We Need More New Companies

Bill Warner Sunday, July 11, 2010

Sometimes I just sit back in my chair and yell at the ceiling. "What the blazes are we doing in this economic recovery?"  We are making no progress and simply growing the government sector that produces nothing that represents lasting economic growth. The administration and Congress are deploying ideas that have not ever worked, both in this country as well as Europe and others.

I am no economist or expert in government, but a key part of the solution seems so apparent to me. We need to foster new business growth by taking the actions necessary to create new businesses through a revitalization of entrepreneurship in America. At the heart of American jobs and economic success is the small business. We need to be doing the things that create lasting viability of small businesses and enable them to prosper.

There's a good article on this in Inc. called Revitalizing the American Dream. Take a look at it each of the sixteen steps for revitalization and see if you agree. The ideas are quite doable but don't go far enough:

  • Entrepreneurship should be taught in our high schools, community colleges and universities. We need a new mindset that reflects that going into business for yourself is a fine undertaking, but we need to teach our young people how to do it for real. This would be a monumental undertaking by our school systems, requiring leadership that can make it happen.

  • Incubators are fine, but they have to be staffed by real business people that can tap into the entrepreneur's local community. We need to go beyond the limits of incubators and provide pervasive mentoring for entrepreneurs. We need to tap into the wealth of business knowledge that resides with senior business people. Thanks to medical science, we live well into our 70's, leaving many years for retired business people to coach and mentor entrepreneurs. We have a wealth of knowledge that can be put to work to mentor aspiring entrepreneurs. Take a look at EntreDot, an organization that is trying to foster mentorship.

  • Government needs to get out of the way, but also enable the way. A partial list of what is needed  is as follows:

    • Provide tax credits for business investment.

    • Reduce the capital gains tax, if not eliminate it all together.

    • Reduce taxation on business. We are the second most highly taxed nation in the world, and people wonder why businesses leave the US. Watch the economy flourish at a 15% tax rate on businesses.

    • Reduce and eliminate non-productive regulation; including Sarbanes Oxley, OSHA, FDA, healthcare, banking and environmental to name a few that add tremendous cost to business operations.

    • Free up angel investor organizations and micro-angel funds from caps on their returns and fees. In addition to grants, this is where the seed money for businesses comes from.

    • Government backed education loans for small business programs, but phased out once the private sector can finance this.

    • In addition to grant programs provide equity investment in early stage companies

All tax reduction actions have to be coupled with government spending reductions. A task that should be quite easy by laying a copy of the Constitution next to the budget and start making cuts to all those things that government should not be involved in.

A tremendous economic boost would come from effective action to become energy independent by aggressively exploiting our own oil and gas capacity nationwide. Watch the price of energy drop if we did that; further accelerating company profits.

Basically, we have to let Americans do what they do best. Innovate. Our uniqueness lies in our freedom and an economy based on capitalism. Sure, we make lots of mistakes and the going is rough, but it sure beats any other alternative I have seen from any other country or society ever.


John Draper - Champion of the Entrepreneur

Bill Warner Sunday, July 11, 2010

Every day of his life, John Draper had time for an entrepreneur who needed help. Now we have lost John to an untimely death, but his influence on the world of entrepreneurs will long be felt.

I am proud to have known John from the time he started the rejuvenation of the First Flight Venture Center in Research Triangle Park. From the first day I met him he always wanted to know how he could make First Flight a success. He wanted to know how to approach state government with a positive message about the future of First Flight. He wanted to meet the movers and shakers in the area. He had a flood of new ideas coming out of his head on how to help entrepreneurs create successful businesses. To say that John had energy is an understatement. He was a gusher of compassion, advocacy and innovation when it came to finding ways to help entrepreneurs.

My closest relationship with John was on the board of the Triangle Accredited Capital Forum, a local angel investor network. John was one of the original board members who helped us establish our founding principles and was a day-to-day critic of where we needed to focus. He was always available to coach the entrepreneurs through their business plan presentations and would go the extra mile or two to help them meet people they needed to meet. We had some heated debates about the viability of businesses that approached us, and in every case John spoke from his love for the entrepreneur and his sincere interest in helping them be successful.

Our hearts and prayers go out to John's family as they deal with John's passing. John will be greatly missed in our community.

There will be a memorial service and celebration of John's life on Tuesday, July 13th, from 3:00 to 6:00 pm, at the First Flight Venture Center at 2 Davis Drive in RTP.


The Alternative Board

Bill Warner Friday, April 23, 2010

I recently had the opportunity to sit in on a meeting of The Alternative Board (TAB) in Research Triangle Park. We have all been to all sorts of networking meeting and events as well as executive round-tables. All of them are "nice to meet you" and "want to get to know you" kind of encounters. But, TAB is different.

TAB is not a "soft drink"

TAB groups are invitation-only organizations of peer business owners who want to have a serious conversation about how to grow their businesses. Business owners and executives are led by an experienced facilitator who has extensive experience in executive coaching. During a half-day meeting every month, the group of peer business executives conducts well structured discussions about specific business issues that each of them have.

OK, that's the easy part. These discussions have a serious intent. The peers act as they would if they were the board of directors of the company who has an issue under discussion. The business owner is given time to explain their business issue and its significance to the company. The peers then ask questions for further clarification, without making judgments. Once the issue is clarified, the board then gives advice. Quite frankly, the business owner needs to fasten their seat belt, because this part of the agenda is characterized by highly focused straight talk without any sugar coating.

The business owners get some very valuable and unfiltered feedback that they will often not likely hear even in their own management and board meetings. The reason is that none of the peers are wrapped into the business owner's strategy or their company politics, giving them the opportunity of being brutally honest.

Accountability and trust is at the heart of it all

What makes this work is that the members of the TAB group have built a high level of trust with each other and as a result command a high level of accountability. After the business owners get feedback on their issues, the business owners are required to summarize what they heard and say what they are going to do next.

This is where the accountability appears. The business owner has committed a course of action and will have to report results to the TAB group at the next meeting. Of course, all of these discussions are kept confidential.

But, there's homework

Business owners also receive monthly private executive coaching services from their board facilitator using TAB’s small business consulting tools. These skilled business consultants help solve particularly sensitive issues and teach management and leadership techniques that can be immediately put into practice. Each facilitator/coach has extensive top-level business management experience to further enhance the executive coaching sessions.

Take a look for yourself

Being the owner of a business or a top executive is a lonely job sometimes. It is often good to get out of the office and be able to talk with some people who are truly interested in helping you and can be relied upon to give you good advice.

Go to the TAB website to learn more. If you are in the Research Triangle Park area, contact Keith Weaver (keith@smart-state.com) or Jack Ford (jack.ford@balfoursales.com) to learn more.


Managing in an Uncertain Economy

Bill Warner Monday, February 01, 2010

There is no one single thing that will protect your business in this economy. You need an array of actions to maximize your chances of getting through this downturn and pull you through what might be in store for us, whether it’s further depression or looming inflation.

Cash remains king

Have you tried to get a business loan lately? Pretty tough isn’t it? Better take a look at your line of credit and see if you can get a higher limit and a better interest rate over a longer period of time while you can.

Take a really hard and pessimistic look at your cash position. How long will it last in the grimmest of sales forecasts? Establish refreshed limits on your cash reserves and then create the cost and expense budget that would achieve it.

Have you looked at your accounts receivables and their aging? Do it now. If needed, establish new goals for collections and execute them with discipline.

Of course, manage expense

Take a more insightful approach to managing expense. It’s not just a budget cutting exercise, although you may find unnecessary things to eliminate. More importantly, it’s a matter of getting more for your dollar.

This is about working smarter, being more focused and increasing productivity. Consider things like:

  • Taking stock of your knowledge of your market and determine if there are better ways to reach your customer
  • Looking for ways to reach additional customers within your current market, with essentially the same marketing dollars
  • Creating teams of people that look at process improvements in marketing, sales, development, manufacturing and customer support, looking for ways to be more productive. Constantly ask why we do things they way we do them. Give them a reward when they find substantial improvements
  • Analyzing your lines of business, bringing focus on those that are performing poorly. Find out why and fix them or eliminate them entirely


Often overlooked, communications is even more important in tough times. When employees are left in the dark about the business situation, they will surely make things up based on any observation they make or rumor they hear. As they make up the situation for themselves, they will take care of communications for you by simply telling others what they believe to be true. Pretty soon, your business picture is painted with a brush you never held.

It’s time to over-communicate. Use whatever means of communication you have to your employees:

  • Frequent all hands meetings
  • Management meetings with stress on getting information to employees
  • Newsletters to all employees
  • Make a point of walking around every day, talking to everyone you meet

Most employees can deal with any news you give them, as long as it is the truth and you are realistic. When employees know the truth and the ramifications of it, they will work hard to achieve the company’s goals.

Get the best from the best

Take the time to realign everybody’s roles and responsibilities with the company’s goals. Everybody needs to understand what they have to do and why they are doing it. This will turn out to be a giant productivity improvement by getting everybody on the same page, and being able to clearly see how everybody’s job fits into the strategic plan for the company. It will help eliminate unnecessary work that is not important to achieving their goals.

It’s also time to put more discipline into managing the performance of people. This means setting realistic expectations, working with employees to meet them, and rigorously assessing their performance. This will bring the best forward as they rise to the challenge and will weed out those that are not been performing.

Just as in most start-up companies, you need all “A” players, because everyone has to be an outstanding performer to get you through the tough times.

Look to the future

In a way, this is all getting you repositioned for the good times. You business will come out of the downturn being stronger, more focused, more productive and with excellent people. Take the time also to look at new business areas you might attack when you are ready to spend some of your cash reserve.

Do the market research that will lead you to new opportunities. You are looking for the next great deal in which to invest your hard earned cash. You may find an acquisition or new partner that you never expected. Your new found strength may be just what they need at a price that is very attractive to you.


Successful VC’s “Stay Fresh”

Bill Warner Thursday, January 28, 2010

I just read an amazingly refreshing perspective by Greg Gretsch in PE HUB. It’s all about what it takes to be a successful VC. It is counter-intuitive, but makes a lot of sense.

A Fresh View of a Successful VC

With only ten years as a venture capitalist, with some very successful investments and lucrative exits, Gretsch is worried about becoming stale and out of date. Heck, most VC’s with his record of success would be riding high, living the good life, and pontificating to the venture community about his formula for success.

But no! Gretsch doesn’t think that the longer you’re a VC, the more skilled you become in picking winners. Instead, he theorizes that if you’re a VC for more than 10 years, you’re likely to grow worse at your job over time. And, he has some data that point out that this may very well be true. Even with spotty verification, Gretsch takes this seriously. Here’s why:

  • The older a VC becomes, the further out of touch with new technologies they become
  • As they move up the professional pyramid, their network actually shrinks because they are working with fewer and fewer people
  • They are not meeting the new people that are really bringing innovation to the market; as a result they miss trend setting ideas
  • They are stuck in looking at existing market sectors for new opportunities, missing new and significant market changes
  • Family demands increase as they get married and have children

How Do VC’s “Freshen Up?”

Gretsch’s simple advice is to “remain humble, keep your attitude in check, and stay hungry.” The hard part is to remember how that all feels. Here’s his formual, which might apply to many of us in lots of different lines of work:

  • Increase the number of relevant technologies with which you are familiar
  • Follow the leading industry analysts to learn what they are thinking
  • Build relationships with the next-generation of successful investors and technologists
  • Reach out to the younger entrepreneur and learn from their fresh ideas
  • Always be better at what you do

I think Gretsch really believes this and will remain on top in the VC community for another decade.


VC Investment Outstrips Fund Raising

Bill Warner Wednesday, January 27, 2010

In 2009, the venture capital industry experienced the biggest gap between investment and fund raising in the last six year. In a recent Wall Street Journal Venture Capital Dispatch blog, it was reported that investment was down nearly $10 billion, from $30 billion to $20 billion, while fund raising declined $17 billion, from $30 billion to $13 billion. This $6 billion plus difference is the amount more invested than was raised by VC’s.

Bad news for companies

The implication is that although venture firms still have a lot of money, it is still going to be increasingly hard to get funding because they are running low on available funds and it is still very difficult for them to raise further funds from their limited partners. Their limited partners are still suffering from the economic downturn and have not opened this investment class for funding.

Corporate and other private equity investment is also suffering, further reducing the number of options for equity financing.

Is IPO the answer?

Another source of funds could be successful IPO’s, which could breathe more money into the VC firms. We have recently read about an emergence of IPO filings, including Motricity, a former RTP darling. However, many analysts are quite skeptical that 2010 will bring much hope in this arena either.

What companies need to do

2010 is not going to be much different than 2009; perhaps worse, with respect to your chances of getting new VC investment. It is still a game of the “best of the best” getting due consideration. It means that you need to have a very compelling business, with meaningful and growing customer traction, having the potential for large and rapid growth, to a level that will provide a handsome return.

Due diligence will be treacherous, filled with disappointment for many, but there is still gold in “them there hills.” You will have to mine it with a focused laser.


You Sell To More People Than You Think

Bill Warner Tuesday, January 26, 2010

“Let’s get some good sales people. We need those hungry ones that know a lot of customers. That’s all we have to do. Right?” These are famous beginning and last words. You are selling your product to almost everyone you meet as your business matures. And, everybody in the company sells in one form or another; it’s not just the sales team’s role. You certainly have to identify and sell to potential customers. But, there are many other interested parties that you have to sell to as your company evolves. The sales process begins on day one and lasts for the life of your company.

Selling in the market research phase

Even before you have a product, you have to sell your ideas to contacts you make while doing your market research. This phase is not just filled with reading and finding numbers that support your business strategy. You will have to sell your idea to industry analysts, market consultants, companies providing similar products and potential customers in your chosen markets. Seeking out the opinions of analysts and consultants makes a lot of sense. They know your markets in detail. You present your product or service idea, supported by your business rationale, looking for further insight that they can provide. In a way, you are selling by trying out what you think the value proposition is and how you will take it to market. Understanding that you may not have it quite right, they will provide you feedback that helps you to further refine your business plan.

Contacting companies that are within your market segment is also smart. If they are a potential competitor, you may have to get information from a third party, but you are essentially trying to figure out how your product fits into the market. You are prepared to sell your ideas, but also have questions like:

  • Are you complementary?
  • Will you need their help?
  • Do you add value to their products?
  • Are they a competitor?
  • How will we fit?
  • Why are they succeeding or failing?

Of course, the best piece of research is to approach a potential customer and get their feedback. You sell your product or service, but really want to know:

  • Do they really have the need you think they have?
  • Will your product solve their problem?
  • Do they see the value of your product or service?
  • How do they become aware of and buy products?
  • Are they in a position to buy?

Getting funded

Once you have a well formed business plan, your next sales call will be on an investor or potential strategic partner from whom you need money to get your business started. This is a critical sales call which has to be successful. In this case you are selling a lot more than your product or service. You are selling the value of your company, and trying to create a long lasting partnership that will give the funds to launch your company and your vision. The business plan story has to:

  • Be complete
  • Represent a compelling business idea
  • Be attractive in a large market of needy buyers
  • Reflect a rich financial model
  • Have a truly competitive and differentiated product
  • Be managed by a superior management team
  • Provide strong financial performance

This sales call is made by the top executives of the company, who have to be very well prepared to explain all aspects of the business and create excitement with the potential partner.

Selling to your channel partners

If you are going to use indirect channels, you will need to have a sophisticated process to sell to the channel partners through which your product will reach the ultimate buyer. The value proposition has to be specifically tailored for this audience to show them how they are going to make money in a relationship with your company. The partnerships could be with wholesalers, distributors, integrators, value added resellers and dealers. All of these partnerships have to established, and in addition to your product or service, will require you to sell some combination of:

  • Training
  • Product information
  • Sales support
  • Problem support
  • Warranty management
  • Inventory
  • Discounts that make them profitable

Your sales efforts are to close a channel partner agreement that will result in financial success for them and an increase in revenue for your company.

What about alliance partners? If your product requires that you have to go to market jointly with another company, you have to make sales calls to them too. For example, if your product is integrated with another company’s product, then you may have to have an agreement where you are jointly marketing and selling. You may be integrating some other company’s product into your solution, so an agreement is needed for you to market and sell their product along with yours. The value proposition here has to bring a share of the overall revenue to the partner to recover the expense that they incurred plus a reasonable profit.

Sell to the influencers

When your product is ready to be taken to market, it is important to make sure all of those that influence your customer are aware of it. Industry consultants, partners and early customers need to know of your plans to launch your product. During the time when the product is first being introduced, you want potential customers to be able to call their outside consultant and get advice on your product. You also want your customers to be able to contact your early customers as a reference for your product. So, you need to make sales calls on all these influencers and make sure they have the most important facts and messages about your product or service. You will look very smart if a potential customer contacts one of them and learns the truth about your product. That is, the truth that you taught them.

Oh, the media too

Who would ever give up on some free visibility? Another important influencer is the media. They represent trade magazines, local newspapers, business press, television specials and radio news programs. When you launch your product, they too will need to know about your product or service. You want your customers to read the right messages, and from the media source that makes them aware of new products and services. The media will want to get quotes from consultants, analysts, customers and partners. They make the story come to life with the reality that it’s not just your company talking about the new product or service. Always make the media aware of positive news and use them as a way to get effective marketing information to customers.

So, selling is a process that involves much more than sending the hungry sales people after potential customers. Selling involves approaching the whole set of stakeholders in your market segments. You need to make sure that your company properly fits and that your customers know all the right things about your product or service.


Outlook for 2010

Bill Warner Sunday, January 03, 2010

Boy, I want to be optimistic, but I have too many doubts. It’s not just me either. The subject of a lot of holiday party talk has been about the economy. Much of that is centered on the subject of job growth and the state of the US dollar.

At the heart of it all

Job growth now is stagnant at best. Unemployment is actually increasing when you discount the growth in short term government jobs that produce no economic growth and count the people who are no longer on the unemployment ledger. There are a lot of moving parts that are needed to put velocity back into the small business engine.

  • Banks have to start loaning money again; companies need working capital
  • Government has to reduce regulation on small businesses; too much is spent on responding to new regulations and it stifles businesses
  • Removing the capital gains tax will fuel investment in small businesses; bringing more private equity to entrepreneurs
  • Lowering the income tax on businesses will accelerate investment in company growth; increasing profitability
  • State and local government resources are needed to support entrepreneurship; creating a community in support of entrepreneurship
  • Reduction of the individual income tax will put more money back into people’s pockets; firing up affordable spending

Until we get legislators in place that understand what we need, entrepreneurs will be fighting an uphill battle again in 2010.

The unknown about our dollar

I am no expert on monetary policy, but what I do see still frightens me.

  • The debt is higher than ever in our history
  • The growth our debt has never been higher in our history
  • Other nations are visibly looking to move off of the dollar
  • We are getting a lot of pushback on purchasing any further government securities

If we were to have a balance sheet for the United States Company, it would show that we are bankrupt and have negative cash flow. These are all signs that lead me to continue to worry about a coming inflation, especially if we really put the TARP money into circulation.

So what do entrepreneurs do?

The growth of our economy will come from the small business arena getting back on track. For 2010, entrepreneurs are going to have to continue to fight through the lack of effective legislative and administration support. Staying with the basics of survival is first and foremost:

  • Execute well thought out marketing and sales plans; the fewest mistakes as possible
  • Keep nearly a year’s worth of cash burn in place as a buffer on further economic decline
  • Hire only what will be needed in the long term; outsource the rest of your personnel needs
  • Invest in cost cutting measures that pay back in a few months
  • Continue to establish and nurture a lasting credit line

The pros will tell you that this is the time to look for great investments at low prices. That is still true, but I suggest that you don’t go too far out on that limb with so much uncertainty and volatility in the economy.


Managers Make Good Choices

Bill Warner Monday, August 31, 2009

We are often told that we just need to say no to a few things so that we don’t get ourselves over committed. After all, we cannot do everything our customers ask us, and we cannot go after every possible market. Some folks will ask if you are going to teach the team how to say no. Because if you don’t say no, you just keep adding more work to an already overloaded plan. Well, we just say no to that question. No, we are not going to teach people how to say no. We don’t think that is the question. Instead, we see the need to learn how to make choices.


The Need For Seasoned Executives

Bill Warner Thursday, August 20, 2009

If there is one issue that companies deal with frequently it is poorly constituted executive teams. As a result they are suffering from the lack of business and operational know-how. Here are some examples.

Bad marketing and channel choices

The primary way this issue reveals itself is lack of sales; resulting in tremendous cash flow pressure. We recently worked with an emerging commercial hardware tool company that is being run by its founder. The product is unique and patented, and is ready for the market. It has been ready for two years, while the founder tried to sell the product through direct channels to large manufacturing companies. The company has burned over $1M in marketing programs and sales personnel. The problem has been that the founder has no sales experience, has taken the product through the wrong sales channel, and has hired sales people who do not have the knowledge or experience to sell to distributors. If the founder and the company’s board would have insured that the right marketing and sales executives were brought into the company at the time the product was ready, they would be in a very positive position today. In addition, a new CEO with successful business operations experience should have been brought into the company. Unfortunately, the company is nearly out of money, and may fail.

Marketing failure

Without effective marketing programs, there won’t be enough leads to generate the correct number of sales. One of our clients has a very effective software product for managing high inventory turnover situations and reporting quantifiable results. It is sold through direct channels by knowledgeable manufacturing process sales people. The product has been on the market for eighteen months, but only four sales have been made. We discovered that the founder doesn’t really believe in marketing, and has been cold-calling prospects and getting very poor results. Going deeper, we found that the marketing message he was delivering was not effective in convincing a buyer who is solely interested in return on investment. If the founder had brought in a seasoned marketing executive who knows how to put a comprehensive sales lead generation program, there would have been the necessary number of qualified leads to generate sales.

Disfunctional executive team

It is terribly important that the executive team of any company work well together and is on the same business agenda. We recently worked with a financial services firm whose partners were tied in knots by their lack of mutual commitment to the company’s business objectives and private personal goals. Their lack of business maturity and experience to take the company beyond where they were was causing significant sales failures and personnel disruption, as their lack of cohesiveness showed through to the entire firm. Quite frankly, nobody was in charge, and their strong personalities continue to clash and undermine their decisions making. The firm is frozen in place, and won’t progress until the partnership organization is reconstituted.

CEO failure

When a company is launching a new product and is meeting new customer prospects, potential investors, industry analysts and representatives from the media, it is very important that their story is told concisely, completely and with humble excitement. If the company’s leadership cannot do this, accomplishing their goals will be almost impossible. Recent experience with a company that supplies software to associations to manage donations, brings this issue home. The CEO and founder had a major case of arrogance and selective listening. She angered investors, talked down to analysts, overstated to the media, and bored everyone with unnecessary technical detail, never getting their value proposition across to anyone. If the board of directors had hired an experienced CEO, they would have had a chance of survival. Now, the bridges are burned.

Missed commitments

Making well thought out commitments is necessary to maintain credibility with investors and customers. It takes experience to recognize when a commitment is needed, properly establish and manage expectations, and rationally make the commitment. We discussed this with a potential client last month. The software company had a very complex product, with several enhancements to make based on customer needs. The customer demanded rapid delivery. They committed a very aggressive delivery date, and missed it by a month. This was the straw that broke their back. This was the ninth commitment made and missed over the last year, so the customer discontinued the relationship. The development leader and CEO were very junior people, and were working with a Fortune 500 company. If this company had seasoned executives who knew how to handle these tough situations, they would still have the customer.

Having seasoned executives leading your company, who have the wisdom and experience that is needed to accomplish your objectives, will maximize your chances for success.


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