Halo

7 Must Read Books Before Starting Your Company

Jason Weaver — Wed, 22 Feb 2023 12:51:18 +0000

No book can replace the actual experience of managing your own company; however, several lessons are worth learning ahead of time. I often joke with my colleagues that I earned my “street MBA” via the business book section of Amazon.com. You can learn a tremendous amount simply by studying the leaders in your industry that have succeeded before you. The following book recommendations offer a starting point to help guide you through your entrepreneurial journey.

Becoming a Category of One
By Joe Calloway

Becoming a Category of One reveals how extraordinary companies succeed and offers you the tools and ideas to help your business emulate their success. Packed with real case studies and personal reflections from successful business leaders, it helps you apply the best companies’ best practices to set yourself apart from your competitors and turn your business into a market leader.

Jason says: This book was instrumental in helping me identify new markets for Shoutlet. While every one of our competitors began to offer the same functions, we chose a different path. This book is uplifting and insightful. Use it for when you need to find your competitive edge.

It’s Not How Good You Are, It‘s How Good You Want to Be: The World’s Best-Selling Book
By Paul Arden

It’s Not How Good You Are; It’s How Good You Want to Be is a handbook to make the unthinkable thinkable and the impossible possible. The world’s top advertising guru, Paul Arden, offers up his wisdom on issues as diverse as problem-solving, responding to a brief, communicating, playing your cards right, making mistakes, and creativity, all notions that can be applied to aspects of modern life. This book provides a unique insight into advertising through easy-to-digest, bite-sized spreads.

Jason says: I’ve made this book a required read for many new employees. My favorite takeaway is that most people don’t realize that their current job could be the one that makes them famous. It teaches you to master your current role through inspirational stories from the late Paul Arden, former Creative Director of one of the world’s leading advertising agencies. Use this book if you are searching for meaning in your current job.

Think and Grow Rich
By Napoleon Hill

Think and Grow Rich is a must for anyone wanting to improve their lives and positive thinking. There have been more millionaires and, indeed, billionaires who have made their fortunes from reading this successful classic than any other book ever printed. This is a true masterpiece with the fundamentals of the Success philosophy.

Jason says: I tell the “three feet from gold” story in this book all the time to friends, employees, and other entrepreneurs. In this book, you’ll discover that many people give up on their dreams due to what is often a short-term setback. The stories in this book will give you confidence enough to stick with it, as you’re probably only “three feet from gold.”

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition
By W. Chan Kim and Renee Mauborgne

Written by the business world’s new gurus, Blue Ocean Strategy continues to challenge everything you thought you knew about competing in today’s crowded marketplace. Based on a study of 150 strategic moves spanning more than a hundred years and thirty industries, authors W. Chan Kim and Renee Mauborgne argue that lasting success comes from creating ‘blue oceans’: untapped new market spaces ripe for growth. And the business world has caught on – companies worldwide are skipping the bloody red oceans of rivals and creating their very own blue oceans.

Jason says: This book is a much more scientific take on Becoming a Category of One. It’s written by a couple of Harvard professors, and I found it to be a dry read, but it is also very effective in helping to define your competitive differentiators. The answers are often right in front of you, and this book will help you find them.

Rework
By Jason Fried

Rework shows you a better, faster, easier way to succeed in business. Read it, and you’ll know why plans are actually harmful, why you don’t need outside investors, and why you’re better off ignoring the competition. The truth is, you need less than you think. You don’t need to be a workaholic. You don’t need to staff up. You don’t need to waste time on paperwork or meetings. You don’t even need an office. Those are all just excuses. What you really need to do is stop talking and start working. This book shows you the way. You’ll learn how to be more productive, get exposure without breaking the bank, and tons more counterintuitive ideas that will inspire and provoke you.

Jason says: This book proves that you can create a successful company without an endless supply of resources. I used this book with my product development team to help them continue to think like a startup as we grew. Read this before you go out to get a big round of funding, and it will humble you.

The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything
By Guy Kawasaki

A new product, a new service, a new company, a new division, a new organization, a new anything—where there’s a will, here’s the way. It begins with a dream that won’t quit, the once-in-a-lifetime thunderbolt of pure inspiration, the obsession, the world-beater, the killer app, and the next big thing. Everyone who wants to make the world a better place becomes possessed by a grand idea. But what does it take to turn your idea into action? Whether you are an entrepreneur, intrapreneur, or not-for-profit crusader, there’s no shortage of advice on issues such as writing a business plan, recruiting, raising capital, and branding. In fact, there are so many books, articles, and Web sites that many startups get bogged down into paralysis. Or else they focus on the wrong priorities and go broke before discovering their mistakes. Jason says: This book taught me how to create a cadence to get our company marching to the same beat. I learned about mantras and the importance of communication in a fast-growing company. Use this book to help create meaning for your company.

Drive: The Surprising Truth About What Motivates Us
By Daniel H. Pink

Most people believe the best way to motivate is with rewards like money—the carrot-and-stick approach. That’s a mistake, says Daniel H. Pink (author of To Sell Is Human: The Surprising Truth About Motivating Others). In this provocative and persuasive new book, he asserts that the secret to high performance and satisfaction- at work, at school, and at home—is the deeply human need to direct our lives, learn and create new things, and to do better by ourselves and our world. Drawing on four decades of scientific research on human motivation, Pink exposes the mismatch between what science knows and what business does—and how that affects every aspect of life. He examines the three elements of true motivation—autonomy, mastery, and purpose- and offers clever and surprising techniques for putting these into action in a unique book that will change how we think and live.

Jason says: This book changed the way I manage employees. As a mid-level manager, I was used to doing tasks for my employees. As I became a CEO, that strategy was no longer an option. Use this book to teach you how to empower your employees to become the extraordinary thought leaders they can become. Most people thrive on solving challenges. This book will show you how to lead your employees to greatness.

What is the best startup-related book that you would recommend?

– Jason

The post 7 Must Read Books Before Starting Your Company appeared first on Halo.

When to seek funding for your venture

Jason Weaver — Sat, 14 Jan 2023 12:53:44 +0000

Over the past few years, I have helped raise nearly $25 million dollars for Shoutlet. So it’s no surprise that several new entrepreneurs ask me about obtaining Venture Capital funding. I’ve learned some very valuable lessons throughout the process, and I’m hoping that this post will help you examine all of your available options before you consider funding.

First, only take funding if you need it. It sounds like an obvious statement, but too many startups go out for funding just because they think they have to. I suggest doing whatever you can to self-fund your startup before accepting funding.

Second, the days of funding an “idea” are over. Naive startups believe that you can simply devise a good idea, get it funded, quit your day job, and then start taking a salary. Those types of funding events have not happened since the Clinton era. No investor funds an “idea” anymore. Venture Capitalists look for proven business models now. They only want to invest in a “sure thing.” My suggestion is to borrow and beg to get your idea to a prototype, sell some of it into the marketplace, then go for funding once you prove that it can scale.

A famous CEO told me once, “The second you take funding, you can never go back. Your business will be about growing top-line revenue, and you’ll soon need more funding to sustain your growth.” He was right. Once you accept funding, you work for your Board of Directors and shareholders, and you must do what’s best for the company, with or without you there. I suggest examining all other options before going for funding.

Consider this story from my friend and fellow entrepreneur, Jack Phan. He’s an entrepreneur that did it both with and without funding. I’ve asked Jack to share his story:

“In 1997, I was involved with an early Internet startup in Portland, Ore during the dot-com boom of the 90s called Handyman Online. By 1998, our technology for online lead generation, matching and lead distribution systems proved so successful that we were growing beyond our capacity and had to expand offices and take on more overhead. By 1999, we had raised nearly $26 million dollars in funding, hired a new CEO, opened nearly 30 physical offices nationwide and grew our headcount to 300+ employees. We spent several million dollars to hire a consulting firm to do an overhaul of our technology infrastructure, complete hardware upgrade and bring in enterprise level software to support a large business.

By 2000, we had given up control, burning through cash at a faster rate than we could grow revenues, and by spring of 2001, during the dot-com meltdown, we needed the next round of funding but our investors had all fled. The more money we raised, it appeared the more money we would need to keep growing and chase profitability. Eventually, we sold our assets to our biggest competitor and walked away with nothing.

However, it didn’t take long before we were back at it. By September of 2001, we had started a new company called ReliableRemodeler.com and vowed to grow this company with our own resources and not give up our equity if we didn’t have to. The goal was simple; grow with our own resources, build a solid team, wear as many hats as we could manage and try to double our revenues each year while maintaining control of our company.

By 2007, we landed #187 on Inc. 500’s Fastest Growing Private Companies by achieving more than 1100% growth. The offers started to come in and by February of 2008, we successfully sold our business to a Bay Area company in the lead generation space for all cash. Our patience, hard work and dedication finally paid off. We probably could have grown faster had we taken on investor money like the first business but we would have given up control, equity and would have had to sell our business for at least 10 times what we sold it for just to achieve the same personal financial exit.

My advice is have a good business model first, take money only if you have to, do your job as an entrepreneur to add value, work your butt off, and build a business that can be self sustaining for a long time. In the end, your hard work and dedication will pay off.”

– Jack Phan

Funding Sources (listing by recommended order of priority):

Pre-sell – If your idea is solid enough, why not try pre-selling it to customers? When I first began Shoutlet, I sold the idea of our platform to clients by showing them a PowerPoint presentation well before it was actually built. I promised prospects a substantial discount and the opportunity to help shape my product roadmap if they ordered in advance. I funded the entire first version of Shoutlet by taking pre-orders.
Friends and Family – Your own friends and family can be an excellent funding source. It may surprise you how supportive they can be when you approach them for investment. Most families have a “rich uncle” that is more than willing to help. If you get funding from family, I would make the process formal. Set a valuation and determine your terms of investment before you take their money. I’ve seen verbal deals lead to lawsuits later, which can be ugly for families. Also, be clear about the risks involved in funding a startup.
Bank Loan – After last year’s financial crisis, getting money from bank institutions is much more complex than it used to be. I’d recommend a bank loan if you truly have faith that your product or service will sell immediately AND if you have collateral to offer the bank (such as your home, car, or 401k account). My advice is to never put yourself in a situation where you can’t unwind. Always make sure that you can pay off the loan even without selling your product or service.
Angel Funding – You can often obtain funding from high-net-worth individuals in your hometown. These people can often be found by networking with lawyers, bankers, and accountants. Be sure that the individual is an accredited investor. You need to follow specific rules to stay out of legal trouble when going the Angel route. Often Angels invest in the individual, not necessarily the company. It’s much easier to get Angel investors than it is to go out for Venture Capital funding.
Venture Capital – Venture Capital money is the toughest to get. The folks that run these firms are often Harvard, or Stanford educated with several years of experience in funding and selling companies. They receive hundreds of monthly business plans and only jump on the ones that align with their firm’s investment criteria. To obtain Venture Capital, you often have to be already generating revenue with a proven business model. Venture Capitalist invest in the company, not the individual. They want to see how you can scale your company and give them a ten times multiple on their investment. To pitch a Venture Firm, I recommend having two pieces to your pitch: 1) A PowerPoint presentation that can tell your story in less than 10 slides and 2) An Excel sheet that proves your revenue model. Note: VCs think in bullet points. Be clear, concise, and to the point. You can visit the National Venture Capital Association for information on Venture Capital. Also, it may be helpful to download a Term Sheet to see in advance what your investment terms might look like. In addition, be sure to check out The Funded to see how well other entrepreneurs rate your potential Venture Capital investors.
Crowdfunding – Kickstarter gained significant attention as a way to get funding for your new product or service through the internet. Crowdfunding allows inventors to list their idea on a popular website to raise funds before it goes to market. Often several hundred (or thousand) people will invest in or pre-order your product before you build it. I’ve found this process to be very effective for products (not as good for services) that you want to test the market before you go bigger.

Types of Investment Instruments (Definitions from Wikipedia):

Preferred Stock – Preferred shareholders have priority over common stockholders on earnings and assets in the event of liquidation, and they have a fixed dividend (paid before common stockholders). I’ve seen almost all Venture Capital deals use Preferred Stock. Basically, they get their back before you do. They also get nifty little add-ons like dividends and participation rights (extra ways of squeezing cash out).
Common Stock – The type of stock most often used for investment. If your legal structure is a Limited Liability Company, you might have to change it to a C Corporation to begin selling Common Stock. Most Angel investors are fine buying Common Stock as it’s the same type of ownership you would have as an entrepreneur. One of the only ways for an entrepreneur to get Preferred Stock is if you put a significant amount of your own cash into the company.
Warrants – A warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date. Warrants and options are similar because the two contractual financial instruments allow the holder special rights to buy securities. Both are discretionary and have expiration dates. The word warrant simply means to “endow with the right,” which is only slightly different from the meaning of option.
Debentures – A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. Basically, it gives companies the opportunity to borrow money from investors instead of going to a bank.
Stock Options – A call option on the common stock of a company, granted by the company to an employee as part of the employee’s remuneration package. The objective is to incentivize employees to behave in ways that will boost the company’s stock price. If the company’s stock market price rises above the call price, the employee could exercise the option, pay the exercise price, and be issued ordinary shares. The employee would experience a direct financial benefit from the difference between the market and the exercise prices. If the market price falls below the stock exercise price at the time near expiration, the employee is not obligated to exercise the option, which will lapse. Restrictions on the option, such as vesting and non-transferring, attempt to align the holder’s interest with those of the business shareholders.
Phantom Stock – A form of compensation where a company promises to pay cash at some future date, in an amount equal to the market value of a number of shares of its stock. Sometimes companies prefer to use Phantom Stock for their employees because it gives them similar benefits to Stock Options but without voting rights. Additionally, Phantom Stock doesn’t need to be purchased later than Options, so there is no money out of pocket. However, Phantom Stock is often taxed like a cash bonus, so employees cannot take advantage of long-term capital gain tax discounts like with Options.

So, where do you start? That’s a good question. You have planted the seeds, and now it’s time to develop the roots of your company with a strong management team. Once you set a solid foundation in place, your company will flourish. Investors bet on your teams as much as they do your company, so select your branches wisely.

Remember, at the end of the day, it’s all about control. Even though Facebook has raised several rounds of capital, Mark Zuckerberg still controls all of the votes for Facebook. If you position yourself correctly, you can do the same.

I hope you found this post helpful as you consider raising capital. Let me know if you have any questions or need any additional advice for your own funding process.

-Jason

The post When to seek funding for your venture appeared first on Halo.

Wicked VCs – How To Not Get Screwed

Jason Weaver — Thu, 01 Dec 2022 12:56:52 +0000

Searching for capital? You may want to think twice about it. As I tell every new entrepreneur, do everything you can to avoid getting investors with your new company. If you truly believe in your idea I recommend bootstrapping, a bank loan, or friends and family before getting involved with Venture Capital.

Before I dig in, I want to start by saying, not all VCs are bad. In fact, the right one will help you make connections, find new customers, and help you grow professionally in ways you can’t even imagine. VCs like Sequoia, Benchmark, and Andreessen Horowitz are the firms that entrepreneurs dream to work with. However, these VCs are very hard to get into. You basically need to have deep connections or have fame already. Just like the music business, it’s best to make your own fame by truly hustling, building your awareness, and getting sales on your own. Only then will the famous VCs call you. Now for the lesson. Here’s how VCs can screw you:

Participating Preferred, Liquidation Preferences

Participating preferred stock is a type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends are paid to preferred shareholders, as well as an additional dividend based on some predetermined condition. Example of Participating Preferred Stock: Suppose Company A issues participating preferred shares with a dividend rate of $1 per share. The preferred shares also carry a clause on extra dividends for participating preferred stock, which is triggered whenever the dividend for common shares exceeds that of the preferred shares. If, during its current quarter, Company A announces that it will release a dividend of $1.05 per share for its common shares, the participating preferred shareholders will receive a total dividend of $1.05 per share ($1.00 + 0.05) as well. Now consider a liquidation event. Company A has $10 million of preferred participating stock outstanding, representing 20% of the company’s capital structure with the other 80%, or $40 million, made up of common stock. Company A liquidates, and the proceeds are $60 million. The participating preferred shareholders would receive $10 million but also would be entitled to 20% of the remaining proceeds, $10 million in this case (20% x $60 million – $10 million). Nonparticipating preferred shareholders would not receive the additional consideration. (Source: Investopedia). VCs can also set a multiple on a “Liquidation Preference”. Which mean a VC can specify which investors get paid first and how much they get paid in the event of a liquidation event, such as the sale of the company. I’ve seen some at a 3x multiple, which means that the investors are guaranteed to get 3 times their investment back before you get anything.

Blocking a Sale

This is a biggie and happened to me personally in one of my companies. You need to understand that VCs only care about one little acronym I.R.R. (investor rate of return). They don’t care about you, your family, your employees, your customers, or your company. Their sole measurement is how much their entire fund returns for the limited partners (their investors). VCs seek BIG wins because many of their businesses fail. Typically they like to get at least a 10x return on their investment. So, if you get $1M in funding, they want $10M when you sell. So the bar quickly gets set pretty high for what they are willing to accept as an exit amount.

Manage Your Executive Team

Most investments have provisions of who you can hire and fire on your management team. Many even include limits on how much you can pay for your talent, etc. While these are meant to protect the VC’s investment dollars, they can also be a huge pain in the ass. Imagine you’re interviewing for a new VP of Sales (like I was) and not only does the candidate need to interview with you and your management team, but also your investors who know nothing about your business or industry, yet have very strong opinions on who they like with zero facts to back up their choices. Additionally, imagine that you hired the wrong person on your management team and you desperately want to make a change but the investors won’t let you terminate that person. VCs can take over total control of your hiring process and it can hurt your company.

Letting You Bleed Dry, Then Save You

Getting money from a VC is great for growing your company, but it can also be bad. I was often called a “fiscally conservative CEO” by my investors because I spent our money more cautiously than they wanted me to. When you get funded, the investors want you to grow quickly. Their main goal is to increase revenue (in some companies it’s users) as fast as you can, then get acquired for multiples of your revenue before you run out of cash, period. Most VCs don’t care about being profitable, which didn’t sit well for me as a Midwest CEO. I have seen many companies spend their money as fast as the VCs have instructed them to do so and then let them run out of money. When the company is down on their knees, the VC will offer a loan, convertible note, or a bridge round to “save the company”. Although they act as if they are doing you a favor, they will often cut your valuation in half and pick up much more of your company at your time of need.

Tranche Funding

In my experience this typically happens with Series A rounds only. In a tranche deal, VCs will agree to give you your investment amount, let’s say of $1.5M, but want to fund you in stages. So you get $500k now, $500k once you hit the milestone, etc. Don’t be so desperate to take this type of deal. If you fail to achieve the agreed upon goals, they could take a larger percentage of your company OR let you bleed dry (see above). I’ve fought and WON this approach a few times with investors in the past just by telling them “no thank you” and that a tranche deal will force us to spend more cautiously. If we fear losing money, we’ll not use the funds aggressively and won’t grow according to our plan. They hate slow growth, so both times, my companies were fully funded and away we went.

Valuation

If you value your company too low, you get diluted quickly. But if you value your company too high, you might never hit the I.R.R. your VC is looking for and will never see an exit for yourself or your shareholders. Make sure you really believe that you can hit your numbers. VCs have several ways of punishing your performance by taking additional equity, reducing your salary, and even firing you, yes you, if things don’t work out. Always under promise and over deliver on your sales/growth plans.

Different Stock Classes

In one of my companies, I had decided to sell my stock to a private equity firm. Now, I was aware of Preferred Stock, Common Stock, Warrants, and Options, but I did not know that VCs could create different classes of stock within those investments. So the VC who bought my stock wanted to create a Preferred A2 class stock which would grant them more rights than Common shareholders (i.e. my dad who helped me get started) but would be less rights than the Preferred A guys (the big VC firm). Be aware of your VC’s ability to create additional classes of stock without your approval. It can ultimately screw over your original investors and that’s just not cool.

Additional Dilution, Debt, Poison Pills

There are tons of ways VCs can write additional ways of controlling your company into your term sheet. VCs can issue additional stock if you fail to hit any of your promises. I remember one of our first funding rounds where we had about $150,000 in outstanding debt. We told the VC that we could “probably pay off that debt within a year”. Well, they held us to it. In fact, we had to get rid of it all within a certain time period or they would receive an additional equity stake in our company. Surprisingly, my co-founder negotiated almost all our debt to zero within the first 14-days of getting funded. I think the VC was shocked we were able to pull that off. We saved ourselves a lot of equity. There are also “poison pills” that can be written into deals. According to Investopedia, there are two types of poison pills: 1. A “flip-in” permits shareholders, except for the acquirer, to purchase additional shares at a discount. This provides investors with instantaneous profits. Using this type of poison pill also dilutes shares held by the acquiring company, making the takeover attempt more expensive and more difficult. 2. A “flip-over” enables stockholders to purchase the acquirer’s shares after the merger at a discounted rate. For example, a shareholder may gain the right to buy the stock of its acquirer, in subsequent mergers, at a two-for-one rate.

5 Key Takeaways:

1) Not every investor’s money spends the same – Make sure the VCs you want to work with bring more than money to the table. Nothing is more frustrating than having monthly board meetings with a group of people who have no idea what industry you are in. 2) Always take the extra money – If your goal is to raise $1.5M, go for $2M. You’ll never have enough and you do not want to get bled out (see above). 3) Get an employment contract – This is different than an employee agreement that you’re used to seeing when you had a day job. Top executives get employment contracts that guarantee severance pay, stock awards, etc. Get one and know in advance what happens to you if the board wants you out. 4) Choose your board wisely – Don’t let your VCs choose your board. Give them the seat they ask for and select people your trust for the rest. Do not go for famous people, they won’t have time to help you. Trust is key. 5) Be bold, lead your board, shareholders, and employees. You made it this far by taking charge initially. Your board should verify your decisions, not make them for you. Make bold decisions that will have everyone walking off the plank with you. You’re the boss.

The Good VCs

As I mentioned in the beginning, not all VCs are bad. In fact, there are some that truly help in several ways. I’ve worked with some that provide full operation support (accounting, recruiting, marketing) and office space for their portfolio companies in addition to capital. If you’re considering raising money through a VC firm, be sure to do you due diligence on them too! Talk to other portfolio company CEOs, ask some of their limited partners how they work, speak to analysts who know them before making a deal. Check VC firms ratings from other entrepreneurs: I hope this post helps aspiring entrepreneurs who are seeking funding. Please let me know if you have any feedback.

About Me

Jason Weaver is a prominent author, and a thought leader in product innovation, usability and entrepreneurship. He is considered an authority in social media and mobile marketing. He frequently keynotes industry conferences, summits, and corporate events. Jason founded and successfully exited from two technology companies including Shoutlet, a leading Social Media Management platform. Today, he runs Halo, a strategic consulting firm that uses innovation, partnerships, and people to fuel rapid growth. His book, “Manager’s Guide to Online Marketing” , from the Briefcase Book Series (McGraw-Hill) is available at Amazon.com and Barnes and Noble worldwide. Jason has also authored articles for world renowned publications, such as Mashable and Forbes.

The post Wicked VCs – How To Not Get Screwed appeared first on Halo.

Startup CEO Survival Guide Podcast

Jason Weaver — Fri, 29 May 2015 12:58:44 +0000

My new podcast is coming November 1. Thanks to Michael Sharkey for coaching me for the launch, my sister Kristin for signing me to her new media management company, to my wife Alexias for her encouragement, and to all of the startup CEOs who share their dreams with me. I’m excited and hope all of you will subscribe. Stay tuned!

The post Startup CEO Survival Guide Podcast appeared first on Halo.