Are you Ready to Meet the Investor?

Recently I was contacted by an entrepreneur who wanted to raise funding for his startup. It was a compelling deal in a growing market space but it was also a fairly complex one with a great number of moving parts. So I decided to send it to the investors. I asked for the usual docs and information. When only the business plan arrived I pressed the request for more information --letters of intent, employer identification numbers, articles of incorporation, financial statements, references, etc. As it turned out they hadn’t event filed for a company entity. The letters of intent were still being written. The reference request sent them scrambling to find. There were no detailed financial statements.

Without key documents in hand to validate the business, there was no reason to pursue investors beyond an initial contact. If the investors are interested they will move into due diligence and will want to see all the documents related to the business including patent filings, contracts, and financial statements.

As a company moves into fund raising mode, I recommend the entrepreneur compile key documents into one place so there’s no delay in the followup process by gathering documents. And if you say you have a contract, you better have something that in writing to show it.

Best regards,
Hall T.

Open Angel Group Model -- The Benefits

I recently posted in the Austin Business Journal about the rise of the open angel group model. In our most recent Texas Entrepreneur Network Funding Forum in Austin on June 8th, I saw the benefits of such a model in action. From the event, five of the presenters received interest and three are in discussions to receive funding. The event brought over fifty people into the room --some were investors who expressed interest in the deals but most were entrepreneurs watching the pitches and listening to the panelists’ questions. This provides mentorship to those who are considering raising funding. In talking with several entrepreneurs afterwards some expressed interest in joining the next round (Sept, 2011) while others talked about the work they need to do in advance of pitching.

To be successful in the Funding Forum you need to have a:

--solid product with some differentiation
--clear and focused target market
--competent management team
--some proof that the product will sell

Also, investors interested in pursuing startup investing find the Funding Forum educational as one learns the most from listening to the questions the other investors ask.

Best regards,
Hall T.

Guest Blogger Brian Wulfe Talks about Top 5 Factors that Determine a Startup’s Internet Advertising Budget

Guest Blogger Brian Wulfe Talks about Top 5 Factors that Determine a Startup’s Internet Advertising Budget

At Effective Spend we work with startups and established businesses alike to improve the effectiveness of their internet advertising campaigns. A common question that we get from clients is “How much should we be spending?” Answering this question for startups in particular can be fairly complex and varies depending on several factors. Below are the top 5 factors that we find most important in determining the optimal internet advertising budget for a startup.

1. Business Plan:

Using revenues and profits to decide how much to spend on internet advertising is popular throughout many different business models. An established internet retailer might find that they can spend up to 10% of sales on advertising, above which ad spend starts eating into margins and below which the retailer starts to lose market share. Since sales can fluctuate during the initial stages of a startup’s business plan, tying advertising spend to a percentage of sales is difficult. Some startups, for example, might not plan on generating any sales or revenue during the first few phases of their business. In these cases it is beneficial to tie advertising budget to other important milestones within the business plan such as reaching a key number of subscribers or active users, as might be the case with some tech startups.
For example let’s say that your business model calls for generating at least 100K active users before you transition into the monetization phase. Once you are able to determine an active user’s acquisition cost per advertising channel, you can begin to get a rough idea of the total budget needed for that milestone. Additionally you should take into consideration that your acquisition cost for each additional subscriber or conversion will decrease over time as your advertising campaigns and website conversion processes become more efficient. We have seen many startups begin with an initial internet advertising budget that amounts to 25% - 30% of their total budget and as the marketing channels become more efficient and revenue rises we see their marketing budget as a percentage of total budget steadily decrease to 10around 10%.

2. Advertising Effectiveness:

Eventually the amount you spend on internet advertising should more than pay for itself. However, if you limit your budget with expectations that all ad dollars should bring in a profit, you might be slow to capture market share and see competitors react in a manner that prevents your startup’s growth and potential success. That is in no way to say that your budget should not be shaped by the effectiveness of your internet ad campaigns. In fact the allocation of your budget should entirely be shaped by its relative current and potential performance. There are many ways that you can measure the effectiveness of your internet advertising campaigns, but in all cases you should be concentrating on two things: the quality of visitors produced by your advertisements and how much those advertisements cost. By maximizing this quality-over-cost ratio and distributing budget accordingly, you will ensure that the effectiveness of your internet advertisements continues to improve over time. As your advertising ROI continues to increase, so should your budget.

3. Management Resources:

Having a qualified individual who is committed to managing and optimizing the online marketing program can make a large difference in determining the advertising budget. Some business plans go as far as to account for personnel, such as an advertising specialist, to be included in the marketing or advertising budget. Other startups chose to partner with a digital marketing agency or a more specialized search marketing agency, such as ours, Effective Spend . Although we do not find that there is a set minimum amount of ad spend at which a startup should start looking for an internal marketing specialist or agency, a good rule of thumb is for a startup to spend 18% to 20% of ad spend on resources (internal marketing specialist or marketing agency) to manage that ad spend. As the advertising budget increases and the growth rate of that budget starts to level off, a business can expect to spend less as a percentage of spend (14% to 15%) due to economies of scale. Generally we find that if a startup is planning on spending at least $2,000 per month, the additional savings or added revenue they will see with better campaign optimization justify the management expenses.

4. Consumer Purchase Behavior:

Despite the multitude of different advertising channels, companies still push more than 85% of their online marketing budget towards search engine advertising due to its efficient ability to match highly qualified consumers with the product or service for which they are in the market. Determining a startup’s internet advertising budget, therefore depends on its ability to advertise effectively through the search engines. Generally search engine advertising works best to convert searchers who already have an idea of what they want. Startup businesses that are able to determine when the searcher is in the market for their products or services by the keywords they use, stand the best chance at succeeding in search marketing. Conversely products or services that require a lot of education before the consumer understands the benefit are generally harder to advertise using paid search ads. Startup businesses, who have products and services with a simpler purchase cycle and who have a clear way to identify their target consumer, spend significantly more on internet advertising than those who do not. I have listed the following industries to give you an idea of the businesses that generally do well with search advertising: Retail, Education, Banking, Healthcare, Local Services, Software, and Travel. Conversely extremely high tech, Aerospace, and complex software businesses might not do as well due to the complex nature of their product offering.

5. Capacity:

Most startups have a point at which capacity constraints restrict their ability to increase sales. This issue is most obvious in the manufacturing industry, but is also seen in several other industries due to limited personnel, inventory, bandwidth, etc. Your internet advertising campaigns can serve to throttle sales velocity and help to prevent exceeding capacity. For example at Effective Spend we work with several day spas that deal with capacity issues on a regular basis. We have developed a tight communication process that allows us to incorporate information related to their projected capacity into the online marketing campaigns. When sales are within 80% or more of capacity for a particular service offering, we strategically reduce the marketing spend by 20 – 30% in that area, ensuring that they are not wasting ad spend on visitors who are not likely to convert. Alternatively we help to boost demand driven by the online campaigns when we see that there is a good deal of extra capacity.

Guest Blogger Samantha Snabes talks about the NASA Human Health and Performance Center (NHHPC)

As a former life sciences entrepreneur, I can sympathize with the difficulty of collaborating with government agencies.

Recognizing the need for new initiatives and the opportunity gained from aligning diverse skill sets with experts residing within multiple disciplines, the Johnson Space Center Space Life Sciences Director, Dr. Jeffrey Davis founded the NASA Human Health and Performance Center (NHHPC). Established in October 2010, the NHHPC is a global convener of 85+ member organizations from government agencies, industry, academia, and non-profits that support the advancement of human health and performance innovations. In short, it is a virtual forum aimed at connecting organizations interested in collaborating and advancing human health and performance on Earth and in space.

The member driven organization provides resources and knowledge sharing to foster projects relating to the Center’s themes: Education and Inspiration, Habitability and Human Factors, Research and Technology, Innovation, Performance, and Health. There is no fee or document to sign—the only requirement to be a member is having an interest in advancing the goals of the NHHPC, and a willingness to share information and consider collaborative projects to achieve these goals. Members have the opportunity to share contact information, participate in bi-annual workshops, monthly telecoms, and collaborate on a soon-to-launch member-restricted Wiki. These platforms provide a unique opportunity to facilitate idea sharing amongst established industry leaders as well as startups and academics.

As entrepreneurs, and more importantly, collaborative solution seekers, I invite you to learn more about the Center and explore the presentations from the inaugural January Workshop focused on collaborative strategies and best practices at this link:

http://www.nasa.gov/offices/NHHPC/index.html.

What Classic Literature Tells us about Modern Innovation

How to Create Products that Endure by Tyler Goodwin

Classic literature can tell us more about modern innovation than you might imagine. Seminal literary works, from Ovid’s Metamorphoses to Ginsberg’s Howl somehow manage to endure the test of time—a quality business leaders struggle to apply with predictability to new products in the marketplace. In this case, my goal is to understand the pattern of how literary innovations, in much the same way as product innovations, emerge from context, and how that concept can help you create strategic innovation opportunities with the endurance to stand the test of time.

To understand the historical pattern, we need not look further than the foreword of any perennial text. Successful literary innovators have one essential thing in common—the ability to capture the latent sentiment of their day, and thus free people to express themselves similarly within the new boundaries created. Followers subsequently echo these new sentiments and explore these new boundaries until others develop a latent desire to shift the conversation in a new direction. We have seen this with Howl, where Ginsberg captured and exploited society’s latent need for frank, even vile, self-expression. And, this effect is what seminal literary works have always achieved.

Further using both Howl and Metamorphoses as examples, let’s explore the product innovation implications that we can draw from this concept of capturing sentiment—specifically with regard to a company’s strategic position as an innovation leader or laggard. Click
Classic literature can tell us more about modern innovation than you might imagine. Seminal literary works, from Ovid’s Metamorphoses to Ginsberg’s Howl somehow manage to endure the test of time—a quality business leaders struggle to apply with predictability to new products in the marketplace. In this case, my goal is to understand the pattern of how literary innovations, in much the same way as product innovations, emerge from context, and how that concept can help you create strategic innovation opportunities with the endurance to stand the test of time.

To understand the historical pattern, we need not look further than the foreword of any perennial text. Successful literary innovators have one essential thing in common—the ability to capture the latent sentiment of their day, and thus free people to express themselves similarly within the new boundaries created. Followers subsequently echo these new sentiments and explore these new boundaries until others develop a latent desire to shift the conversation in a new direction. We have seen this with Howl, where Ginsberg captured and exploited society’s latent need for frank, even vile, self-expression. And, this effect is what seminal literary works have always achieved.

Further using both Howl and Metamorphoses as examples, let’s explore the product innovation implications that we can draw from this concept of capturing sentiment—specifically with regard to a company’s strategic position as an innovation leader or laggard. To read more go to this link:

http://tyleragoodwin.wordpress.com/2011/05/20/ovid-x-context-how-to-create-products-that-endure/

Guest blogger Liz Nutt writes about 10 Big Businesses That Started in a Garage

Guest blogger Liz Nutt writes about 10 Big Businesses That Started in a Garage

Every big business had to start out somewhere, right? Some have come from more humble beginnings than others, launching with no more than some basic equipment, a couple employees, a garage space and a big idea. Whether you’re a business or finance student hoping to follow your own path to entrepreneurial success or already working in your own garage on the next big thing, these stories of companies that rose from obscurity to be multi-million (or billion) dollar industries can be a big inspiration. They may very well help you finally realize your dream of getting out of that garage and onto bigger and better things.

1.Apple: Today, consumers will wait in line for hours just to get their hands on some of Apple’s latest products, but once upon a time this electronics giant was a mere blip on the technology industry’s radar. Back in 1976, Steve Jobs, Steve Wozniack and Ronald Wayne started a business out of a garage in Cupertino, CA, putting together one of the first prototypes of their personal computers. Over the next decades, the company would introduce several more models, including their Macintosh line in 1984, arguably what turned them from a struggling startup into a fully fledged business. Today, the company manufactures much more than computers, has almost 50,000 employees and brings in revenues of over 14 billion each year.

2.Google: Google might be a household name today, but back in 1998 the search engine giant was just starting out. Their corporate headquarters? A Menlo Park, CA garage. For the next five months, Google’s staff of three would work out of this garage, perfecting their search algorithm, indexing web pages, and raiding the refrigerator of their friend’s attached home. By the next year the company had outgrown the garage and eventually moved into what is today known as the Googleplex. To celebrate their 8th birthday, Google purchased the garage and intends to preserve it as a lasting legacy to the humble beginnings of their business.

3.Mattel: Mattel wasn’t always the toy maker we know it as today. When the Handler’s got their start in the 1940’s in a Southern California garage, they were making picture frames, not toys. Ruth Handler began taking the scraps of wood from those frames and making doll furniture, a side business which proved quite successful. Because of this, the entrepreneurs decided to change their focus to toys instead. In 1959, they introduced the first Barbie, and afterwards became a household name. Today they’re home to big names in the toy business like Fisher Price, Hot Wheels, American Girl and a number of board games.

4.HP: Back in 1939, Bill Hewlett and Dave Packard decided to establish their own electronics manufacturing company. Based out their garage in Palo Alto, CA, with an initial investment of only $538, the two helped establish the technology hub that would become Silicon Valley. When they started out, they made everything from high-tech electronics to agricultural products but by the 60’s were homing in on the tech market exclusively. Today, the company is an electronics giant, with some of the highest quality personal computing products on the market. They have opted to preserve the garage where they got their start, making it into a museum.

5.Amazon: In 1994, Jeff Bezos laid the foundations for what would be the online retailing giant Amazon in his garage, hoping to follow in the footsteps of fellow garage entrepreneurs HP. With a strong foundation, the company grew very quickly, and before long was in need of a much bigger space to house their operations. Today, there are few people who haven’t shopped with the online retailer, buying everything from food to televisions to electronic media. This small business had become one of the leading retailers in the world, with billions of dollars in sales each year.

6.Disney: While he would go on to build an animation and entertainment empire, Walt Disney’s first studio was a tiny, one car garage in Hollywood. There he worked on a variety of animation products, setting up a makeshift studio in the space, while he waited to see if his Alice in Wonderland pilot would be picked up by any major distributors. It was, and the company quickly moved out of the garage into a proper studio. These days, Disney is an entertainment giant for kids and adults alike with movies, theme parks and products around the world. That tiny garage was almost torn down, but the dedication of a few interested citizens helped to save it and interested visitors can go there today to see where it all began.

7.Microsoft: In 1975, Bill Gates and Paul Allen founded Microsoft, with just a few resources and an available garage space. Unlike Apple who developed both software and hardware, Microsoft homed in on the software market. Working with IBM, the company licensed their first OS for a mere $80,000. Later, they would go on to develop more sophisticated operating systems that would evolve into those we know as Windows today. The business would grow to be one of the most profitable and powerful in the world, dominating the personal computing market.

8.MagLite: Anthony Maglica started his dream of owning a business by working long hours to earn the money it would take to put a down payment on his first lathe. Working in a Los Angeles garage, he began to design and build precision parts for industry, aerospace and the military. By 1974, he was incorporated as Mag Instrument and the company was gaining a reputation for the quality of their products. In 1979, MagLite released their first flashlight, the product they are best known for today. It would help them to become a household name and secure their place in the market.

9.Yankee Candle Company: Unable to afford a present for his mother, young Michael Kittredge created his first scented candle from some melted crayons in his garage. Neighbors saw the candles and began purchasing them from him, eventually motivating the high school student to found a business with two high school friends. Kittredge sold the company in 1999 after a cancer scare, but it has gone on to even greater success and is now sold at many major retailers and a number of its own standalone stores.

10.Harley Davidson: It makes complete sense that a company selling vehicles would get its start in a garage or outbuilding, because that’s where those products eventually end up. Harley Davidson did just that, starting out in 1901 with a small business that built engines for bicycles. Of course, it wasn’t long before they started developing the motorcycles for which they are known, and in 1903 they had already released their first racing bike, constructed in a small wooden shed. Buoyed by the popularity and speed of their motorcycles, the company expands, constantly rethinking the best ways to build a bike. Today, they’re still known for producing some of the biggest, best motorcycles on the market and have become a household name.

Guest Blogger Derek Hall Talks about Deal of the Day Marketing

7 Things They Don’t Want You to Know About “Deal of the Day” Marketing

Businesses across the U.S. are rushing to jump on the emerging “Deal of the Day” bandwagon, driven at breakneck speed by companies like Groupon and LivingSocial, to name two of the bigger players. Undoubtedly, these arrangements drive short term spikes in business, but closer inspection reveals all is not what seems.

The crucial and often overlooked question for businesses looking to implement a “Deal of the Day” campaign for their organization is:

“Who wins at this coupon game…and at what cost?”

While working with small to medium sized businesses that are testing into this medium, I have observed several pitfalls and sand traps that can trip up even the savviest marketers.

The companies I work with bring in $500,000 to just under $10 million a year in revenue and are always looking to try new advertising ideas. Yet when it comes to social marketing, they have navigated into some unknown territory.

If your business is thinking of trying a Daily Deal concept, here are seven things you need to know before you do your deal:

1. You’re still paying for it. The average discount after a campaign (after adding in up-selling and cross-selling costs) is much larger than normal. It will lower your overall margins.

2. You don’t own the data. Daily deal companies typically keep the consumers’ data and don’t share it with the advertising businesses. Unless you have an efficient way to capture the consumer data when the certificate is used – you lose the chance to contact them in the future.

3. Think it will bring “loyal” customers? Forget it! Do your research. Recent studies conclude the national average for repeat customers from campaigns such as these is less than 20%.

4. Are you prepared for and avalanche of new customers? Expect an abnormal demand for your products and services in a short period of time. Unless the first impression is great, your business can develop a bad rap fast.

5. Keep caring for current customers. They could be casualties. They are the ones that have been loyal, and as they say, “Dance with the one that brung ya.” Unless they are receiving the same love and attention during this heightened demand – watch out!

6. Breakage – potential liability issues! “Breakage” is the term many use when a business can’t fulfill a promised coupon offer when a customer has paid for it in advance. Many government authorities are investigating complaints from consumers that can’t use the coupons. Businesses could end up holding the tab for all “unused” offers or have to put money into escrow.

7. Your company’s image and BRAND could be at risk! These campaigns can be very effective for new locations or brand new businesses with hardly any customers. BUT, if the business has an established brand – beware. Consumers are smart, and getting smarter about their choices, and they may sit on the sidelines until that ridiculously great teaser offer comes along again. These campaigns have also been used as “ATM Machines” for businesses that have struggled during the financial downturn, but in the long run overall profit margins can be severely compromised.

The top tier companies that promote these offers have a great business model and many investors can’t wait to become their shareholders. But in the long run do they have the “middleman” or their advertisers’ best interests at heart? Think hard before you Do a Deal.

Derek Hall is an entrepreneur and founder of DartzDeals based in Austin, TX. He also has over 21 years of experience in executive management in the technology industry. He has founded several very successful companies since 2005 to serve the advertising needs of local business owners. DartzDeals business model is based upon persistent advertising via smart phones, the web, personal branded apps and high end print for local businesses to use for client capture and retention. DartzDeals website is http://www.dartzdeals.com/.

IBM SmartCamp Calls for Entrepreneurs

On behalf of IBM, I would like to introduce you to a new program by IBM to help your company continue to grow and accelerate. Here is your chance to partner with IBM and receive access to world-class advisors plus a direct route to seed and venture capital.

SmartCamp is an exclusive event aimed at identifying early stage entrepreneurs who are developing business ventures that align with the IBM Smarter Planet vision.

SmartCamp winners take part in a three-month mentorship with IBM. The winner will be invited to attend the SmartCamp World Finals. A finalist will be chosen to receive a personal mentoring engagement from Dr. Robert Metcalfe - ethernet inventor from the University of Texas at Austin.

If that sounds like what your start-up needs, then apply to participate in SmartCamp Austin on May 17 & 18, 2011.

To learn more and apply for SmartCamp go to IBM SmartCamp by April 15th. For questions, please contact Jonathan Libby at jlibby@us.ibm.com or 408-829-3923.

SmartCamp is a part of the IBM Global Entrepreneur initiative, which helps you build your business around the smarter planet market opportunity. By leveraging the benefits of IBM Global Entrepreneur, you can gain access to no-charge IBM software, technical enablement resources, mentoring, greater credibility, and validation of your solution.

Best regards,
Hall T.

Chris Cornutt Talks about the Lone Star PHP Conference

Chris Cornutt Talks about the Lone Star PHP Conference


Where are you from originally?

Dallas, Tx


What university did you go to?

Abilene Christian University


What is your group’s mission?

The Lone Star PHP Conference seeks to bring some of the best PHP content and talent to the DFW area in a yearly event open to developers and non-developers alike.


What need does it fulfill?

The conference brings the format of the once-monthly DallasPHP meetings, a popular venue for learning and experiencing PHP, to a larger scale. Web professionals have to keep learning all the time to keep viable in their careers. Our event helps them by providing a wide range of sessions on topics ranging from the more technical to the “soft” topics.


What exactly does it bring to startups?

Like any other company, employees of startups have to keep broadening their horizons. This conference offers them an affordable way to do just that.


What type of startup would benefit from your group?

Any startup looking to learn more about not only the PHP language but about a wide range of surrounding technologies including web application deployment, Drupal, Windows Azure and unit testing your applications.


What was the most challenging aspect of starting up the initiative?

The planning has been the hardest part - going in I didn’t know quite what all was involved in setting up a conference, but I’ve found out quickly. I’ve been an attendee at several conferences and have friends that have helped to organize other, similar events and it’s been nice to have them to lean on. There’s so many small details you have to consider and it’s good to have a few people to ask questions when I need a few quick answers.


What advice do you have for entrepreneurs?

I keep coming back to it, but they shouldn’t forget to be constantly learning, whether it be a new technology or a concept that can help their product be the best it can be. If you’re not learning something new every day about the world you and your product exist in, you’re doing something wrong.


What Dallas-based resource have you found to be the most helpful and why?

The most helpful has been the DallasPHP user group. It’s where the event started from and it’s the group that’s providing a solid foundation for it. Quite a few of the speakers are former DallasPHP speakers (and some just may be future ones too).

The Fund Raising Funnel

I spent the earlier part of this spring at the World’s Best Technologies Show in Arlington which highlights technologies from university and government labs moving through the commercialization process. In the session on raising funding the panel provided an interesting perspective on the “funnel” used to describe the fund raising process as follows:

1. Self –fund –80% of the companies do this and it will let you start a company that can grow at 20% a year max.

2. Friends and Family – another source the can generate funding from an emotional investment as well as a financial one.

3. Strategic Partners – sell your product in its early stages (even if it doesn’t fully work) and charge an NRE (non-recurring engineering) fee for it.

4. Angel Groups – there are 300+ of them throughout the USA.

5. Individual investors – sign up the potential investor as a mentor first and then move to the investment stage.

6. Grants – check out grants.gov which lists all the grants the US government has to offer.

7. Early Stage Venture Capital – There are 75 firms in the US operating today. You can find them on PWC Money Tree

8. License/Royalties—you can generate cash for your startup by licensing the use of it to someone in exchange for a royalty stream. It takes $9M of funded research to create 1 license which will last on average for five years and generate $375K of cash to the licensee.

As an angel investor, one of the first questions put to the entrepreneur is what other sources of funding have your tried and in the future what will you consider. If you haven't put your own money into it, it will be difficult to convince others. If you're building a life science or cleantech product requiring a great deal of capital, then government funding is a must.

Best regards,
Hall T.