Why Business Plans Suck and Accountants Make Bad VC's

 This is a guest post by David Kirk (@dhkirk). David is an active seed investor, working with technology and web startups. He is the former VP of Corporate Information and Business Systems at AOL and later Senior Vice President (SVP) at Cisco Systems. He has invested in a number of startups including AirPOS (@AirPos) and Planzai (@Planzai). He lives in San Francisco but is originally from Belfast, Northern Ireland. If you are a blogger or member of the media, feel free to republish this content: all we ask is that you accredit David Kirk as the original author and link back to www.techfluffco.posterous.com.

 I really like accountants. Accountants have saved me more money on taxes than you can possibly imagine and my current CPA is a cool dude. 

But accountants are accountants for a reason. They like working with numbers because they're logical and predictable. They decided to become accountants because it was a safe, stable profession with good prospects. The business world will always need accountants.

Does this sound like your average early stage Venture Capitalist? No. And this is why accountants should NEVER become VC's.

I'm seeing a worrying trend in startup land. Funds, especially institutional funds, in Northern Ireland are hiring accountants as VC's. They're plucking them straight from PwC and Deloitte and asking them to make bets on the next Facebook. After 4 years of auditing books, they're suddenly qualified to decide the fate of early stage companies. They make their decisions based on the rules of accountancy: numbers are logical and everything adds up in neat rows. There are no assumptions, only facts. And outcomes can be predicted through rigorous analysis and spreadsheets.

Except, real startups don't work like that. First-time entrepreneurs have an idea and no idea what to do with it. All they have is a vision. And this is where they meet their first obstacle.  A banker will ask for six months of cash flow.  An accountant will ask for a twelve month income statement and balance sheet.  An accountant-cum-VC will ask for a three year income statement, balance sheet and cash flow predictions and will call it a Business Plan.

Bankers and accountants are happy wallowing in numbers and spreadsheets - that's exactly why I'm happy with mine.  But early stage technology investing is about listening to an entrepreneur's idea and seeing its potential. Accountants don't know how to calculate visions so they ask for business plans instead.

I've seen some amazing teams in my investment portfolio struggle to raise finance from VC firms lately. Why? The founder is usually a visionary entrepreneur who hates paperwork. They're creative. They don't know how to assemble risk analysis assessments and GTM plans (this is where investors and VC's can help because they've done it before). The average early-stage VC understands this and works with them to build one. The accountant VC closes his cheque book and promises to call next week. In Northern Ireland, nearly every VC is an accountant. So we now have a crisis: local startups can't access the funds investing in them.

I saw this recently with a young team. They had a great product and incredible traction, with industry giants signing up for it while it was still in beta. The team were only in their twenties. They’d never assembled 25 page business plans and financial models before. They were beyond angel investors (angel investors in NI tend to invest only £10-£20K a round). A normal VC would have looked past this and seen the traction as proof they should invest. The accountant VC told them it would be another 9 months before they could invest in a seed round because they didn’t have a business plan. Apparently, having a business plan would make them “operationally ready”. The other VC firms they pitched to said the same. Their only option was to leave NI for London or Silicon Valley.

Google's first $100,000 investment came before they even incorporated the company. Intel was initially funded  "with a one-page business plan simply stating their intention of developing large-scale integrated circuits".

Think those are serious leaps of faith?  Perhaps not such a leap when you consider that Andy Bechtolsheim who co-funded Google had been a founder of Sun Systems and Arthur Rock, who had helped start Fairchild Semiconductor as well as Teledyne and Scientific Data Systems, provided $3 million in capital to fund Intel in 1968!

These individuals had started successful companies of their own. They had grown businesses from birth to maturity.  But more importantly, they had technology awareness and vision, essential to understand the potential of these ideas.  They didn't need to read a business plan.  And they probably would have rolled their eyes had they been given one.

Value proposition, available market, go-to-market plan, competitive positioning, yada yada yada, are all really important elements of a successful business. But early stage companies are not businesses yet-they're ideas.  Ideas that need nurtured, not forced to conform to the structure of a business plan. I wonder if Larry and Sergey missed class when that lesson was being taught.  Or if Andy Grove and Gordon Moore knew it but just couldn't be bothered writing one.

With most startups, the business they become is not what they “planned” when they conceived their idea.

Sweating the details of how to build a commission plan or acquisition costs and acceptance ratios in an early stage company is like booking maternity leave before you've tried to get pregnant.  As is sticking tenaciously to a plan because it's the plan-a mistake I see accountant VC's pressure portfolio companies to do regularly.

Entrepreneurs. Just build your product and tell your story. If you want to write a business plan, keep it in under twelve pages and call it short form.

Accountants, stay away from early stage companies. You're killing them.

 

Student Project iPhone App Acquired by Startup Blosso

So we've just heard on Twitter that Typeplace, an iPhone app that allows users to share and rate pieces of typography, has been acquired by Blosso (@blosso), another startup.

The app was the final year project of University of Ulster design student Barry Hassan (@bahray).

Terms of the deal have not been disclosed. A visit to Blosso.com does not give much information about the company, just that it's in beta and is "A brand new way to accomplish life ambitions."

The company issued a statement via it's Twitter feed confirming it had acquired Typeplace and that it would be used to enable development of Blosso's iOS applications.

We are currently reaching out to both Barry and Blosso for comment. We'll keep you updated as we uncover more information.

Update (13:07pm 26/08/11): Barry is now working as a developer at Belfast-based dev house Rehab Studio: http://www.rehabstudio.com/. We've just heard from a Twitter source that Typeface was originally put up for sale on auction site Ebay but that Hassan allegedly removed it because it did not meet the reserve asking price.

Update (13:35pm): We've just spoken to Blosso's co-founder, Ricki Lee. He did not disclose the terms of the deal except to say that it was an assets purchase: al technology has been acquired. Typeplace has similar functionality, particularly its' social features (such as adding friends), to Blosso: "We are a startup ourselves so if it's cheaper for us to acquire an app with similar functionality than develop it, we'll do it." He said they reached out to Typeplace founder Hassan after he Tweeted about selling the company. The deal was finalised earlier this week. Blosso is a startup that allows users to create lists of dreams they'd like to fulfill, such as skydiving, and connect with people in their vicinity who can help make them happen (such as a skydiving instructor). Lee co-founded the company with Luke Taylor, a university student who did a placement with his other company, GMedia. Blosso is based in Sheffield and has taken no investment to date.

Update (14.27pm): Hassan has just emailed us with the following:

"Typeplace was my final year project for assessment in the Interactive Design course at UU. The app picked up a following thanks to some blog coverage and a devoted community. In August 2011, I decided to sell Typeplace as I no longer had the time to maintain it, that's where the guys at Blosso stepped in. They've agreed to upkeep the app and to my understanding are using some of the code to build their own iOS apps"

 

How To Improve Your Chances of Survival: #Startups

By @LyraMcKee

Since we're promoting #failcon (http://on.fb.me/p85Bga), we thought it would be good to write a post on #startups and how entrepreneurs can make them work.

Most of us in the TechFluff & Co office are startup veterans. We've all failed a number of times. I did a quick poll around the office to see what lessons learned, if any, our team would share with new entrepreneurs. Between us, these are our answers:

1) Don't Give It 100%: This piece of advice sounds insane but it makes sense. Quitting your job, risking your life savings and throwing 20 hours a day at a product will not make success come any faster. Success comes slowly, over a number of years, in small victories. It's steady and slow. Don't believe the idealism created by the mythmakers. Even Facebook was not an "overnight" success; it was 2-3 years after launching before anyone outside of Silicon Valley had heard of it. So start small and just chip away at it bit by bit every day.

2) Be Prepared To Be Surprised: The money will never come quick enough. Downloads will remain in single digits for weeks on end. Users will ask for stuff you haven't built and hadn't thought of building. Everything will be a surprise. Assume nothing and be prepared to put the work in. Nothing comes easy.

3) Get mentors: Mentors are invaluable. They can plug the holes in your team. For example, I mentor a number of startups whose founding teams do not include marketers. I give them advice on marketing and PR and how to drive users to their site. When I worked in my first startup, my team were techies, meaning there was a gap in operations experience. A friend who was a hugely experienced operations director filled the role by mentoring us.

4) The Team: Everyone talks about the importance of teams but few understand what it really means. You need to be brutally honest with yourself about your own strengths and weaknesses and those of your term. Before asking others to join the company, think about the skills you really need. Sure, having a Director of Finance is nice but why not just hire a bookkeeper for half the price? If you're building a shopping site, you'll need someone with experience of operations/logistics/managing warehouses. Put resource where it's needed, not where business books say you "should".

5) Make money: Don't rely on investor money to make a profit. Focus exclusively on sales. It's easy to make excuses for poor cashflow by saying "Yes, but when we get investor money in, we'll be able to do this...." Numbers don't lie. You're either selling well or you're not.

6) Survive: Too many entrepreneurs focus on making millions before they've made a pound. Success happens in baby steps. It will not happen overnight. Focus on one milestone at a time.

#Failcon 2011: September 2011, Paris

We are so psyched to be promoting the #Failcon Conference in Paris next month (Sept 22). #Failcon brings entrepreneurs and startups together to share their experiences of faliure and learn from them. Some top speakers are headlining the event, including Renaud Visage, CTO of Eventbrite.

Now, I want to let you in on a secret. We're not getting paid to promote this event.

Why do I think this is important information to share? Because we believe in this event so much that we're giving up our time to promote it for free. In Northern Ireland and the UK especially, failure in business is treated with shame. It's inevitable but when the company next door files for bankruptcy, we look the other way and pretend it could never happen to us.

Failure is as much a part of startups as success is. We need to stop treating it like the ugly sister and embrace it and the lessons it brings.

This is why we're giving up our time to promote #failcon. We want to see entrepreneurs bouncing back from failure. We want to see them learn from it. And we want them to no longer be afraid of it.

Please spread the word. Buy tickets on http://france.thefailcon.com/, follow them on Twitter (@failcon) and like them on Facebook: http://bit.ly/pDCYJj.>

Startups-let embrace failure.

 

We're Hiring!

TechFluff & Co is an awesome company. We're one of the few PR firms in Europe working exclusively with startups. We live and breathe them. We love what we do. And we've got big plans, with offices in New York and Silicon Valley to open within the next 18 months.

I, as TechFluff & Co's founder (@LyraMcKee), am going to be brutally honest. We have a problem.

The problem is, like many founders, I'm not a sales person. All I want to do is work with clients on their products all day long. I love PR and telling stories, telling the world what clients (and other startups-see @tfnewswire) are doing. In fact, I'm a journalist through and through.

So we're hiring a sales executive. We need someone who can drive the business forwards and find startups we can help. The role is commission-based and part-time. It would be ideal for an entrepreneur already running a business, seeking to supplement their income with another revenue stream (although this is not a requirement). Commission is generous and, in some cases (with regards to client retainers) will be recurring. In short, it's a great opportunity for anyone who wants to work with startups.

Sound good? Email me (Lyra@techfluff.co) for more information or Tweet or Facebook us (@techfluffco).

 

When Should I Start Promoting My Startup?

I had a great question from a founder yesterday: "We're not launching until next month. Is it too early to start promoting the product now?'

Yes and no.

Firstly, before you do any promotion, you need to a dummy-run with friends and family: http://bit.ly/r9k5ql. This will iron out any embarasing wrinkles like spelling mistakes and 404 pages etc.

And secondly, it really depends on the level of promotion you're talking about. If your PR firm is trying to talk you into doing a national marketing campaign when your product is only in beta, they don't really care about you or your company. Spending hundreds or thousands on a press campaign to attract customers when you don't have enough dev resource to fix bugs does not send a good message.

Instead, I tell startups to do "underground marketing". Underground marketing & PR (in the TechFluff & Co office, at least) is all about finding the die-hards in your target market (for example, if you're launching a fitness site, the die-hards would be gym bunnies pumping iron 7 days a week) and building relationships with them. These are people who will have the most valuable feedback to give. They're also your earliest salespeople. Manage their expectations and make them feel special. Let them know that they're the experts. You want their feedback. You want to know how to make the product experience better for them. This turns them into evangelists. They'll tell their friends all about your product. Their enthusiasm will convert their friends into using it. Then they'll tell their friends. And word will spread.

It's all about managing and nurturing your community of users. At a time when the product isn't perfect, you've got to give them alot of love. They'll repay you through word of mouth. Turntable FM is a classic example. The product (I hear) is buggy and not ready to hit the mainstream market just yet so it's in invite-only beta at the moment . But they've spent alot of time identifying and building relationships with early users. And those guys are buzzing about it. They overlook all the crashes and fixes. They are so excited because they believe in it. And they're getting the rest of us excited about the public release.

So to answer the founder's question: don't market to the public. Market to the underground.

The TechFluff & Co News Project: Announcing @TFNewswire

Update: 23.35pm, 15 August: Well, this is embarassing! We'd originally called the project @tcnewswire, with the "TC" standing for "TechFluff & Co". Mike Butcher, TechCrunch Europe's Editor, was kind enough to point out that there may be some confusion between @tcnewswire and TechCrunch. After some deliberation, we realised he was right. It was silly of us not to have foreseen the potential confusion. For this, we're really sorry. We'd like to thank Mike for being so nice in flagging this up and for his advice. Like the startups we're talking about, we're continually testing and iterating. If you're following @tcnewswire, please switch over to @tfnewswire.

 

Every week, I'm bombarded with news stories. Most (around 60%) are not from our clients but cash-strapped startups looking for exposure and asking for intros to the media.

Anyone who knows me will know that I love startups. I hate turning them away. The commercial argument for doing so is that I can't give my contacts away for free by making intros. PR is how I make my living. But, again, I love them (startups). I also love news. I'm a journalist through and through. And I can sympathise. I've tried marketing products in cash-strapped companies before. It's tough.

And some of the stories are really good. The problem entrepreneurs have is getting them to the right person. The journalist in me has a "good vs evil" battle with the money-making entrepreneur every time a great headline comes in. Do I let this story go unreported? How can I let it get away? Why can't I just forward it to the editor? I'm afraid the entrepreneur fights a losing battle. Journalism is in my blood; PR is my means of making a living from it. The urge to tell stories always wins over the urge to make money.

So instead of sending "Dear John" replies and turning away exclusives and amazing stories, I'm going to publish them here. I've set up a Twitter feed to share them, TechFluff & Co News (@tfnewswire). So if you're a journalist covering #startups, you can follow the Twitter profile and pick up interesting stories. Occasionally, I'll publish stories featuring clients of TFCo. When I do, it will be clearly disclosed. Not all stories received will be published, only those judged to be interesting and factually/editorially sound. And if you want to speak to the startup in question directly, you can email/Tweet/ring me and I'll pass on contact details.

The flow of stories will vary and will be small to start with. I'm aiming to dig out one exclusive a month and share it with a stream of smaller, quality news hits behind it. Over time, if the project is successful, it'll get bigger and better with more quality stories emerging.

For me, this is just a way of publicising stories that need to be told. Call it vicarious fulfillment (disclosure: I'm an ex-hack and miss it insanely). Plus, I believe in karma (that's my answer to the commercial argument). I'd love feedback and advice on how we can do this better, from selecting the best stories to share with journalists to how we should handle exclusives (distribute to everyone-first come, first served-or share with a select few?). Tweet us @TechFluffCo (or my personal Twitter account: @LyraMcKee), follow us on Facebook, email me (Lyra at techfluff dot co) or leave a comment below. If you have a story or tip to share, send it to the same email address.

 

 

 

 

 

 

Paying It Forward: Nice Things Are Returned

I'm a massive believer in "paying it forward". "Paying it forward" is doing a nice deed for someone when someone else does a nice deed for you. It's all about keeping the good deed going so that it touches as many people as possible in the world. I love this concept. Someone reminded me of why I love it so much today.

I've been back and forth to the City Hospital in Belfast this week because my Mum is in for an operation. Yesterday, I had a couple of hours to kill before heading back to the ward. I was hungry and hadn't eaten all day so I popped into a coffee shop called Sinammon on Belfast's Botanic Avenue.

Here's the problem. I have a tooth that's been giving me pain lately-nothing huge. But when I tried to eat my sandwich yesterday, I was nearly in tears. It was suddenly excruciating. After struggling through 3 bites, I gave up and left.

I've since dosed myself up on horse tranquilliser-like painkillers so, when I had time to kill today, I decided to pop in and grab a hot chocolate and some food. The young guy at the counter stared at me. "You're the one that didn't eat your food yesterday! You can have the scone on us." I told him that he didn't have to do that; the food was great, the problem was the pain in my mouth! But he insisted. So I'm sitting here leeching off their Wi-Fi and writing about them because I want to pay it forward. They didn't have to do that. What they don't know is that my Mother is currently in the operating theatre and I'm killing time until she's out again. (She told me to bugger off and do something useful so I decided to catch up on work). The operation is a little complicated but fairly routine but I'm still worried. So, on a day when I was feeling a bit anxious and sad, they made me smile with a scone and a coffee. Sometimes it's the little things that matter most.

Pay it forward today. Go hug someone. Smile at somebody that looks sad. Tell that person how you really feel. Tell someone you love them. Give someone hope. Love. Keep the gift going. And have a very happy Friday.

We Love Startups: Why We Want To Work With You

Since launching, we've noticed a big problem in the PR and marketing industry. PR and marketing companies don't know how to market startups.

When young companies ask to meet us, it's usually because they're fleeing from the hands of a well-known agency. These are firms that are employed by some of the biggest brands in the world. So why is it that our smaller clients hate them? We hear tales of expensive retainers, frustrating bureaucracy and little return. One client told us that at the last PR company they worked with, they had one piece of publicity in 3 months. Another said that one agency, knowing that they were a pre-revenue startup, told them they would drop their rates and only charge £1,000 a day.

Then I would talk to big brands that worked with these firms. And they LOVED them. They thought they were fantastic work with. They enjoyed good personal and business relationships with them. And they quite happily paid millions every year for their services.

At this point, I was confused. The big guys loved them and wanted to pay them millions. But the small guys hated them and begrudged paying a few hundred pounds a month..

A friend clarified the issue for me. Big firms just don't know how to work with small brands. If they ring up a newspaper and say they've got a story about one of their clients, Virgin Media (obviously a household brand), the story will be printed no problem. But a brand that no one's heard of? How do they persuade a journalist to write about that? This requires alot more imagination and thinking.

When I was running my own startup, I freelanced on the side as a PR hack to pay the bills. The companies I worked with were mainly startups. And I never had any problems generating publicity for their companies or my own. Startups are all I know. Building brands from scratch is what I do. I live them. I breathe them.

But entrepreneurs and their products are suffering because most of the big firms just don't understand them and how to take them from A to B: A being where no one knows them and B being where everybody's talking about them.

So, like the startups we love so much do by building great products, we've decided to solve the problem. From today, we're focusing on working with startups across the globe, helping them grow their businesses through PR and marketing. We'll occasionally work with corporate clients. But for the most part, we won't be chasing their work. Startups is what we do. We want to plug the hole in the PR/marketing industry by being a company that "gets" them and knows how to turn them into big brands. Then they can "graduate" to corporate firms. We'll be working with companies across the tech, mobile, media, retail, etc (the list goes on) sectors. We could just fill in tenders and compete for work from multinationals all day long. But that's not what we love doing. We want to be out in the battlefield with CEO's, CTO's and founders, making stuff happen.

If you're a startup in need of PR and marketing services, we'd love to talk to you. Our clients have appeared in media from Wired Magazine to The Guardian newspaper. Tweet us on @TechFluffCo, follow us on Facebook or email me (Lyra) at lyra at techfluff.co. I look forward to chatting with you.

 

 

 

 

 

 

 

 

 

 

 

PR Companies, Are You Doing Crisis Comms?

I've been in PR and journalism for around 6 years now. Alot has changed in that time, with so many big stories hittting the news and Twitter, from #sachsgate to #notw.

Note how I mentioned Twitter. One of the biggest changes has been social media. With communications between our clients and their customers happening in real-time, our jobs are no longer to just push messages out but to listen to the response, analysing and managing the conversations taking placing on social networks about client brands.

Suddenly, the job description requires UN peacekeeping experience. Take Edelman, a New York-based PR firm, as an example. Edelman are one of the biggest PR firms in the world; I'm a huge fan of their work. They were recently called in by Rupert Murdoch to manage the damage done by the News of the World (or #notw on Twitter) scandal. They're no longer there just to promote NewsCorp. They're firefighting on the front lines of Twitter and Facebook, trying to reverse the brand damage done.

It's a tough job. Even though we develop crisis communications and reputation management plans for every client, we can't predict the nature of social media sandstorms. So every incident has to be viewed on a case-by-case basis. Well-thought plans can only act as frameworks because we're dealing with angry humans with microphones e.g. the unpredictable.

But it also presents a huge opportunity to PR firms. Having seen the damage done by stories such as #sachsgate (when two BBC presenters left lewd voicemail comments on a British actor's voicemail) and #notw, companies are now willing to pay for brand protection. And not just multinational brands like Starbucks but even consumer-facing business from local cafes' and restaurants to accountancy firms.

I was really lucky to enjoy a stint as Product Manager with a company that built a reputation management tool. I was employee #1 at RepKnight and I got to help shape the first iterations of the product. RepKnight monitors the web (blogs, websites, newsites) and social networks (Facebook, Twitter, Flickr, YouTube and Tumblr) 24/7 for conversations about clients brands. It's one of the few products with access to the Twitter Firehose, Twitter's exclusive stream of every Tweet ever published in real-time. What I really love about it is that, compared to competitors, we made it so simple to use that the PR execs I knew didn't need to call in their IT guy to show them how to use it. It was built for people, like me, more comfortable with pen and paper than clunky technology. I need to give a big shout-out to RepKnight's Lead Designer, @davehedo, for this.

I'm curious to find out if other PR companies are taking advantage of the opportunities afforded by tools like @RepKnight. Have you had an epic Twitter sandstorm to deal with yet? How did you deal with it? How did you measure the success of your efforts?

And if you want to find out more about RepKnight (disclosure: they're a TechFluff & Co client but only because I love the product and team that much I took them with me when I left), contact their lovely Business Development Manager Roisin Chambers (@roisinchambers) on email: roisin@repknight.com.