is awesome and I wish I could study under him for a semester. In a recent post, he eloquently explains reasons why we should not be expecting a V-shaped recovery (quick down, quick back up) and why this consumer-led downturn could be much more severe than others.

 In summary, we as a nation made the mistake of confusing income with equity, and thinking debt was free. People bought homes and used equity as an ATM machine. Instead of tapping that equity for investment, they spent it on down payments. Thus raising their debt exposure and driving true saving rates to below zero nationwide. Equity has now evaporated, and income is being threatened with layoffs. We are finding out that debt isn't free, and fixed payments can wreak havoc on a cash-flow statement.

Picture 2

I still consider myself a young dude, so I am trying to learn all I can by observing, listening, and staying in tune with my gut. My gut tells me that most people have not yet faced the full reality of the pending financial downturn that is still to happen. The market is a forward looking instrument and thus, 6-9 months ahead of the economy. We're hitting lows every day now, which means we still have many more months before we feel the full brunt of the blow.

What does all of this mean for the small business?

How can we apply sound business judgment in an unsound world? We have tried to prepare in advance for the downturn by keeping overhead low, correlating most costs directly to selling, and strategically gaining greater market share at a low cost of acquisition. We've questioned all our past assumptions, gotten granular on our statistics, and stayed calm and methodical about our strategic plan. We've used technology to become more efficient (one of our mantras for 2008 has been "automate, automate, automate"). We are finding ways to increase value for our customers at a zero or low cost to the company. And finally, we've focused on developing a best-of-breed experience that keeps satisfied customers coming back for more – thus increasing the equivalent of ARPU (average revenue per user) for our industry.

While we cannot control the wave of forthcoming macro economic pressure that will spill blood into the streets on a micro level, we can work hard to be smarter, leaner, and more focused. Sometimes you have to play defense, and I am a big believer in protecting the downside while seeking a higher-than-average return on capital – especially in a market like this.

The race is not always won by the swift, but to those who stay strong and keep running.

Fundraising: Plan B

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Guy Kawasaki has an excellent post on Plan B: Another way to grow your company. Over the past few years, I've seen so many companies with stars in their eyes. I know what it looks like – I've been there myself. Somehow, the idea of a big round of venture funding solidfies their existence and proves that their concept is destined to be the next big hit.

It's very similar to getting signed on a major record label.

It is imperitive that the artist is solid and can make unbelievable music with or without the label. The label then ads the firepower to get the the next level. But if the artist is relying on the idea that the label is proof of their superiority, then the artist probably won't get traction.

It's the same with your startup. Struggle and fund it yourself. Fail fast. Understand that your model will change 2-4 times in the first few years. Commit yourself to persevere through the chaos and find a way, no matter what, to understand what the market is willing to pay for. Then, focus on developing a service or product that answers those needs better than others.

Kawasaki's best advice on this article: "Rather than trying to boil the ocean, try to boil a tea kettle." We've found that mantra to be true within TakeLessons. Rather than focusing on the entire world/country, we've targeted specific geographies. Rather than focusing on everything related to lessons, we've focused down on what we do best. This allows us to direct our strategy in the areas that will provide us a true competitive advantage. The truth is that we will never have enough time, money, human capital to do everything we want at all times. So the power of focus has proven to be an invaluable tool.

The Music Industry

By Entrepreneur Insights No Comments

Seth Godin, blogger/author, has a great piece on the current perils in the music industry. It’s amazing how clearly broken the model is to an outsider, yet insiders still persist on reveling in the past.

What to learn from the music industry

From the post:

1. Past performance is no guarantee of future success
Every
single industry changes and, eventually, fades. Just because you made
money doing something a certain way yesterday, there’s no reason to
believe you’ll succeed at it tomorrow.

Why I started my company

By Entrepreneur Insights, Music, Start-Ups One Comment

Enrique was a top-notch musician. He had gotten a music performance degree a few years back, and followed his passion into music. He played all over San Diego, and was the drummer for our regional-touring rock band, Across The Room.

One Saturday afternoon, the band had just finished an acoustic set at a sea-side coffee house. I was the band’s very bad lead singer, and I invited him to join me for a margarita (no salt). Enrique couldn’t go because he had to quickly pack up his drums, go fill up his tank, and drive 30 minutes to another part of town. He was giving drum lessons to a 12-year old at the student’s home.

An hour later, I was sipping the margarita (Patrone) when he got the call. Enrique had driven over to the student’s home, and no one was home. He waited, tried calling, but they were a no show. Frustrated, Enrique drove back to the Mexican cantina and ordered a double.

Enrique’s Struggle

There, I talked with Enrique about the music business, and the teaching business. He explained to me how difficult it was for him to find students, and for students to find him. You see, most of us who have a passion for music, dance, or another creative outlet are just beginners, and we have no idea where to go, what to look for, and how to learn. So, what happens is we order a DVD, or try to download some guitar tabs, get frustrated, and quit without finding our true artist within.

After we calculated the marketing, the flyers (hanging up at the grocery store), gas money, the no-shows, and the wear & tear on his equipment, we found that Enrique was making less than minimum wage.

I was shocked! Here was my good friend, my band partner, and an unbelievably talented and accomplished artist making less than a Burger King drive-thru worker.  He and his wife just had a new baby, and between changing diapers, working a second job, waiting for no-show students, and rehearsing to keep up his art, he barely had time to build his own business and find his own students.

What We Do

It was this day I decided to start the business. It was started out of a genuine desire to help creative people connect with each other. We didn’t have the funds or people to blow out an entire active social network, and we would have wrestled with the cold start problem even if we did. So we built slowly – one user at a time.

Over the past 20 months, we’ve matched enough students to fill a football stadium. These people not only create online friends, but real-world connections. And while that’s all good (especially with no financial backing), we’re looking to take our business to the next level.

Most music and creative sites are chasing the artists who are really good, cut albums, and need to market themselves. This makes up 3-4% of the entire body of creative enthusiasts. What we do is give a home to the other 96%.

While it’s much more glamorous to be associated with a rock star, we feel there is a bigger unmet demand for the dude trying to figure out how to string a guitar.