Author - Rüdiger Gros

Startup Stories: Get to know Borui Wang, CEO of Polarr.

Polarr - Fotoediting made easy
  •  

Startups: Stories from and about cool genius


Those of you who read my (Rüdiger Gros) posts and tweets about startups, leadership, innovation and disruption know already about my passion for Internet of Things, Robotics and Artifical Intelligence (AI). And of course about my passion for startup builders.

Most of my readers are interested in startup stories and want to know about the background stories behind great products. Today I am happy to present an Interview with Borui Wang AngelList, the CEO and Cofounder of Polarr, the popular ‘Pro Photo Editor Made For Everyone’ that downloaded 250.000 times within the first 48 hours.

In case you haven`t downloaded Polarr yet, you might want to read some more details about the app, the technology and the positioning of Polarr against the classic market dominator Photoshop Business Insider about Polarr.

In my interview, I am focussing on entrepreneurial questions as Polarr is already a fact in the app market. Still, I heavily recommend to read more about the unique technical approach Technical details about Polarr.:

Interview with Borui Wang, CEO of Polarr


Rüdiger: Hi Borui, thank you that you dedicate some time for our interview. You graduated computer science in Stanford and started into your app development for Polarr very successfully. How far did Stanford prepare you for entrepreurship?

Borui: Tight and challenging deadlines. The CS classes are challenging and deadlines in Stanford are extremely tight. There are a few HCI (human computer interaction) classes where you have 10 weeks to put together an idea, run through development and iterations, and present a demo with a poster at the end. These are little simulations of “startup projects”, and usually through this process you learn how to prioritize your time and perform toward to your goal. I still couldn’t believe that some of my projects were finished in 10 weeks when looking back at them. I think the life style and work attitude as a graduate student is quite similar to what it feels to me like now, or I probably should say that Stanford graduate student life is even busier and more chaotic because I was taking multiple classes running multiple projects.

Rüdiger: Looks like Stanford is a good choice for entrepreneurs. So, when you started developing the idea with your team mates, how soon did you start discussing about the company and not the product?

Borui: My cofounder (Enhao Gong) and I formed the company the 2nd week after we committed to work on the “idea”. At that time we don’t even have a clear product concept yet but we believe it is the best to formalize the company earlier to smooth out all the IP issues and ownership issues.

Rüdiger: I agree, it is easier if you clarify these points before the start. How difficult was the discussion about the ratio of shares each team member should hold – and how did you finally decide?

Borui: It wasn’t difficult. It is a little awkward as we didn’t have much clue about the amount of shares would imply at the moment. We break down the type of tasks we will own and settle down on a number quite quickly. However, we eventually had to re-adjusted the share structure when raising seed $ as the roles of us are shifting, and we’re both happy for the adjustment (just extra legal work is time consuming). It’s hard to come up with a number up front, but my cofounder and I had a mutual understanding that we will do a calibration if necessary upon raising capital. So I think it is easier to work together for a while to see the real role and responsibility each of the founder truly feels the most comfortable with, and calibrate the ownership when that’s been figured out. It’s much more important to agree on what role each person wants to take and own though.

Rüdiger: It seems to work at least for you. When you started your business, how did you finance your project and when did you start to talk about external funding the first time, if at all?

Borui: We formed the company in August 2014 and we talked about raising money in day 1. I said we wanted to close the seed round in October 2014 (ended up closing in January 2015 because I was naive about how long this process could run). And I promised to reimburse server fees and marketing/ad fees when we raise money. Before we raise money, the biggest cost would just be rent. We both had some saving so paying 2 months of rent wasn’t an issue.

Rüdiger: Sounds pretty easy to go for a seed round in your place. Looking back, what would you do better today if you had known before?

Borui: Communicating ideas and details of the idea with the team more. The biggest mistake I made for the launch of the editor is deciding to target iOS 8.3 (and it is still painful to think about this). Our app works great on iOS 8.1 and 8.2 and I was thinking to target the latest device. Targeting iOS 8.3 probably halved the downloads as I eventually realize lots of the iPhone 6 and 6+ users are still on 8.1 and 8.2. I didn’t communicate about the 8.3 requirement with our iOS dev person but I’m managing app submissions and code release to the store. If I talked to our iOS dev or distribute the app store release role to the entire team, this mistake would not happen.

Rüdiger: This is very valuable advice! On top of that, what are the most important things you and your team are proud of?

Borui: We don’t work long hours and we don’t work on weekends. Our team usually calls a day at around 6-7PM and begin work at 10AM everyday and we’re very productive in this way. I believe stealing weekends and nights away from people do a lot damage to our team, product and code.

Rüdiger: This is unusual in startups but you obviously made a good job in that point, too! What kind of people would your team hire today for further growth? Are there any concrete jobs you hire now?

Borui: Ideally those who feel compulsive to craft something, care a lot about their craftsmanship , and willing to take whatever step to create what they want. All our existing engineers are very hardcore design/code cross-platform generalist (meaning, from reading linux kernel source to revising Sketch UI mockups ), and we’re constantly looking for another such generalist to join us.

Rüdiger: Folks..if you have a profile like that…klick apply at Polarr. Now, what is your most important ‘DON´T DO THIS‘ advice for other startup founders ?

Borui: Don’t ever restrain your ambition.

Rüdiger: Thank you. Are there any questions you want to ask me finally?

Borui: If you were to begin a new Startup, would you go solo or have a cofounder and why?

Rüdiger: If you haven´t build any company before, I would recommend to start a new company with adequate cofounders to gather as much knowledge and experience as you can and you did a great job with this strategy.
Still, it is not always as easy to find the right split with shares and responsibilities as you described it at Polarr. If cofounders don`t feel treated right from the beginning on in these points I would either found solo or I would not start.

Borui: Thank you.

Rüdiger: Borui, thanks for giving us these great insights about Polarr and your team. I cross fingers for your next steps and recommend a trial of Polarr to anybody that is able to take a photo with his smartphone.”

  •  

Startup Stories: David Allison, CEO and Founder of SignUpFirst

SignupFirst Startup Stories
  •  

Startup Stories – Today SignUpFirst


I (Rüdiger Gros) am watching the startup market since years. Not only because I build startups on my own and consult startups but also to share and get best practice knowledge as well as a market overview.

In case you have built an own startup already you passed several stages in your ‚career‘ as startup builder. You probably found out that there are sufficient challenges to build a team, find funding, develop a product and to prepare everything to finally earn some money with your idea.

Hopefully much earlier, but latest at this stage, most startup leaders realize that the market entry and the further rollout are one of the biggest challenges in the lifecycle of a startup.

And good performance at this stage can decide over success or failure. This is why I chose David Allison, the CEO of SignUpFirst, to answer some questions about his vision, his plans and his dedication to startups.

Interview with David Allison, CEO of SignUpFirst


Rüdiger: Hi David, I appreciate that you take your time for a short interview about your company SignUpFirst. Before we start with detailed questions, could you please introduce yourself in 3 sentences?

David: Well I’m from England and in my early twenties with a huge interest in everything internet. I’m ambitious; I dream a lot, dislike rules and tackle problems creatively. Although more honestly, my friends would introduce me as someone slightly crazy, who sees things differently.

Rüdiger: Thank you for that smart wrap-up. So, now tell me, what made you start your company?

David: Actually it came from a problem, which I think is great! It’s great to create a startup that genuinely wants to help people. SignUpFirst was built to solve something a lot of startups and developers have, and that is early user acquisition. Getting the first signups is currently expensive, hard and can even make people give up.

No one wants to sign up to a website or app with no users on it! If you create the next best auction website, how do you get the first auctions on there? How do apps get their first reviews? The problem of early user acquisition is a real problem. I saw this and had to create something to solve it.

Rüdiger: One of the major challenges is finding the right mates to turn an idea into a company. How did you start?

David: Actually I started alone, creating wireframes and a business plan; I had the idea and plans for around 6 months before I decided to then find a developer. We worked on the site slowly, mainly because I couldn’t afford to pay him for too many hours. Near to the end of development I was seen on twitter by a technology company Koncept. I met them for a coffee and they came aboard to help development.

Rüdiger: You run a startup yourselves and your idea is a push for other startups. How do you increase your own signups and popularity?

David: Well fortunately for us because our idea helps others, marketing ourselves has been quite easy. I think this really highlights the need for startups to solve real problems people have. The other side to the coin is that people like getting free things and being rewarded. The people signing up can get some really neat rewards, by signing up to the submitted sites and apps first.

The main strategy we use is making our site as sharable as possible, right from the domain name all the way to having social sharing; everything is catered towards enabling people to share our site. The great thing is, once someone posts their site or app on SignUpFirst the next thing they usually do is share it. For that reason a lot of our marketing is social media.

Rüdiger: Do you have marketing and rollout strategy for your service yet? What role does social media play in your strategy?

David: Social media is our biggest marketing strategies, not only because I am a huge believer of the power of social media marketing, but also again because people like to share their posted project.

From zero followers on twitter to soon growing hundreds of people on a mailing list, we grew our initial user base and had companies waiting to access our site from using social media alone. Some days I felt like a full time social media manager!

Rüdiger: Did you find potential sources for further funding and growth yet? Or did you even look for funds?
David: We have not looked for funding yet, however are open to talking with investors.

Rüdiger: What are the next 3 most important steps to be expected from your side within 6 month?

David: Firstly, I wish I could tell you more; however I can say we plan to develop some really great features into the site. We have a lot of exciting plans to develop past MVP stage. We also plan to keep things simple; I am a real believer of keeping things as simple as they can be. Lastly I hope that we get some bigger companies doing promotions on SignUpFirst, I think that we can also cater to bigger companies and even expand to other audiences such as game, and game developers.

Rüdiger: One last question to close the interview what are the 3 most important lessons learned so far?

David: Big question! I’ll keep this short and sweet. Solve a problem. Delegate marketing to your social following. Finally, I can’t count the number of interviews where someone says people should learn to code, and I hate code. But I’m going to say it’s never too late to learn code.

Thank you, David


Rüdiger: Thank you, David. It was a pleasure that you dedicated your time for an Interview. And thank you for the great insights into your company. I wish you the very best.

And I confirm that I already signed up our startup 1clicktrips.com at your service. Thanks for your great initiative!

  •  

SmallBiz Growth: How to catch a big fish

Small Business Growth
  •  

SmallBiz Growth in the big fish’ s lake


I know a lot of small business owners that create cool solutions or are true experts in their fields.

Many of them would like to offer their skills and solutions to big companies to be able to sell larger volumes, bigger projects or simply to reduce „new customer acquisition stress“ once they have the “big ones” on the line.

But most of those who tried to get the “big fish“ failed. And this is no wonder. The way of thinking in small companies is very different from that of decision takers in bigger companies.

So, is there no way to get a snippet from the big fish’s rich buffet for the small ones? For sure there is!

Turn frustration into training results


Before you away in frustration be aware that without training and learning, no beginner has become and amateur. And even talents have to work hard to become professionals.

So, prepare to master some lessons first.

Lesson 1 – Check if you really want it


The first lesson is that big fish sounds good – but must not be good for you. There are many reasons to NOT want to do business with big companies and I show you just an extract:

– Small business sales is typically made in short sales cycles – and not all small business are able to survive the long sales cycles in big companies at all
– If you get a big fish.. it can kill you if you fail to fulfill the contract
– sales in big companies requires you to set up adequate hierarchies to reflect the needs and expectations of big companies, even if you “simulate” your structure virtually
– you must probably raise your insurance coverage to not be wiped out by a penalty
– you must be aware that you will invest a lot in pitching sales deals over long terms and are still likely to NOT get the job
– you must learn the cultural preferences in big companies
– you must be able to learn and accept a whole new world of values and standpoints of your business partners that probably sound weird or even destructive from a small business standpoint
– you must learn to accept that organizational barriers and employees personal interests might overrule sensible concepts and logical approaches by far
– you must learn that change is communicated everywhere as the holy grail and the core achievement topic for everybody – but behind the scenes, change never happens anywhere
– if you are in IT, you have to accept that innovation, disruption, change or UX-driven approaches do not count a bit
– you must accept that corporate IT departments see themselves as security and stability guards – and not as the drivers for the best enduser experience or innovation
– you must learn to accept, that NOBODY will take any decision alone .. and if you start your journey on a lower organization level, your “cool story telling” will latest be lost after three escalation levels – so your deal is dead before it arrives at a relevant stage
– you must learn that you will not be able to enter the relevant decision taker doors to tell them „the truth“. And if so, they neither care about „your truth“ nor do they care about bad things going on two levels below them

This list can be proceeded almost endless.

If you still have not lost your mood and interest to master „big fish sales“, wait for our next episode.

Hardcore small biz owners (which means people who read my posts) will see the best tips to become a small biz hero in the big fish lake. So..see you next time.

  •  

How to work smarter with files. Pain relief in 4 easy steps.

koofr and file happyness
  •  

Introduction


I use dropbox. I use onedrive. I use google drive. I use sharepoint. I use office 365 including delve. I use my file drive. I use a desktop, a notebook, a smartphone, a tablet and a kindle.

No, I am not an IT nerd. I am the CEO of a software and consulting company and simply have to do my job. In the office, on the road and at customers. Not to forget at home.

Why do I tell that?


Because I know a lot of people out there that work like I do. And all of them suffer from the same things like I do: I produce a lot of files, my team produces even more files and our customers and suppliers are eager to outperform us in document production.

In theory, all problems with file handling are solved since SharePoint. In practice, there are still tons of use cases that make me store my files on some storage device. Local.

In theory, this problem is also handled by the cloud providers I mentioned. In practice, I suffer from synchronization problems, usability problems and the simple fact, that I store and share documents with people who love dropbox, others love onedrive, lots love google drive and some still can`t resist to send e-mails with large attachments.

On top of this, legal restrictions with the usage of storage operated by US providers is a relevant topic for at least European and Swiss companies, so all mentioned storage providers are at the edge of being “not usable” for b2b-connections in Europe or Switzerland.

The result is: Whenever I need a document, I have to struggle to find out where it is. And my blood pressure is not seldom unhealthy because the damned synch has not worked like expected. And you can be sure that the bandwidth of your wireless internet connection will be less than EDGE when you try to use the web access to your storage in an urgent situation.

Is there a solution?


Well, I stumbled over the platform koofr.eu some weeks ago on twitter. I checked the site and got in touch with the creators of a service that addresses some of my storage burdens.

  • They deliver a kind of aggregation interface to link my favorite storage providers together, so that I can search all storages in one place and never have to think about the place where I dropped a file.
  • They provide EU based storage service at an incredible cheep pricing, which allows me to store content on EU based servers if I think that location is relevant.
  • A really cool thing is that I can view all kinds of files directly in the browser windows without having to open the file or image, which saves a huge bunch of time.
  • A killer feature of the service is the ease of sharing links for upload and download of files. This can be done password protected. So you can send a protected link to people you trust to let them upload files to your storage.
    What I really like with koofr is not the name, but the incredible easy setup and user interface.

After a short talk with the CEO of the company, I learned that the name koofr has a meaning which makes sense: In the native language, the meaning is suitcase. Which is exactly what you get: You have your files with you. Everywhere, any time.

Additionally, I love the really transparent handling when uploading bigger amounts of files, you always know exactly the progress.

I highlight this because I suffered several data losses with onedrive as the synch process tells you that everything is uploaded. But in reality, they just uploaded the headers of the files and still synch in the background. And if you delete the local files that are reported as “uploaded”, you will suffer from dataloss in case you emptied the local bin already.

One more thing..


Oh, of course, the service is available on all platforms, from windows over mac to linux and mobiles.

My personal wishlist for koofr


First of all, I recommend to at least give this tool a testride, the trial is for free. And the registration process alone is cool enough to walk through to just know how it works 🙂

But for sure, there are things one can add to even the greatest service, so my personal wish list contains the following items:

  • It would be useful to be able to choose encryption levels (never encrypted, encyrpted on the storage, encrypted on server and communication etc.)
  • I want to save files directly to koofr from my applications, so koofr should appear as drive in the filemanager
  • I would of course like to have an interface to SharePoint and Office365
  • I would like to have an API to add special features for custom corporate requirements, so that we could use koofr storage as backend for cool applications
  • I would like to have an automation interface for zapier

If you look at this incredible short feature wish list, I rate the service as very cool, as my wishlists are typically frustrating for software vendors.

Almost forgot about the 4 steps to pain relief

  • 1. enter your e-mail on the koofr.eu site
  • 2. klick on the link in the e-mail you receive
  • 3. enter your name and password
  • 4. use koofr

Wrapup


I just started to use koofr, but I already like it and this is a result of the simplicity of the setup process, the easy handling and simply the fact, that it helps me to save time without having to invest on migrations or having to take decisions to use either the one or the other service.

Koofr is cool. I like it. If you take a test drive, I would really like you to share your experience. To me, it looks like something that should become a wide used tool.

Ps: My third wish is already in work, those guys have an API already..and they are going to document it for developers. Let us see, what the next releases will bring. Stay tuned, in the best case as new customer.

  •  

How I saved a Startup from “sudden death” – Part 5 of 5

  •  

Last round

You reached the final part of this story. This series told stories about frequent errors in Startups and growing companies. In case you haven’t read the previous post about the survival kit in contracting expensive staff, you can do so now.

This last chapter deals with the danger from massive growth and success. Sounds weird? Read on!

Chapter V: You are better than expected. You grow broke.

Successful Startups are a joy. Sometimes the transition from some small, first steps to an experienced performer is going really fast. But especially those outperformers run at high risk if their business requires lots of floating capital.

I remember a small computer company about 30 years ago that started a hardware business in an early bird phase. There have not been any PC stores in the cities, the internet was several years away and software was limited to word processing and spreadsheets.

The founders went to the local bank and asked for a credit to be able to buy some parts in China to assemble the computers in their garage.

The estimated turnover of the company was 50 TUSD in the initial year. The bank agreed to a loan of 20 TUSD. Of course with co-signers to be backed up by parents and grandparents.
6 months later the company asked for an extension of the loan to 200 TUSD, as the order volume had increased to 350 TUSD already.

At that stage, the founders had realized, that paying the computer parts in advance with a shipping time of 3 months, an assembly time incl. delivery of 3 days and a customer payment target of 30 days required incredible amounts of floating capital.

With very tight financial management and a huge margin, these guys mastered an unbelievable growth curve with almost no cash in their pockets, still living at mom’s and dad’s.

After 12 months the need for floating capital had risen to a catastrophic dimension of 750 TUSD with an order volume of 1.5 Mio USD. Most of the customers where accredited big corporations, governmental institutions and industry players, so risk for a shortfall in payments was low.

Still, the bank that had given the loans did not accept the orders as assurance for further loans, they wanted collateral security.
But the young entrepreneurs did not have anybody to backup their loans. The parents and grand parents that co-signed for the first 20 TUSD reached their limits with the extension to 200 TUSD.

Comment: The described situation is not really seldom. Even though the sample happened various years ago, chances are high to run into that situation especially with the rising strictness of loan laws.

But back to the story: What happened then to that company?
The bank became afraid of the steep growth rate of that company. Their fiscal policies required a more solid backup for their loans. Which they could not get. Which caused the bank to cancel their contracts with the company.

Despite the incredible success, full order books, best outlook for even steeper growth and an incredible profitability, the company almost grew broke in 1994.

Comment: This happens very fast, if companies are low on equity and if floating capital needs grow faster than profits can compensate floating capital needs:
Imagine a company selling a computer for 1100 USD and earning 100 USD per computer. The company needs floating capital to bridge the time between buying the product at the supplier and getting the payment from the customer. Assuming it takes 2 months in between and a company buys and sells 100 computers per month, floating capital needs will be 2 months * 100 computers * 1000 USD = 200 TUSD. Earnings will be 100 computers * 100 USD = 10 TUSD.
That means that the ratio between floating capital and earnings is 20:1 which implies a huge need for equity or dept capital.

Back to our company: How could they survive the cancellation of the loan contracts?

The answer is: They met an angel. Or better: An angel investor. This guy did not only deliver the relevant liquidity, he also delivered profound knowledge about how to finance growing floating capital needs with supplier credit. He taught them how to shorten payment cycles with customers. He showed them how to contract with bigger companies and share cost and risk.

However, 5 years later the company died. But this is a completely different story and based on people relationship problems. Another killer in the dangerous fields of entrepreneurship.

Lesson 5: Living on debt works on planned growth curves. But if you exceed the expectations, the need for liquidity might grow faster than your earnings can compensate. This makes your financial partners very nervous up to a point where they won’t follow your growth path. In the worst case they even cancel existing contracts.

I recommend to not rely on just one source for floating capital. Never run your business at the edge of liquidity. And be sure that you really understand finance and track it like your GPS tracker follows your path an the map: Always inspect the environment in all directions.

Summary

I could probably write a book about “The art of dying” and add another 200 triggers for company failure. And maybe I will do so one day.
But so far, I am happy to see you reading the last chapter of this series and hope you enjoyed the story and found some useful advice that prevents you from blundering.

If you like my posts, you can follow me on Twitter. You might also like posts from my company EFEXCON.

  •  

How I saved a Startup from “sudden death” – Part 4 of 5

Wonderboy is there
  •  

Introduction

This series tells stories about frequent errors in Startups and growing companies. In case you haven’t read the previous post about the danger of risking lighthouse projects, you can do so now.

This chapter will deal with the threat of hiring an expensive professional at unreasonable cost and risk.

Chapter IV: When the hiring of a pro turns into a killing field

At some stage of the evolution of a Startup or small company most of them run into the question, if they should build a board of influencers or hire some “professionals” to take the next step.

Everybody knows: A true professional will not be cheap. But on the other hand: Such a heavyweight can have unmeasurable value.

The light above such miraculous people shines bright. The value of such a wonderboy or wonderwoman is very difficult to figure out, but measured by the value of the expectations, salary will probably be higher than what the company owners took out the last years.

By the way: I am such a wonderboy. So buckle up if you ask me about my salary expectations.

For those who didn’t take the cite for a joke: It was a joke.

Before I start diving into the story, I want to clarify and recommend some things:

  • It can truly be helpful to have advisors aboard.
  • It can truly be helpful to have one or more wonderboys or wonderwomen aboard.
  • Don’t calculate salary based on miraculous assumptions.
  • Former success of a pro is no grant for future success.
  • Don’t undervalue the work of the founders. A good pro will find fair compensation solutions.
  • Be sure to fully understand and qualify your own expectations.
  • Be sure that the candidate overperforms on your expectations.

Don’t run into the trap of hiring people that earn far more than anybody in the company has ever earned before. Chances are higher to fail than to succeed. I saw dozens of companies run into the trap of agreeing to absolutely inacceptable salary conditions with fixed contracts and not existing or weak conditions for underperformance.

Some of those companies died because of hiring an overcompensated “professional” that turned out to be a whisk.

So now that you are prepared, I am diving into the story. But this time, I show you how the salary of a pro can be calculated and negotiated.

You: “After working together for 2 weeks now. What are the strongest points from your point of view to hire you?”
Wonderboy: “….” (convincing arguments) PS: If not convincin: Save your time.
You: “Great, I agree, we found a wonderful base together. After you know our situation well enough, including finance, what is your proposal for compensating your work?”
Wonderboy: “You know, ahm..over the last 4 years, I had ..ahm..an annual compensation of 350 TUSD. Plus benefits. And car. Not to forget…ahm..a secretary. And.. you know… I have expenses.”
You: “Stop dawdling. I make my proposal”.
Wonderboy: Silent. And a bit less miraculous this time.
You: “Let’s work out on mathematics. You agreed that your duty is to raise net earnings in the company from 750 TUSD to 2 Mio USD within the next 3 years. This is an average increase of about 420 TUSD per year.”
Wonderboy: “Sure, that’s the plan.”
You: “This means, a plus of 420 TUSD net earnings equals 100% of your target based on the last balance sheet regarding accrual accounting”.
Wonderboy: “So far, I can follow.”
You: “100% target fulfilment can equal a salary of 200 TUSD. Each 10% of overfulfilment will deliver you an additional 25% of the net earnings YOU made. The base salary of 72 TUSD a year will be paid if you underperform by 70% (or better: a target fulfillment of 30%)”.
Wonderboy: “This starts getting complicated. Do I understand your offer right? You pay a base salary of 72 TUSD? And only if I reach 100% of my target, I have a chance to get 200 TUSD? ”
You: “The cornerstones are right. But the details are not. I assume that your plan of raising the net earnings is what you believe you really can deliver.
If YOU don’t believe in your capabilities, why should we do? And of course, your monthly payment will include a part of the expected achievements in commission in advance, e.g. 6 TUSD base salary + 3 TUSD payment in advance. Every three month your achievements are measured and you either get a payout or a deduction.”
Short Pause.
You: “If your performance is as you say, your salary will rise according to earnings. And if you overperform the targets you set yourself as 100%, you have no limit. 10% overperformance equals 42 TUSD, where you get 25% commission (10.5 TUSD). So, if you perform at 120%, your salary raises by 21 TUSD. If you perform at 200%, your salary will be 305 TEUR.”
Long Pause.
Wonderboy: “Ok, I understand the deal. And I understand, that your offer shares risks on your and on my side. Which makes me kind of an entrepreneur in your company.”
You: “You are right, that is what we are able to offer at the current stage”.
Wonderboy: “I believe in my abilities. And I believe in the company and the team. But the 100% compensation is a big step back looking at my last job. Let us add one option to the salary model and we make the deal:
For the next five years, whenever I achieve my target, give me 1% of the shares of the company. If I exceed my targets by 50%, give me 2% of the shares for that year. If I exceed my targets by 100%, give me 3% of the shares on top.”

Long Pause. You and wonderboy look each other deep in the eyes.

Wonderboy: “My offer is fair: If I really rock your company, I deserve up to 15% of the shares plus a compensation that is fair for all. If my performance is average or even below, you take no risk and I can’t live on the compensation. Latest after 6 month, we both will have the proof.”

Deal or no deal?

Lesson 4: Expensive, experienced staff hired on fixed payment contracts without variable binding to success can be killing.

I recommend: Try to find solutions that share risks. Wonderboys or wonderwomen worth their money are not afraid of risk. And typically do not run short on money, even though some of them come along as if they would starve when not receiving a pay check the next month. Don’t believe such tales.

Summary


Growing a company needs expertise, skill, people relations, luck and professional people aboard. In the critical phase of a Startup company, when growth seems to urge the hiring of a “big fish”, a lot of companies ruin their former efforts by wrong contracting.

Find a good model for sharing risks and success and you have made half the distance.

Cool. You reached the end of this post. If you enjoyed it and want to be updated frequently, just follow me on Twitter.

You might also like updates from my company EFEXCON.

  •  

How I saved a Startup from “sudden death” – Part 3 of 5

Cannot handle project
  •  

Introduction

This series tells stories about frequent errors in Startups and growing companies. In case you haven’t read the previous post about the danger of beliveing in sales funnels, you can do so now.

This chapter will help you understand the threat from lighthouse projects that can raise your company to new levels. Or kill it.

Chapter III: When lighthouse projects become a nightmare

If you remember Chapter I, you might also remember Mr. Lambsmith. This guy represents heaven and hell in one person, even though I would not say that he suffers from shizophrenia.

But let us go back to the beginning of this story.

In 2012, 6 years after having started his own business as a project manager, Bill has a team of 35 people that do a good job.

Over time, Bill himself became more the company manager and in the last 2 years he has to admit that he is more involved in marketing, relationship management and sales than in projects at customers.

As Margery, Jim and Peter are great senior project managers with a proven track record and broad acceptance as well at customers as also inhouse from the younger team mates, Bill is satisfied with the development.

In May 2012, Ben decided to take two weeks off at a Robinson Club hotel on the Maldive Islands. There, he accidentially stumbled over Tom (a Mr. Lambsmith prototype) which turned out to be the CEO of a big company.

At the pool bar, Ben and Tom shared some time, discussed some topics and made holiday friends out of that.

Im October 2012, Tom invited Ben for a pitch of 20 Mio USD project. And Ben pitched well enough to get the job over hard competition.

In the retrospect, when Bill first discussed with Margery, Jim and Peter, all of them agreed to offer. Not to get the deal but to just pitch such a “lighthouse project” one time to learn how somethings like this works.

Sure, behind the scenes, all of them believed a tiny little bit that Bills relation to Tom could be an advantage. But NEVER had they thought to get the deal.

Not as “General contractor (GC)”. Not in the role of being in charge for all parties involved in that project. Not for a project with 20 times the volume of the biggest project they ever ran as GC.

The luck was on their side. Over a period of 2 years, they had the chance of 2.8 Mio USD in net return.

Ben closed the deal. Tom shook his hand. Both enjoyed the situation and agreed on a big press story about this “lighthouse project” with Ben and Tom on a foto standing together shaking hands.

The project turned out to be challenging. Challenging enough to soak the best people from Bens company out from other projects into the “lighthouse project”.

In June 2013, Bens company ran into troubles as 3 of his smaller projects ran out of control as neither Margery, Jim nor Peter had the time to look after these projects staffed with young project managers.

Bill started to manage the smaller projects himself but found out, that it took much more time and effort to understand the project situations than he could afford. And he had to admit, that the level of his project management skills were no longer on the same level than 5 years ago.

With all people running on overload, with already postponed vacations for the staff, the first customers started to stop payments.

In parallel, Tom rejected to accept Bills change requests. Bills arguments where based on the fact, that they planned 18 sub-projects had increased to a number of an overall of 24 sub-projects.

But Tom claimed that this split was just based on their lacking capabilities to control the project, not because he as customer has asked for more services.

In late November 2013, Bill desperately reported to Tom, that the project forecast shows a rise in cost of a minimum of 30% and a delay of a minimum of 14 month.

On the 4th December 2013, Tom stopped payments and told Bill that he had the chance to fix the open issues without payments for his staff until 1st March.

In January 2014, not only the lighthouse project dimmed out. Bills company did first.

Lesson 3: When big projects at lighthouse customers turn out to be bigger than expected and you are not used to deal with big fish, cost and expense turn out of balance at lightning speed. Even worse: your best staff may be bound unpaid.

If you are good in your job, this does not mean that you understand “big fish politics”. And be sure that a manager of a big company will be able to raise pressure to save himself until your company will be squeezed out like a lemon.

I recommend to not even try too big fishes until you are really prepared.

Summary


Statistically, more than 80% of all projects started do not be deliver on time, in budget and do not deliver the expected ROI.

Before starting a “lighthouse project” that can lift your company into a higher league, be sure that you are ready to deliver amongst the less than 20% of projects that perform better than inacceptable.

If you are not sure, don’t let a chance kill your company.

Great – you are still here! If you like these posts and want to be updated frequently, just follow me on Twitter.

You might also like posts from my company EFEXCON.

  •  

How I saved a Startup from “sudden death” – Part 2 of 5

Understand your metrics
  •  

Introduction

This series tells stories about frequent errors in Startups and growing companies. In case you haven’t read the previous post about the right timing for bigger expenses, you can do so now.

This chapter will help you understand the threat from believing in your sales funnel.

Chapter II: When the brightness in the sales funnel dims out

Another case, another company. Here, we are dealing with a company selling flexible software solutions to bigger customers.

Hi, I am Toni, a smart sales guy. I really care about my customers. I prefer to deal with customers directly. I am a true handshaker. Well, at the age of 58, experience and personal network are more important than social networks. And who shall write all these conversations down in the CRM? In the end, it is about the pipeline, not about what I talk with customers.

Hi, I am Jane, I am a Junior Sales. And I love cold calling and social networks. Sure, as a digital native I grew up with Facebook. And LinkedIn and XING are not too different from that. Even though Toni is my boss, I do not always agree with his working model. But I want to learn from his experience.

Hi, I am Stan. I am the business owner and before hiring my sales staff, I did sales myself. An easy job to do. You talk to other executives, listen to their daily burdens and you naturally come along to the question, if they would appreciate your help to get rid of some annoying stuff on their desk.

As I have other tasks to do, I delegated this easy sales business to Toni and Jane and started tracking their activities in my CRM dashboard. Currently, we have a pipeline of 2.8 Mio USD, which is not too bad, but must grow.

6 month later the funnel has grown to 4.4 Mio USD, but there seems to be a slight issue with closing deals. We have about 85% of deals short before closure but not ONE deal closed in 6 month. 13% are in stage “Offer” and 2% are in stage “Qualification”.

What do these stages and numbers mean in detail? I think, as the boss I have to ask my sales people what their understanding of those opportunity stages is.

Stan: “Toni, Jane, may we have a meeting about our sales funnel?”
Stan: “Toni, we had no deals closed in the last 6 months. Can you explain?”
Toni: “Well, about 30% of the deals are short before closure. The others need some more discussion.”
Stan: “If you say 30%, is that the 30% of 4.4 Mio value? And what do you mean with short before?”
Toni: “No, ahm.. I mean.. 30% of the number of deals. I am not absolutely sure, but I don’t think that the value of those short before closure deals is more than 0.5 Mio USD.
And short before means that our customer contacts tell us, that we are in the round of the last 3 candidates.”
Stan: “And who are your contacts? Do you talk to the decision takers and budget owners directly? Or are you discussing with the assistant of a friend of a guy in another department?
Toni: “Listen, Stan, I am not the business owner like you are. I am the sales guy. Decision takers do not naturally talk with me. But I have my contacts that represent us at those guys….”.

I stop this part here as you should already see the problem..but I will dive into another scenario:

Stan: “Jane, please delight me after this frustrating discussion. Tell me your view on our pipeline.”
Jane: “Well, according to my experience, it is not that heavy to get in touch with decision takers over social networks. Of course I do not have much experience, but I am still connected to about 135 decision takers in about 80 companies that we deal with or that are interesting for us.”
Stan: “Jane, what are you doing with these contacts?”
Jane: “Well, I start with existing contacts in our CRM and ask them to connect on a social network because they are already in touch with us. This works out in 90% of the cases. Then I write messages to their contacts with shared interest and ask for a social network connection, too. Typically, I ask for reference from the first level contact, if we have a good business story in our closed deals overview. ”
Stan: “Jane, sounds like a good start, but what are you doing then? ”
Jane: “I ask if they would be interested in updates about interesting topics, events etc. And if a conversation starts, I enter an opportunity with the value of 1 USD in stage qualification in our CRM. Then I track the conversation until I understand matters and send a short offer dedicated to the person’s issues and put the opportunity in stage offer. ”
Stan: “Is that where the 2% in stage qualification and the 13% in stage “Offer” stem from?”
Jane: “Yes.”
Stan: “Do you know anything about the expected volume in stage “Offer”?”
Jane: “Sure, I know with an accuracy of about 80% because of the discussions with the potential clients, but Toni as my boss did tell me not to do the estimate to not ruin the funnel, because only he knows about the value of an opportunity. ”

Short pause. Killing eye contact with Toni. A small sign with the hand of Stan to make Jane proceed.

Jane: “After I turn an Opp to stage “Offer”, I hand it over to Toni, as he is the experienced sales person able to close the deals. ”

I stop here. Be assured that I could tell dozens of pipeline stories, but the essence always is:

Lesson 2: Lacking quality metrics in the sales funnel let the opps pipeline turn to a worthless instrument. If the sales process is not clear, if KPIs are not clear and if the understanding of the manager is different from that of the sales people that fill the pipeline, it is not possible to control the outcome.

I recommend: Don’t overestimate experience. Know what you measure. Check that your staff UNDERSTANDS the meaning of what they enter into systems. Ensure that your sales really understands relationsship management.

Summary


Sales is not only an art itself. Sales management and controlling as well as defining and living good metrics is not easy. And can be a killer for your company, if things start working out bad. Keep a close eye on your pipeline.

If you like my posts and want to be updated frequently, just follow me on Twitter.

If you like my posts, you might also like posts from my company.

  •  

How I saved a Startup from “sudden death” – Part 1 of 5

Startup Superhero
  •  

The Startup

This story is not exactly about one specific Startup. It’s a story that represents an assembly of insights from various Startups and smaller companies I consulted in the past or where I at least discussed with the founders.

This assembly covers 5 things that occur over and over again in various companies, every year. I hope my post will help to avoid already known traps.

What is sudden death

Sudden death typically is a tragedy in real live, but more for the people that stay behind than for the decedent. The situation is no different with a company. The company does not care, it is the owners that suffer.

The root cause for sudden death is lacking liquidity, which leads to bankruptcy. Investopedia tells us, that bankruptcy is “..A legal proceeding involving a person or business that is unable to repay outstanding debts..”.

As sudden means unexpected, a lack of controlling forecast about the balance between spendings and earnings are the most typical triggers for sudden death in smaller companies or Startups.

But why does that happen? I will tell in form of a story:

5 Killer scenarios you might be already in

All what you will read here is shocking. So be prepared to find issues you could find in your company, too. If it feels sometimes like I am looking over your shoulder RIGHT NOW I assure that I don’t. All is written from my memories. No big brother live writing.

Chapter I: When summer kills

Hi, I am Stephen, the CEO of our software company. We have a rainy november at the moment. Our Startup has grown pretty well over the last 4 years and our average earnings exceed our total cost since about 3 years by more than 10%. Our bank account shows a positive balance of an avg. of more than 150 TUSD each month. Even our sales forecast for deals closures is better then ever before.

With our 20 people aboard, we are hardly able to master all the current projects, so we are going to hire 5 more people. As we are already running out of office space today, we plan to move to a bigger office in May. Preparations are already ongoing.

More than 90% of all earnings are based on services we get paid based on our timesheets, the rest is product and license sales, so growth depends on quality headcount.

With our new office we plan to be able to host 40 people. Which means that we need 40 workplaces – and 10 of the existing ones must be replaced. Overall, we need to invest an average of 5 TUSD per workplace incl. notebooks, software, desks etc.

Overall, the relocation will cost us about 200 TUSD and will add additional costs for debt payment and interests of 6.5 TUSD per month over a period of 3 years.

That will not bother us, as we know that each headcount will deliver 10% earnings after cost and with an expected headcount of 35 people in 3 years, we will even be able to pay the loan back earlier. Our loan contract allows that.

Now, at the beginning of February, I can wrap up that we mastered December when our customers became crazy to finish their projects before christmas.
We closed some additional deals in January which will start in March and April, we are on the hire of 2 cool people for the new projects and we discuss with a senior manager that shall start in May to help us master our growth.

In March, we are going to relocate to our cool new office and currently we work hard to prepare the move besides all the current projects. I should probably have a deeper look into some of the bigger projects, but I have to postpone that due to all my other duties.

My business partner and COO is fully overloaded, too. Oh, forgot to introduce him, he is Marvin, a cool nerd with not the least interest in finance, but the best designer and software architect I know. He is already mounting the Kanban-Wall-Boards in the new office.

Wow, we mastered the relocation. And shocking: It is already May.

The whole crowd is happy in the new office and we are ready to take the next step in growth.

But today, I had a strange experience at the cash terminal, it told me that my card can’t be debited. I have to check with the bank later.

Then Marvin called me. He handed over a customer call.

I was surprised about the harsh tone of Mr. Lambsmith, the business owner of one of our important customers. His dissatisfaction with the project progress really hit me on the wrong foot. I was not even aware about any delay.

When he told me, that he would not pay a cent until certain things are fixed, I assured to investigate the case.

Then I called the bank to ask about the cashier problem and they told me that our account balance is below zero and that there is no cashier problem, but a cash problem.

How could that have happened?

After a (not that short) check I found out that due to all these exciting changes, the cool deal closures, new people aboard and the relocation, we had somehow lost track of invoicing.

We had completely forgotten to charge the last two month of delivered services.

But, look, this shouldnt be too much a problem: We have accounts receivables of 180 TUSD open. 120 TUSD overdue. And 280 TUSD not billed yet.

Ok, it might be a problem. According to Mr. Lambsmith, he will not pay the open bills of a value of 140 TUSD until things are fixed. And salary for our employees is almost due. Which will cost another 120 TUSD in 5 days.

To wrap the situation up: Chances to get 120 TUSD overdue payments within the next 5 days are poor. Chances to get the other 60 TUSD of claims are even poorer. The 280 TUSD we have forgotten to bill are impossible to get within the next 5 days.

But damn, we have all these projects in the pipeline, a volume of more than 1.2 Mio USD over the next 6 months! And another 0.9 Mio USD in deals short before closure.

After having talked to the bank, Stephen had to admit that they understand but don’t care. Those guys are interested in cash and securities. Hopes and chances mean nothing to a banker.

That is an important difference between an entrepreneur and a banker you must understand!

Three days later, Marvin and I realized that after a series of calls and discussions, we have to summarize our position as follows:

  • Our bank account shows a level of 13 TUSD. Two small customers paid.
  • After calls with the overdue customers, we will receive another 99 TUSD until end of May.
  • Mr. Lambsmith agreed to pay 80TUSD based on my promise to fix things latest until 7th of June.
  • If all payments come in, we sharply bypassed a bankruptcy out of nowhere.

Here, the story of Chapter I ends, but in practice, this is not the end of such stories. Because mastering the first threat has just given Stephen and Marvin another month to survive.

Companies that run into such situations learn that Murphy starts getting enthusiastic:

  • You will see customers postpone already started projects due to summer holidays.
  • You will see Mr. Lambsmith urge you to invest much more for free.
  • You will see your almost closed deals pipeline show up to be hot air.
  • You will identify underperformers added to your team.
  • You will find out that payments are postponed during summer.
  • You will see customers postpone decisions and signatures relevant for payments.

Lesson 1: Don’t plan bigger investments on debt if you can’t pay all frequent cost easily over a period of at least 3 months from your cash.
Don’t move or invest before the summer months. From June to September earnings typically drop drastically and soak up your liquidity like a dry sponge.
Don’t ever forget to invoice. Don’t ever forget to remind customers to pay your invoices in time.

Summary


This was the first chapter of a series of 5. If you are interested in avoiding Startup failures, just follow me on Twitter

But so far, I am happy to see you reading the last paragraph of this post and hope you enjoyed the story and found some useful advice that prevents you from blundering.

If you like my posts, you might also like posts from my company.

  •  

What most Startups know and still do wrong

  •  

Introduction

I sometimes consult Startups or better: I discuss with young leaders about their issues while running and growing their companies.

Sometimes, I do this for free simply because I cannot look away when obvious things go wrong, sometimes I do it for money with a more intense engagement.

From these experiences over the last 25 years, some of them from my own companies, I want to tell a story to explain what I experienced at least 30 times.

Business is growing

In the best case scenario the Startup does what the name says. It starts and goes up. With a good idea and the right market, chances are not too bad to feed at least some people and allow the company to grow.

In this phase, the opportunity pipeline is often growing faster than the ability to fulfil customer needs.

So attention on controlling starts dimming because you have to focus on results and the total revenue is anyway rising all the time.

Business is still growing

If your business is growing, you don`t know HOW MUCH it will be growing in the next 3-5 years. But with your ambitious plannings for hiring new people, growing your office and becoming more attractive for your cool employees, you tend to contract bigger than you can afford.

In this phase, in expectation for future growth, Startups often take fatal decisions. They contract offices too big, too fancy and too expensive. All of which means, that they raise cost to a level they plan to be able to cover in the future.

But an even worse decision is to invest in assets and property when your company is still in a young growth phase. Banks will probably recommend you to do so. Because from their perspective, they invest in security. Bt believe me, you only cut liquidity and freedom with investments in property in that phase.

Where to get the money?

If you don’t have a venture backup, you probably don’t have no money to invest in the future. You are living from hand to mouth.

As you believe in your future, you will have to ask someone for money. I recommend not to ask your family until they have tons of free money.

So ask your bank for a loan, they will ask for some financial details and a plan. And thanks to your bank, you are temporarily re-focused on controlling.

Set under pressure, you make the plan, deliver it to the bank and get your money assuming that you made a good job with your controlling sheet.

After the bank delivers, your controlling awareness dims out in the same second.

You are not even aware that you did not make the controlling sheet for the bank. You made it for yourself!

When the pipeline drops

Now, with everything for growth in place, with a new office and more people aboard, you find out that it takes efforts to keep the opportunity pipeline big enough to feed all the people and to pay all the bills. And productivity starts decreasing at frightening speed.

This is the phase for every Startup where things become critical. You must keep your eyes on too many things in parallel. And a small disturbance in your ability to close deals can kill you in a very short time.

This is mostly the phase when Startups ask me for advice. And it is not seldom that the guys come to me when it is almost too late.

Summer is a dangerous time

I have no concrete numbers or statistics, but I am sure that a lot of bancruptcies have been prepared between December and May and have been triggered during July until September.

Summer is the phase, when employees at your customers take their holidays. When executives postpone decisions. When nothing new is getting started. When running projects fall asleep.

All this means: You won’t get paid.

As a Startup you typically have no money and not sufficient influence or experience to drive deal closures when you NEED TO BRIDGE such a phase.

My first important tip:
Don’t lend money shortly before summer. Don’t move to bigger offices until you are pretty sure that you will survive the BIG SUMMER HOLE according to your project pipeline.

Typical opening questions and the most annoying Startup answers

My first questions in such critical phases of companies are always dedicated to liquidity. I ask the business owners simple questions like

  • How big is your closed deals pipeline over the next 12 months?
  • How big is your opportunity pipeline in the phase of “negotiating” the next 6 months?
  • What is your fixed cost block every month?
  • What is the general expense per head every month?
  • What is staff cost every month?
  • How productive have your employees been in the last 12 months per month (cost/revenue)
  • Which of your employees are inevitable to survive?
  • Which of your projects/products REALLY deliver earnings?
  • etc…

And what do you think that most of these guys answer?

Most of them annoy me with..

I don`t know exactly, I have to check out and prepare these figures. Will deliver this tonight or tomorrow morning..

Who is annoyed by this answer?

Well. First of all, I am. Because this fault is so stupid!

But most often the entrepreneur is annoyed by himself when he or she realizes, that a trivial task has never been done right: Proper liquidity management.

Knowing your current liquidity status and to REALLY understand why it is as it is, is the most important thing for any entrepreneur.

The death of your company can be prepared in several ways, but it will die for sure, if liquidity is running short.

Liquidity is the heartbeat of every company and all measures taken in a healthy company are dedicated to the ability to pay bills over a period of a minimum of 3 months in forecast.

My second important tip:
Do not invest in fixed assets until you are able to pay your expected bills for a period of 6 month with your own liquidity. Not your banks liquidity.

Summary

Startups out there: I appreciate your enthusiasm.

But I ask you to dedicate a very small part of your genious in creating AND MAINTAINING an ALWAYS current liquidity sheet.

My third important tip:
Know all the answers about your figures at any time. Be ready to pick out your liquidity sheet to constitute WHY your company is stable and liquidity safe.

If you are able to run your company over a period of 6 or more months without gaining a cent, your company starts becoming stable.

If you follow these small hints, you can ask me more clever questions than “what shall we do now to survive?”.

Try it!

  •