For all of you showing us deals to be funded, I thought of
sharing this with you in order to avoid wasting your time and ours. We analyze
over 2,000 propositions a year. Time to be focused.
This is by the way a bullet FAQ we share with people looking
from us for funding – especially when starting a business or looking for us to
invest in early stage companies.
There are many types of business. Depending on your
business, some of these won’t apply.
All of these questions by the way come from entrepreneurs – the
smart and dumb ones alike- The rules are: I’m going to give no explanations. It
is as explicit as can be…. Here you go
1) C Corp or S Corp or LLC?
C-Corp if you ever want to take on investors or sell to another company.
2) What state should you incorporate in?
Delaware.
3) Should founders vest?
Yes, over a period of four years. On any change of control the vesting speeds
up.
4) Should you go for venture capital money?
First build a product, then get a customer, then get friends-and-family money
(or money from revenues which is cheapest of all) and then think about raising
money. But only then. Don’t be an amateur.
5) Should you patent your idea?
Get customers first. Patent later. Don’t talk to lawyers until the last
possible moment.
6) Should you require venture capitalists to sign NDAs?
No. Nobody is going to steal your idea.
7) How much equity should you give a partner?
Divide things up into these categories: manage the company; raise the money;
had the idea; brings in the revenues; built the product (or performs the
services). Divide up in equal portions.
8) Should you have a technical co-founder if you are not
technical?
No. If you don’t already have a technical co-founder you can always outsource
technology and not give up equity.
9) Should you barter equity for services?
No. You get what you pay for.
10) How do you market your app?
Friends and then word of mouth.
11) Should you build a product?
Maybe. But first see if, manually, your product works. Then think about
providing it as a service. Then productize the commonly used services. Too many
people do this in reverse and then fail.
12) How much dilution is too much dilution?
If someone wants to give you money, then take it. The old saying, 100 percent
of nothing is worth less than 1 percent of something.
13) What if nobody seems to be buying your product?
Then change to a service and do whatever anyone is willing to pay for using the
skills you developed while making your product.
14) If a client wants you to hire their friend or they won’t
give you the business (e.g. like a bribe) what should you do?
Always do the ethical thing: Hire the friend and get the client’s business.
15) What do you do when a customer rejects you in a B2B
business?
Stay in touch once a month. Never be angry.
16) In a B2C business?
Release fast. Add new features every week.
17) How do you get new clients?
The best new clients are old clients. Always offer new services. Think every
day of new services to offer old clients.
18) What’s the best thing to do for a new client?
Over-deliver for the first 100 days. Then you will never lose them.
19) What if your client asks you to do something not in your
business plan?
Do it, or find someone who can do it, even if it’s a competitor.
20) I have lots of ideas. How do I pick the right one?
Do as many ideas as possible. The right idea will pick you.
21) What is the sign of an amateur?
- Asking for an NDA.
- Trying to raise VC money before product or customers.
- Having fights with partners in the first
year. Fire them or split before
anything gets out of control.
- Worrying about dilution.
- Trying to get Mark Cuban to invest because “this would be
great for the Dallas Mavericks.”
- Asking people you barely know to introduce you to Mark Cuban.
- Asking people for five minutes of their time. It’s never five minutes, so you are establishing yourself as a liar.
- Having a PowerPoint that doesn’t show me arbitrage. I need
to know
that there is a small chance there is a 100x return on money.
- Catch 22: showing people there’s a small chance there’s 100 x returns on their money. The secret
of salesmanship is getting through the Catch
22.
- Rejecting a cash offer for your company
when you have almost no revenues.
22) What is the sign of a professional?
- Going from bullshit product to services to product to SaaS
product. (Corollary: the reverse is amateur hour).
- Cutting costs every day.
- Selling every day, every minute.
- When you have a billion in revenues, staying focused. When you have zero
revenues, staying unfocused and coming up with new ideas every day.
- Saying “no” to people who are obvious losers.
- Saying “yes” to any meeting at all with someone who is an obvious winner.
- Knowing how to distinguish between winners and losers (subject of an entire
other post but in your gut you know — trust me).
23) When should I hire people full time?
When you have revenues
24) How long does it take to raise money?
In a GREAT business, six months. In a mediocre business, infinity.
25) Should I get an office?
No, not unless you have revenues.
26) Should I do market research?
Yes, find one customer who DEFINITELY, without a doubt, will buy a service from
you. Note that I don’t say buy your product, because your initial product is
always not what the customer wanted.
27) Should I pay taxes or pay dividends?
No. You should always reinvest your money and operate at a loss.
28) What should the CEO salary be?
No more than 2x your lowest employee if you are not profitable. This even
assumes you are funded. If you are not funded your salary should be zero until
your revenues can pay your salary last. Important RULE: the CEO salary is the
last expense paid in every business.
29) When should I fire employees?
When you have fewer than six months’ burn in the bank and you aren’t getting
revenues growing fast enough.
30) What other reasons should one fire an employee?
- When they gossip.
- When they don’t over-deliver constantly.
- When they ask for a raise because they think they are making below industry
standard.
- When they talk badly about a client.
- When they have an attitude.
31) When should you give a raise?
Rarely.
32) How big should the employee option pool be?
15 to 20 percent.
33) What if one client is almost all of my revenues?
Treat them very nicely. Don’t forget the Christmas gift basket.
34) What’s the best way to sell anything?
Show arbitrage: If they pay X now they are buying something worth X * Y. That
is the ONLY way to sell.
35) What is the best way to sell anything?
Part II: fear and agitation. Get them afraid (the world is falling apart). Get
them agitated (this is the only way to stop it).
36) What’s the best way to talk about your competition in a
meeting?
Use “choice ambiguity” (Google it). Say, “all of my competition is great. I
wouldn’t even know how to choose among them.”
37) Should I ever worry about the news or the economy?
Absolutely not. The best businesses are started in horrible economies.
38) What happened to all of my friends?
You don’t have any more friends.
39) How do I charge more for my services?
Itemize as finely as possible and charge for each item.
40) Do I charge per hour or per project or per month?
First per project, then per-month maintenance.
41) How do I prepare for a meeting?
Know everything about the clients: competition, employees, industry. Over-read
everything.
42) What is the only effective email marketing?
Highly targeted email marketing written by professional copywriters, and the
email list is made up of people who have bought similar services in the past
six months.
43) Should I give stuff for free?
Maybe. But don’t expect free customers to turn into paying customers. Your free
customers actually hate you and want everything from you for nothing, so you
better have a different
business model.
44) Should I blog?
Yes. You must. Blog about everything going wrong in your industry. Blog personal
stories that you think will scare away customers. They won’t. Customers will be
attracted to honesty.
45) Should I care about margins?
No. Care about revenues.
46) Should I spin-off this unrelated idea into a separate
business?
No. Make one business great. Throw everything in it. Do DBAs to identify
different ideas.
47) Should I hire people because I can travel on a
seven-hour plane ride with them?
Don’t be an idiot. If anything, hire people the opposite of you. Or else who
will you delegate to?
48) Should I negotiate the best terms with a VC?
No. Pick the VC you like. Times are going to get tough at some point, and you
need to be able to have a heart-to-heart with them.
49) Should I even start a business?
No. Make money. Build shit. Then start a business.
50) Should I give employees bonuses for a job well done?
No. Give them gifts but not bonuses.
51) If my customer just got divorced, what should I say to
him?
“I can introduce you to lots of women/men.”
52) When should I give up on my idea?
When you can’t generate revenues, customers, interest, for two months.
53) Why didn’t the VC or customer call back after we met
yesterday and it was great?
“Yesterday” was like a split second ago for them and a lifetime for you.
There’s the law of entrepreneurial relativity. Figure out what that means and
live by it.
54) Should I hire a professional CEO?
No. Never.
55) Should I hire a head of sales?
No. The founder is the head of sales until at least 10 million in sales.
56) My client called at 3 a.m. Should I tell him to respect
boundaries?
No. You no longer have any boundaries.
57) I made a mistake. Should I tell the client?
Yes. Tell him everything that happened. You’re his partner. Not the guy that
hides things and then lies about them.
58) I personally need money. Should I borrow from the
business?
Only if the business can survive for another six months no matter what.
59) I just bought two companies. Should I put them under the
same roof and start consolidating?
No. Not for at least two years.
60) Should I quit my job?
No. Only if you have salary that can pay you for six months at your startup.
Aim to quit your job but don’t quit your job.
61) What do I do when I have doubts?
Ask your customers if your doubts are trustworthy.
62) I have too much competition. What should I do?
Competition is good. It shows you have a decent business model. Now simply
outperform them.
63) My wife/husband thinks I spend too much time on my
startup?
Divorce or close your business.
64) Should I expand geographically as quickly as possible?
No. Get all the business you can in your local area. Travel is too expensive
time-wise.
65) I undercharged. What should I do about it?
Nothing. Charge the next client more.
66) I have an idea for an app but don’t know how to execute.
What should I do?
Draw every screen and function. Then outsource someone to make the drawings
look like they come from a real app. Then outsource the development of the app.
Get a specific schedule. Micromanage the schedule.
67) I want to buy a franchise in X. Is that a good idea?
Rely on the three Ds: Death, Debt, Divorce. When someone dies, the heirs will
sell a business cheap. When someone is in debt, they will sell a business
cheap. When someone divorces, the couple usually has to sell a business cheap.
IMPORTANT: even if the trends in the industry are in your favor, you CANNOT
predict the future. But you can use the past to help you get a deal. Always get
a deal.
68) I have a lot of traffic but no revenues. What should I
do?
Sell your business. There’s only one Google. (Well, there are two or three
Googles: Facebook, Twitter … )
69) I have no traffic. How do I get traffic?
Shut down your business.
70) Should I hire a PR firm?
No. Do guerilla marketing. Read “Newsjacking” and “Trust me I’m Lying.” PR
firms screw up from beginning to end.
71) My competition is doing better than me across every
metric. What should I do?
Don’t be afraid to instantly shut down your business and start over if you
can’t sell it. Time is a horrible thing to waste.
72) XYZ just sold for $100 million. Should I be valued at
that? I’m better!
No, you should shut up and stop being stupid
73) Investors want to meet me and customers want to meet me.
Who do I meet if I need money?
You should know the answer to that by now.
74) If an acquirer asks me why I want to sell, what should I
say?
That you feel it would be easier for you to grow in the context of a bigger
company that has experienced the growing pains you are just starting to go
through. That 1+1 = 45.
