Monday, April 17, 2017

Lesson #263: Having Laser-Focus Increases Odds of Success

Posted By: George Deeb - 4/17/2017

Do you remember the scene during the credits of the movie Forrest Gump , where the feather was floating through the sky, being carried i...



Do you remember the scene during the credits of the movie Forrest Gump, where the feather was floating through the sky, being carried in whatever direction the wind would take it?  That is a perfect visual of what not to do, when trying to build a business.  Business success requires an almost religious level of focus on the goal at hand, and not letting the whims or pet projects of our customers, investors or employees blow us in different directions.  The entrepreneur that can keep the team focused, and not easily distracted, is the one that will most likely and successfully get to the finish line.

WHAT IS FOCUS—A PERSONAL CASE STUDY

The best way to define focus, is to give you a personal example of what focus is not.  Yes, even yours truly has fallen victim to a loss of focus during the early days of my executive career.  And, this example from my iExplore days will pound home the point.  iExplore was a consumer portal to research and purchase adventure tours, where our primary strength was consumer marketing online, relying on ground operator partners to run the trips.  But, in our early days, we got lured into the corporate incentive travel business by one of our customers.  The idea of selling 100 passengers per booking, instead of 2 passengers per booking, sounded like it was worth it, to a startup trying to scale its business.

But, in chasing that business, we quickly learned that the corporate incentive business is driven by a B2B sales team, not consumer marketers (and we didn’t have the right team with meeting planner relationships to be successful).  And, the skillsets required for customer success, were a lot more than marketing; we need professional event planners and boots on the ground to be really successful.  And, that just wasn’t our consumer model (since we didn’t actually have to run the trips ourselves).

Attempting to get into the corporate incentive business for iExplore, was the equivalent of me leading the team down a rabbit hole.  That “flavor of the month” looked like a good move, based on the financial upside of a business like that, but without the right sales and operations team involved, it was simply a fool’s errand.  Which ultimately distracted us from focusing on continued success in our consumer business.  So, the point here:  don’t let your “flavor of the month” lead you down any rabbit holes, as those rarely bear fruit long term.

DON’T CONFUSE FOCUS WITH BEING STUBBORN—CASE STUDY PART 2

Continuing with another story from iExplore, there was a major pivot point in our history, when iExplore began to sell advertising on our website.  I really wanted to stay focused on being a travel revenue business only, as I thought the ads were going to clutter up the site and hurt the user experience.  But, my fellow executives passionately made their case to do a small advertising test on our website.  And, the result was a  new found revenue stream and a 75% profit margin business that far exceeded the 10% profits margins we were getting from our travel revenues.

The point here was, had I stay solely focused on being a good travel business, we would have missed an even bigger opportunity to evolve the business into a big travel media business.  Once we learned that 30% of our revenues were driving 75% of our bottom line profits, the team shifted directions on what we saw as the future of our business success.

YOU CAN ONLY BUILD ONE BUSINESS AT A TIME—CASE STUDY PART 3

Once iExplore made the decision we were shifting our focus to being a media business, from a travel business, that changed everything from a website design perspective.  And, that ruffled a lot of feathers internally from our travel department, that thought that the media business was actually hurting the company.  There was a constant tug-of-war between the travel business and media business fighting from prominence and positioning on the web pages, as what was good for one, was bad for the other.

I actually thought having the two business lines fighting with each other would create a good balance on the website, in terms of not letting the user experience get too gummed down by too many ads on the page.  But, what I should have done, was pulled the plug on the travel business altogether, and let the high margin media business drive the train.  The media business required less people to build, drove 3x the profitability and was very sticky with a high level of repeat clients.  Hindsight is 20/20, but we should have had better focus on that one business line to truly maximize our success.
But, it was a scary thing to do, exiting the core of the business of which the company was founded.  Don’t be scared to make the right business decision, even if it means killing your sacred cows.

DEFINING THE GOALS TO FOCUS ON

In order to define the key business goals that the management team needs to focus on, that requires a more formal strategic business planning process.  And, most entrepreneurs don’t know how, or don’t take the time, to run that process.  Here is a link to how to run a strategic planning process like this.  Even if you do it in an abbreviated fashion, taking the time to define your strategic plan, will make sure the voices of all stakeholders are heard and ensure you are truly focused on the right objectives to maximize success for your business long term.

KEEPING THE TEAM FOCUSED ON THOSE GOALS

And, once the plan is set, your job as the CEO is to make sure your entire management team is staying focused on hitting those goals and not running down any new rabbit holes that come along over time.  At least until your next strategic planning process, where all new ideas can be considered at that time.  You can’t have your CFO building a sedan, your COO building a minivan and your CTO building an SUV, when you all agreed during the planning process you were going to build a luxury coupe. Focus, focus, more focus, will help you achieve your business goals a lot faster.

For future posts, please follow me on Twitter at: @georgedeeb.



Friday, April 7, 2017

The Art of the Follow-Up

Posted By: George Deeb - 4/07/2017

Given how important good selling techniques are to driving revenues, I am shocked how many entrepreneurs and salespeople are just bad at...



Given how important good selling techniques are to driving revenues, I am shocked how many entrepreneurs and salespeople are just bad at working their leads. This includes things like not following up on leads (or following up too much) and not knowing how to break down barriers, to get the lead to actually listen to your pitch. This post will help you become a master at properly working your sales prospects.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.


Lesson #262: A Venture Capital Playbook Over Time

Posted By: George Deeb - 4/07/2017

I read two terrific articles this month that summarized venture capital trends over the last several years.  The first was Pitchbook'...



I read two terrific articles this month that summarized venture capital trends over the last several years.  The first was Pitchbook's 2016 VC Valuations Report and the second was CB Insights's Venture Capital Funnel.  They are a must read for anyone thinking about going down the venture capital route, in terms of financing their growth.  Read together, they help you better understand what you can expect along the way.  Below is my summary of these two articles that are most relevant to you.

Starting with the CB Insights data, they looked at 1,098 companies that raised seed stage capital between 2008 and 2010, and then tracked the outcome of those companies over the following years.  Approximately 46% raised a following Series A, 28% a Series B, 14% a Series C, 6% a Series D and 2% a Series E round.  And, of this group, only 28% of them got to an M&A exit for their investors.  And, of those exits, 71% where under $50MM, 10% were $50-$100MM, 8% were $100-$200MM, 6% were $200-$500MM, 3% were $500MM-$1BN and only 2% were over $1BN.

So, what's the conclusion from this data.  Entrepreneurs think they have the best idea in the world and they are on their way to building the next unicorn level company.  But, only 1% do.  So, know going into the process, that there is a big drop off from one step of your growth to the next, with a lot of headwind along the way.  The odds to getting to a huge payday is very low.  And, the odds to getting to any exit are not great, with only 3 in 10 getting to that point.  So, most of you are going to end up either with self sustaining businesses that can't be sold, or more likely, out of business.  A pretty depressing concept before you even get started!!

Now moving on to the Pitchbook data, I put this chart together to help me better look at it:


There were so many nuggets to learn from this chart.  First of all, you are going to have 1-2 years of history before you raise penny number one from professional investors.  So, be prepared to bootstrap finance your business until you get to your proof-of-concept point the investors are looking for.  Second, look how fast the process moves, which says two things: (i) buckle your seat belt, it is going to be a helluva ride; and (ii) you are never going to get out of fund raising mode, which sucks if you prefer to be focusing on the business.  Third, you get some good data here on how much you should raise and how much you should value your company for, at each stage of its development.  And, lastly, when you add up all the dilution from the multiple rounds, the founder's stake is going to dilute itself down from 100% day one to 33% after the Series D.  And, if there are multiple founders that gets split between you.  So, you will be doing a ton of work that the investors are going to see 67% of the benefit.

There were some other interesting data points in the Pitchbook article: (1) valuations are pretty lofty right now, steadily rising in each round level since 2010 (up about 2x over the last several years)--that can't last for much longer; (2) flat or down rounds make up a healthy 26% of the market, so even if you are raising new funds, valuations don't always go up; and (3)  if you have a strategic corporate investor as part of your investor group, the VC's like that, as evidenced by them paying a 54%-65% premium valuation for companies with a corporate backer vs. companies without one (so figure out how to get a corporate investor to take a liking to your business, if you can).

So, there you have it--everything you need to know to in terms of raising venture capital for your business over time, and what to expect along the way.  What do you think?  Still interested in taking the leap, after studying this data??

For future posts, please follow me on Twitter at: @georgedeeb.


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