Short rant.

Someday soon, all the people sitting around trying to mashup pictures with video or turn RSS feeds in to ad widgets or link maps to product reviews will come to the realization that everyone is panning for gold in the same river.  The folks at the general store selling the picks (Google) and shovels (Microsoft) and buckets (Facebook) will make a tidy sum while most folks end up with nothing.  It’s already starting to happen some: popular tech blogs are being updated less frequently.  VCs are putting less money in to Web 2.0 companies.  All the work being done in garages around the world is being undone in one stroke as power players like Google and Facebook open their platforms.  The end is nigh.  No, there won’t be a lot of public companies that go under, but there will be a bunch of unemployeed 28 year olds that won’t be able to afford the next version of the iPhone unless they go get a real job.

And once the mining town of Web 2.0 has long packed up and set off for home, there will be theories and books and conferences and discussions and debates about the lessons we should learn from trying to build an economy out of something other then the transaction of goods for cold, hard cash.  Sure, there are all kinds of neat web apps out there.  But they’re all useless until someone shoots the lock off their wallet and starts spending some money.

The Second Sale

Confession:  I’d be lying if I told you how to start selling your service or product.  There are way too many bullets flying and way too many variables for a one-size-fits-all style of selling.  My advice to folks is always the same, “put on your favorite tennis shoes and start running.”  Depending on your product or industry, it may take cold calls, walk in meetings, international travel, networking through blogs, or plain dumb luck to get the ball rolling for sales.  As long as you are willing to work hard, work hard, work hard, work hard, and tackle challenges head-on, you should be fine.

That said, I can tell you a heck of a lot about how to make the “Second Sale.”  What is the Second Sale?  It’s when you earn the undying loyalty of your customers and while you won’t ever make the Second Sale without having made the initial sale, the Second Sale will be MUCH more vital to the success of your company.

The customer’s initial purchase will be made completely on perceived value in relation to cost.  More explicitly, the initial purchase will occur when the person with the checkbook says, “Hm…the value of this product or service is greater then the cost…this will help my business/life in a way that makes the fiscal expense justified.” However, the Second Sale will take place without any exchange of money yet will rely completely on the real value of the product or service.  The Second Sale occurs when your customer or client is having a problem and you fix that problem.  How you respond to your customer’s needs AFTER they have given you money will be the main determinant in how long they remain your customer.

Think about the products to which you are truly loyal.  Without seeing your list I can tell you the characteristics they embody.  The products to which you are loyal are no doubt (a) consistent in quality (b) reliable under stress and (c) easily fixed/solved when you have an issue with them.  If at any time these qualities become compromised, the customer is much more inclined to look at alternate available options.  When Coke changed it’s formula in the 1980’s, all hell broke loose as market share started to erode.  They quickly remedied the problem with great success, but quality (a) was compromised, so customers began looking elsewhere.  In the tech world, most famously, Dell’s previously high-rated customer service was outsourced to foreign countries leading to a customer backlash that the company is still dealing with.  (In all fairness to Dell, my opinion is that the issue exists as a result of long-waits, foreign resentment, and language barriers much more then the skill-level and ability of the customer service representatives answering the phone in Mumbai.)

The Second Sale is the one that will make your business flourish.  It’s the tipping point where your “customer” becomes an “advocate.”  It’s what makes them tell their friends, “you know, I had some shady spending on my check card and when I called Wells Fargo, they took care of it right away without any question.”  It’s what makes the person say, “I’m buying another Ford truck from Fred’s Autoplex because when my work truck broke down last winter, they went above and beyond to get it fixed quickly.”  The Second Sale is what makes customers stay with you when your competition comes calling.  “No thanks, Vonage.  I know my AT&T long distance may cost a little more each month, but it has always been reliable and the customer service is good.”

Unfortunately, I can’t tell you much about how to get your foot in the door.  But once you’ve got a seat at the table, the Second Sale will make you a welcomed guest.  When a customer has given you money, your relationship is just getting started and while you may not ever make another dollar from them, your job as a salesperson has only just begun.

Rule #22 - Your customers are morons.

Your customers are morons, and you should treat them as such.  Now, now…don’t fret.  I’m not hacking on your customers.  I’m actually hacking on your product.

It’s easy to think that because something in your product or application is intuitive to you that it will be intuitive to everyone else.  That is simply not true.  Chances are much greater that what seems simple to you will feel much more complicated to someone else.  And customers will not use, much less pay for, complicated products.

When it’s time to design and build the customer interaction process (a GUI, a set of knobs and buttons, etc.), I try to think back to 3rd grade when I sat in creative writing class and was asked to write how to make a sandwich.  “Put the peanut butter on the bread…”  The teacher would respond, “where did you get the peanut butter?  Where did you get the bread?  How will you get it on the bread?  Do you put the peanut butter jar on the bread, or does it need to be opened first?”  On and on and on until a group of 8 year olds had spent three months writing a 22 page essay about how to make a frigging sandwich.

You need to approach the interaction between your customers/users/clients and your products EXACTLY the same way.  Yes, some details and actions are intuitive.  For example, you probably don’t need an explanation of what “Search” means when there is a text field with a “Search” button next to it on a website.  However, if you purchase a new electric weedeater, the first step in the instructions is to plug it in.  The first point of the “Troubleshooting” is making sure you have it plugged in and the weedeater is getting power.  Wouldn’t the most intuitive thing about operating an electric weedeater be to plug it in?  Nonetheless, Black and Decker and all the other electric weedeater manufacturers continue to print in the instructions, “Step 1: Plug in your new weedeater.”

You can make your product as easy to use as possible, and invariably someone will not understand it.  People look at things differently.  They have different preconceptions and perspectives.  You will not be able to build a customer interaction experience that levels all of those preconceptions and perspectives.  Instead, build something that you think is simple to use and then implement ways to  (a) explain how to use the product from start to finish, such as a help guide or tutorial (b) explain why something might not be working the correct way in the event it isn’t working the correct way and (c) how to receive prompt customer support in the event that doesn’t solve the problem.

If you build a product that’s easy for you to use under the assumption that it will be easy for everyone else, then you are shooting yourself in the foot.  Get feedback from different people about the interaction between that person and the product.  Tweak it.  Write a complete help guide.  Set up a “Frequently Asked Question” section of your website and keep it updated.  Once you’ve built the interface, there is still plenty of work to do to describe how it works.  Don’t cut corners on that portion of the project.  Remember, you’re dealing with morons.

Rule #21b - “On a warm summers evening, on a train bound for nowhere”

Kenny Rogers sang a little ditty once upon a time about knowing when to “hold’em,” knowing when to “fold’em”, knowing when to “walk away” and knowing when to “run.” The song is catchy and tells a fun story about two gamblers sharing a train ride in what must have been a wilder version of the West. However, the lesson in the chorus is a mantra you’d be wise to ingrain in to your brain.

Businesses rarely develop on the exact timeline and direction that you had in mind when you started out. Some folks don’t even look for an endpoint, preferring instead to make a quality product and then put one foot in front of the other to see where things lead. Whether you are a planner or a “let’s get started and see where it goes” type of entrepreneur, there is a harsh reality that you may have to face one day: your product or business has deviated from what you had in mind so much that the idea of remaining a part of it disgusts you. Broken down further, you need to be able to be honest with yourself and know when to walk away.

I’ll give an example: I knew 2 very intelligent and talented programmers who were building a site to reach a vertical search market. They had studied their competition and found some places where they thought the market was ripe for a new competitor. They built their product with fervor and after a long time of tinkering and getting it right, they were ready to launch. Then an ironic - and somewhat tragic - thing happened. The morning of the launch party, one of the founder’s realized that the business model they had implemented was not the best model possible. The features of the site that would be used heavily did not work as well as the functions that would be lightly used. Even more troublesome was that the relationship between the founders had soured and as a result, neither had the enthusiasm to work as hard on the programming angle long in to the night as they had previously.

With almost no money in the bank and investors icing down champagne, the founder contacted a trusted friend for advice. He laid out the story and the friend asked some very difficult questions. Does it work? As it works now, will it succeed? Is the relationship with your partner so strained that nothing - no money, no success - can fix it? Do you want to buy him out? Do you want to be bought out? If you were to start from scratch tomorrow by yourself, how hard would it be to start over and succeed? Do you even want to do this anymore?

The founder explained that launching the product as it was might succeed, but the long term health of the company would be in peril if the founders couldn’t mend their fences. He thought it was a huge gamble to take; what if things didn’t get better? Would that simply be putting off the inevitable death of their startup? Would it be wiser to walk away early on, saving the chance of long term success by simply going a different way?

The founder listened as his friend told him a few snippets of advice, some of which sounded logical, none of which sounded appealing: do the right thing always…if you haven’t done your best, don’t launch…if you don’t think it will succeed, don’t launch…if the structure needed to carry the product is not in place, don’t launch…do not use your one chance on a half-assed attempt because it’s the easiest way out…THE HARDEST THING TO DO IS ALMOST ALWAYS THE BEST THING TO DO.

After much thought, he contacted the other founder and the investors and explained the decision. He said, “I believe this is a great product and it can succeed. I do not believe it can succeed with the structure we have in place to support it. I would like to walk away from the project, giving my equity to my co-founder and the investor pool in proportion to current equity stakes. All I ask for is that my founder sign a “Free to Compete” contract, indicating that if I want to try and work in this industry, I will be allowed to do so.

So he left. And he was right. The original company launched, gathered customers, generated some meager revenue and folded up shop 14 months later when customer requests for service were taking to long to gain a response. The departing founder started his own similar company using a business model he thought was more in line with what people would be interested in using. He raised more capital, he coded in to the night, he found the enthusiasm that was gone on the previous venture’s launch day. Five years later, he wrote a check to each of the investors in the other company who had supported and allowed his departure for 3 times their original investment in that company. He’s still in business today.

A ship with a hole in the bow will eventually sink unless you get it out of the water. No amount of bailing water and putting tar over the hole will hold given a long enough time frame. Be honest with yourself about your venture. Don’t stay at the helm of a sinking ship out of principle when you have the ability to get back to shore and build a better boat.

Motivational Quote

“You will come to a point where you think you have reached the end.  That will be the beginning.” 

- Louis L’Amour

 What a great point, and not just in some existential, motivational way.

As you push onward through your venture, it would be wise to remember that every measurable step you take, every success you achieve, and every challenge you face and deal with marks a new “beginning” for your company.  If you have the ability to wake up in each morning and say, “right now, the scoreboard says zero to zero” then you can dive in to the day’s activities knowing that a new beginning is in front of you.  This type of attitude will help you shed the past, which will make you more fleet of foot in the future.

Every day is a new beginning for you, your venture, your ideas.  Capitalize on the clean slate.

Rule # 21 - Quit with the sugarcoating.

If you learn one thing in business, it will be this:  nothing ever goes the way you planned.   As I have addressed before, you will encounter problems and opportunities on a regular basis that you did not imagine and have not planned for.  When you are doing this, it is best if you employee a style of communication - with co-founders, employees, investors - that is professional, polite, constructive, and brutally honest.

Investors:  There is a natural fear in company founders when it comes to dealing with investors.  A nervousness about getting the right message out and crafting it in a way that communicates things correctly.  Investors are your friends and partners, but it’s natural to want to shine a bright light on the good news and casually toss in the bad news as everyone has one foot out the door.  I assure you that if you employee this strategy, it will come to bite you in the ass when the chickens come home to roost.  At all costs, you need to be open with your investors.  You may tell them things that they don’t want to hear, but you’ll never get drug in to a courtroom over hurt feelings.  As an added bonus, you’ll probably be pleasantly surprised when one of them chimes in from the back of the room with a solution to the problem that you were not fully disclosing.

Employees: With regard to employees, you shouldn’t give them the idea that business is great if it’s not.  I know all about creating a workplace “culture” and attitude that is positive and optimistic.  But when things are bad, you owe it to your employees to let them know things are bad.  Why?  Because they’re the ones who will be bailing water out of the boat and getting you on the right track through hard work.  If everyone thinks things are progressing in the right direction when they aren’t, it will be much too late for them to do anything to help when the bad news becomes obvious to everyone.

Co-Founders: The most important place to dismiss your happy-face is also the most critical to your early success.  It’s also the place where relationships are most fragile.  Communicating with your co-founders.  I’ll offer two examples…

In one just launched startup I know of, the 4 co-founders set out to build a web based application based on ratings and reviews.  After much discussion and fundraising, they began building the application.  2 weeks in, the founder who was the “database expert” declared that he was in over his head and the project did not have much chance of success if he were left in charge of the database.  By being honest with his 3 partners, he increased all of their chances of success by admitting his short-comings and getting out of the way.  He is still a co-founder and handles another aspect of the development.   Their site is up and running and while there is a lot of work left to do, they are headed in the right direction.

A second startup with which I am familiar is dying a slow death because one of the partners is incapable of doing his part and none of the other parties involved can find the stomach to say, “you aren’t doing your part….you need to step aside.”  Maybe there are worries about hurt feelings or concerns about the person’s expected response.  What they should be doing is worrying about what’s best for the company and challenging themselves to find a solution.  No, it isn’t ideal, but it can be constructive and honest.  But instead of having a difficult and necessary conversation, they just sit there, waiting on good news that will never come.  All because no one has the ability to communicate honestly with one another.

Be honest.  Be polite.  Be constructive and offer solutions.  But don’t patronize people, don’t massage the truth to your liking, and don’t leave the bad news for another time.

Quote of the Century

“Imagine what you might accomplish if you knew you would not fail.” - Unknown

I saw that on a card at a car wash last week and I’ve been amazed at how much it struck me then and how much it strikes me now, days later.  In just a handful of words it conveys the following facts to me:

1. Many people do not set out after their dreams for fear of failure
2. What would you/I be doing different with our lives if we knew that success was assured?
3. When asking oneself “do I really believe in ME to do this?”, the answer is pretty hazy.  Perhaps our assurance of success is hard to believe because we would have to rely on ourselves to achieve it.

We all make choices about what we want to do in life and how much we’re willing to sacrifice or put in to get there.  But it remains staggering to me how quickly people settle for less then what they always thought they could accomplish.  No, not everyone is going to start a business or go on a Mission-trip to Africa or cure cancer or whatever.  But look around sometime at all the people around you who aren’t challenging themselves to do what they really want or really need to do.

What could you accomplish if you knew you would not fail?  What is it that’s making you think you will fail?

Rule #20b - Raise the Money you need, not the money you want

Now that we have established that the money you “raise” should be treated like you walked down to the local bank and signed your life as collateral, we need to tackle the question of how much money you should be raising in the first place.

There are some very, very successful people who have a much different view then I do on this. Marc Andreessen, who churns out billion dollar startups almost as often as Lindsey Lohan goes to rehab, loudly declares you should raise as much money as possible. His idea is (in a nutshell) based on the fact that you won’t go out of business with money in the bank, you never know if there will be more money available later, and the risk of making a buyout financially impossible pales in comparison to the real chance that having too little money will kill you.  All of these are good points.  And at which time you have the capacity to raise 44 million dollars in one round for your startup (as Andreessen just did with Ning), I will only say, “knock yourself out.”   You get people with 44 million dollars to answer the phone and you clearly don’t need my advice.

So, how much money should you raise to get your business or idea to the next stage? Some people may tell you that you need to find a fair valuation for your company or decide on a percentage to sell off blah blah blah. The fact is that unless you have absolutely hit it out of the park alread, the first chunk of change you raise will be from people you know who believe in you as a person and really don’t care too much about your idea.  They have a couple grand lying around and want to help you achieve your dreams and if they get a little something along the way, all the better. The specifics will vary, but that’s usually how it goes the first time out of the gate.  My recommendation is you raise the money you need, not the money you want.  

I’m essentially advocating a strategy of just barely going beyond “self-funding” or “bootstrapping.”  I’m suggesting that you take the bills you have as they apply to your startup, project them out for a year and raise exactly that much money.  In a perfect scenario, you would follow the old adage to “raise the money you need for a year!” and then take not a penny more.

The reason for this uber-conservative approach is simple:  as I said before, at the early stages of launching a startup, having money is going to create more problems then solutions.  Raising a smaller amount of money will give you the freedom to work on the project and business without having to sweat whether or not you can cover the cost of your internet connection.  Having a small amount of money will also implicitly keep you from doing stupid things like hiring a VP of Sales or making 100 T-Shirts with your cool logo on them.  I.e., not having much money will keep you from wasting it.  As I said before, if you think that would never happen to you, you’re being naive.  Even the tiny stuff - “Let’s buy the office a Starbucks this morning to reward everyone’s hard work!” - will snowball until your working capital has returned mere pennies on the dollar to you.

Why?  The moment your account becomes bloated with more money then that small amount, you will be tempted to spend it.  Even worse, the people who have invested will start saying, “Why is my money in the account…?…why is there not more staff…?…why is this still not launched…?…what is the deal here…?…WE HAVE MONEY!!!”  Even if you heed my warnings about having too much money in the account, the people who put it there will more then likely NOT understand your reluctance to spend it.

People - investors, specifically - think that money solves all problems in a startup.  Of course it doesn’t; it masks them.  Money covers up a lack of strong work-ethic.  Money covers up timelines that pass.  Money covers up lack of talent.  Money covers up poor communication and a dead market.  Money covers up lack of a business strategy.  On and on and on.  I’ve seen it plenty of times and from all directions and can say with absolute certainty that at this point, you will get more done with $100 in the bank then you will with $100,000 because you won’t have the fall back of saying, “everything’s fine…we have money.”

Raise the money you need to allow you the freedom to get to the next step of your journey.  Not a penny more.

Rule #20a - The First Rule of Raising Money

If you followed Rule #1 and actually started your project, chances are you’ve made some headway on down the road. Hopefully you’re on your way to a prototype or maybe you’ve even bootstrapped your way to a finish product. As such, you are likely thinking beyond self-funding your startup and would like to have something in bank account to help further your progress. Thankfully, funds are much more readily available then you can possibly imagine.

The first Rule of raising money is to realize that EVERY dollar you take in as an investment should be thought of as a “loan.” The interest rates and payment terms will vary, but every dollar comes in the form of a loan. For example, a personal loan at a bank may come with a monthly payment and a 10% interest rate. Default on the loan if you aren’t able to pay, and it goes as a huge black streak across your credit report. An investment from your cousin Phil may come with no real interest rate and no time-constricted repayment terms. But if you aren’t able to make a return on the investment (”default on the loan”) then things will be extremely awkward around Phil at every family reunion from now until the end of time.

Without exception, every dollar you raise for your business should make you feel in your stomach like you have taken out a loan because that is exactly what you have done. You are on the hook in some way - financially, emotionally, socially - for every dollar you raise. Remember that. Always.  It may be called an “investment”, a “gift”, a “nominal sum, or “an advance on what you’re getting out in the will.”  But in some way, shape, or form you need to call a spade a spade: the money is a loan.

Robert Scoble >>> Egg on Face

At present, there are more then a few sites talking about a recent video in which Robert Scoble describes how and why search engines that are created by people in one way or another, a la Mahalo and Techmeme, will overtake Google in popularity in the next 4 or 5 years.

Robert Scoble is probably a nice guy and a smart person.  But in this case, his thesis is ricidulous to the nth degree.

The best explanation comes from the Ted at Uncov when he says, “Robert Scoble doesn’t understand why man invented machines in the first place. The printing press was not a machine designed to facilitate a bunch of people all hand-copying the Bible in unison. A human being will always be able to classify a search result better than a machine. We use machines to do this because the problem is just too big for humans to do. If the machines aren’t doing a good enough job, we make the machines better, we don’t add more people.”

Perfectly said.  In the time it takes Mahalo to get enough search results to matter to anyone outside of Silicon Valley, Google will have further refined its algorithms to remain one step ahead.  In their most base form, machines exist to make tasks simpler for humans.  Man could build a fire and cook a piece of cod over it, or he could just pop it in the oven for 20 minutes and get the same result in less time and for less energy.  Same principle applies with computers and the internet and search engines.

It’s a nice idea to think that the people will eat the machines and not the other way around, but for the purposes of searching things on the internet, it simply isn’t the case.