Technology Transfer Conference

I recently spoke at the 5th Annual Technology Transfer Conference in Chattanooga, TN. An amazing city that is innovating in so many different ways, including with startups. This IS the Gig-City! I highly recommend everyone look at what they are doing.

If you would like to download a copy of my PowerPoint Presentation Why Startups Fail - And How to Avoid It or if you would like to watch my presentation, both are available on the Mistakes Startups Make website by clicking here.

Photo by John Rawlston
See the article in the Times Free Press

Mistakes That Startups Make #6: Email

Communicating professionally is critical to a startups' success. But many startups treat communications like a get together with friends in a bar. Drunk friends.

If you were looking for a job and had the email address of a hiring manager, would you send the following note:

"Hi. I need a job. See my resume attached and call me."

Or would you send the following note:

"I am very talented and can make you lots of money. If you are interested, we should talk now about giving me a job. Send me your Skype name."

Or how about this one:
"I don't know what your company does, but I need to work for you. Look over my stuff at my website and then let me know when I can start."

Or finally how about this one:

"I have attached copies of everything I have ever done. Read through it all and let me know what kind of job you will give me."

Believe it or not, I get at least one email every day from a startup company that is saying the same things as the above statements only talking about their startup. Come on guys!

Now that Twitter is around, I also get the 140 character queries like: "check this out n let be prtners" This is a real one!

Virtually all of these communications I will immediately file away. Ok, I lied. I file all of them away.

I got one email last week from a startup and the email had 130 megabytes of attachments (pdf, docs, etc.) and the CEO of the startup asked me to review and give them my thoughts and recommendations. Yeah, I have two days to read this pile of stuff. Filed away!

If you want someone to give you money or advice or work with you to drive the success of your startup, then your emails need to sound professional and respectful and educated. The CTO of a $B company isn't going to respond to you at all. The angel investor is going to blacklist your email address.

The ones that I like the best: "Review this information about my startup. If you can't understand it I will understand." Yes, I got this one for real!

The ones I hate the most are the rambling texts with a hundred links and no real information unless I am willing to click and read everything on the web. Invariably one of the links has a virus attached.

You have one chance to communicate the amazing opportunity that your startup can deliver. Don't blow it by being lazy. Be professional, be articulate, be brief and yet be thorough. Explain who you are, what your startup does, what market it is in, why yours is unique and why you are contacting them. Ask them if they would like to learn more. Don't ask for money, referrals, reviews or to join your board...save that for future communications when you have a professional relationship. Thank them for their time and consideration.

Mistakes That Startups Make #5: Vision

A lot of us have come up with new ideas. The more we think about our new idea the more we expand the idea and define how the idea will be developed, deployed and sold. Eventually, we have a fully fleshed out vision of the future for our idea.

Now that we have a vision of our idea's future implementation, we want to make it real. And that is when many startups begin to fail.

Presenting a complete vision of a product to investors with no intermediate marketing stages often will result in little or no funding. The risk of failure is too high. And the longer the time period is needed to bring the vision to market the more likely it is that the market will shift and the product will no longer deliver the same dreamed about market impact and resulting revenues.

Developing a complete vision with no intermediate marketing stages makes the assumption that the startup's founders have a complete understanding of the potential consumer's needs and wants as well as the optimal packaging and presentation of the product. Many startups deliver complete vision products to market only to discover they have made invalid assumptions or that new competitor's products have shifted the consumer's expectations.

I know of startups that have actually turned down funding because the founders of the startup felt that the investors did not 'fully understand the vision and might limit the vision'. After years of searching, these startups have yet to receive funding under the terms of the 'vision'. Many of these startups will probably never get funding and their vision will never be realized.

The same thing happens to many (most? ALL!) established companies. Millions of dollars and years of development time are spent on products that when brought to market are a complete failure. If the product had been staged more appropriately the company would probably have identified the issues early on and been able to shift the development path to a more appropriate vision.

A complete vision can sometimes lead to complete blindness.

Mistakes That Startups Make #4: NDAs

You need to do everything you can to protect your IP while still being able to easily involve investors, partners and customers.

There are few people that will tell you more firmly than I will that you need to protect your intellectual property. I have twenty five patents (a stack of paper 3 feet tall). And I have reviewed a great many companies for merger/acquisition and almost always my first question is "Do you have defensible intellectual property"?

Before you talk to anyone, if you think you have a unique concept, idea or product then file a provisional patent application. It currently costs only $125/each and there are services that will help you file that are available for under $200 for all the applications you want to file.

That means for $700 you can file four provisional applications. Yes it takes some work, but any investor will ask to see how you are protecting your IP. So, don't say you can't afford it. It is the best $700 you will spend. It puts a stake in the ground of when you identified your IP. An NDA (Non-Disclosure Agreement) won't protect your IP like a patent will.

Once you have locked in your IP, then you can start worrying about talking to other people. But, you have to do it right. VCs and angels will RARELY sign an NDA. But, they also don't want to know the detailed mathematics or algorithms or processes or whatever that makes your product unique. They don't need the secret sauce early on. They want to know only the high level values in the beginning. Save the secret sauce for the latter stages of due diligence.

About 1 out of every 40 startups will send me an email and say 'I have a great startup. Sign the attached NDA and we can discuss'. No information on what the startup is, nothing at all. I always ask for some high level info, but sometimes they will refuse without the NDA. They are asking me to read and sign a contract without even knowing if the startup is within my areas of expertise and interest. Don't want to tell me your secret sauce? No problem. But at least tell me if it has something to do with cloud computing or clothing design or gold mines or perpetual motion machines (yes I get those).

Some people will tell you "No one wants to steal your idea anyway". I disagree. Remember: Lock in your IP! Don't reveal your secret sauce unless there is a very good reason! An NDA will not protect your secret sauce!

You should create a brief description of your startup that describes why your startup is valuable without revealing your secret sauce. You also need a 3 minute description that you can tell anyone.
Let's look at an example: You are at a trade show. Your startup has some amazing new technology for mobile carriers. You happen to catch the CTO of Verizon Wireless after he speaks at the event. Are you going to ask him to sign an NDA? You better have that 3 minute summary ready to knock his socks off or you will lose the opportunity of a lifetime.

If your startup is 'better than sliced bread' then be prepared to say "My product can slice bread 40% cheaper and 50% faster reducing the cost of bread production by 10% overall". You don't have to say "We utilize a proprietary technology involving iridium lasers and twelve bonded mirrors as reflectors to slice bread where the mirrors are at increasing angles of 3 degrees above the horizontal...blah...blah...blah".

Discuss your value, not your secret sauce. And then people will sign NDAs and you won't lose sleep.

Mistakes That Startups Make #3: Funding

This is about expectations. Expectations of funding. Many startups seem to function in their early stages under the 'if you build it, they will come' theory of future funding.

Many startups get angel and VC funding in the U.S. In 2011 VCs funded a little over 3,000 startups. Angels is more of a guess, but the number is probably somewhere around 20,000. That's just my gut feeling. Many people will say there are more funded...a lot more! But most of these people want you to believe fervently in the 'if you build it...' theory. They want you to pay them to find you funding with the expectation that it will be easy and quick.

Some startups do get money quickly. This is very, very rare. Getting any kind of funding outside of friends and family can and normally does take years. And those are years where you are actively and continuously presenting to VCs and angels. Not trying to 'find' VCs and angels. Active presentation of your startup to angels and VCs. You can easily go through a dozen meetings over a year with a single VC just to end up being rejected. Angels can be just as exhausting and expensive. Most angels and VCs want to see you face to face. They want to judge your venture and YOU. If they don't you should take this as a sign of problems.

Some angels aren't really angels. They are people that are in collusion with angel agents and share the agents fee while leading you on. Don't get me wrong, there are some really good angel agents or brokers. But, there are also a lot of really bad ones. Watch for the sharks.

A lot of angels now belong to angel groups. They talk among themselves. If one rejects you then that rejection can eliminate the entire group of angel investors. And then you are hunting again for the next group of angels.

On average, it is extremely difficult, expensive and time consuming to get angel or VC funding. And that is if you are ACTIVELY PRESENTING. Anyone who tells you differently is not playing straight.

Most angels and VCs are highly protective of their contact information. In many ways they are like book publishers. If they make themselves too accessible they receive thousands (tens of thousands) of submissions each year. Far too many to evaluate. They have trusted advisors that bring ventures to them. These advisors are connected to executives in leading companies and those executives are watching for startups that have potential.

Startups need a few of things to succeed when looking for funding:

1. Money
2. Advisors that might be connected
3. Brokers that can position the startup

Notice that 'money' was the first need on the list. Plan on flying and presenting. Plan on paying a broker unless you are very well connected. Plan on presenting at VC conferences and competing in local and national competitons.

You need to understand that you probably have a million competitors all running after the same money you are. The most visible are the ones that will get the funding.

If you have no budget for raising money, then you have a very steep mountain to climb. A good estimate is a minimum of $50K for fund raising. If you are going after $Ms then you will need more.

Many startups have no fund raising budget. They spend everything chasing the 'if you build it' theory. Don't do it. Be actively presenting continuously while you are building.

Mistakes That Startups Make #2: Referrals

There is a right way and a wrong way to ask for referrals.

"Referrals" is one of those topics that normally ticks me off pretty bad. People constantly email me and ask me to send them a list of contact names so that they can get funding or find a partner or get a customer. Sometimes the startup tries to minimize it by asking for 'just a few'.

I know a lot of people. Those people know a lot more people. My personal Rolodex has over 6K names in it of people that I have dealt with in some way or I have met over my career. I know a large number of executives at very big companies. These are great people to know. And most of the time they will take my call or respond to my email quickly. They are contacts, acquaintances, business associates, friends, etc. No matter what you want to call them they are professionals and I treat them like professionals and I never waste their time.

Why will my contacts take my call? Because they know I am calling because I have something I have reviewed and that I think they will want to know about. I never contact them unless I am ready to lay out the startup or company in under 3 minutes. I can define exactly how they will benefit and I have materials prepped and ready to forward to them or their team to back up what I say.

So, if I have this great Rolodex of names, why aren't I willing to just share a few with someone I know nothing about? Hmmm. Seems kind of obvious to me and you wouldn't think this would be an issue.

Here are a couple of reasons I don't share:

1. Startups often contact me and can't tell me what they want. They tell me they need help but can't specify what help other than "I need money". If they can't tell me what they need do I think they can tell my contact? No.
2. Startups contact me and can't articulate what their company does in a paragraph or two or tell it to me in under 3 minutes. And they can't tell me how they would be valuable to a potential partner. And they can't lay out their plan for making their potential partner money. So, do I think they can sell themselves to my contact? No.
3. Startups contact me about an 'idea' they have. They can't tell me how they plan to protect it. They can't tell me how they would eliminate competition. They can't tell me who their potential competitors are. Do I think they will be able to answer the same questions when my contact asks? No.
4. Startups contact me and within the first email ask me to send them some contacts. They genuinely seem to look at me like a phone book. Do I think they respect my contacts, my reputation, my experience and my time? No.

Like I said, this topic ticks me off.

Why don't I share some contacts with strangers I am not in business with? Because if I did I wouldn't have any contacts to share.

Mistakes That Startups Make #1: Timing

Timing is EVERYTHING!

Pull a cake out of the oven too early or too late and it is normally garbage. Mess up your timing crossing a street and wham, no more worries.

Before you even get started on your startup, you should make a list of the things that you are going to need to accomplish in order to succeed. Then determine when you need to start doing each one of the things on the list in order to reach a final goal of a successful company. Here are a few of the things that should be on your list (I will discuss most of these in other “Mistakes” articles):

1. Market Definition
2. Product Development
3. Identifying Partners
4. Finding Funding (staging)
5. Locking in intellectual property (patents)
6. Finding Advisors
7. Creating a business plan

Depending on your product and market there could be a lot more items on the list. Also, the timing and importance of each will vary as well for each of you. The important thing is to never make the assumption: "Step 1 will make Step 2 EASY". In other words "If we finish a beta product, getting funding will be easy" or "I can easily talk to potential partners once I lock in the IP and get an NDA" or "My business plan shows specific roadmap stages and everyone expects to see that roadmap being met easily". I have seen startups (some funded with $50M) that spent years and all their money developing a phenomenal product and now have no money to market it and desperately need another angel or VC. In some cases, the market had completely moved on during the long development period.

Guess what: It is often too late at that point. Be proactive earlier in your timeline about solving each of the items on your list. Get partners as soon as possible. Lock in advisors that are targeted to your product and market. MAKE THE ASSUMPTION THAT YOU WILL NEVER GET MORE FUNDING. Use your money wisely for ALL of the items on your list because some of the non-funding items WILL SOLVE YOUR FUNDING PROBLEMS!

Don't do oooooonnnnneeeee ttthhhiiiinnnngggg aaaatttt aaaaa ttttiiimmmeee (dragged out for effect)....you will likely fail.

Nothing about a startup is ever EASY. Don't fall into the EASY trap...prepare and execute on a schedule.

A goal without a deadline is a wish.

Timing is everything.