Joe Abraham

Recruiting Top Talent for Your Startup

// January 6th, 2010 // View Comments // business startup

This question comes up quite often from entrepreneurs starting up their first enterprise.

Question: How do I recruit top talent to build my startup? How many people should I recruit when I am just starting up?

Answer:
1. Figure out what it is going to take to get your venture to a point where you have proof of concept and market traction. That is truly the only point when your business is considered “viable” and “investable”.

This means, you have to do a paper napkin business plan on how you are going to get your business to a point where you have a working product and paying customers.

2. Based on this established point (call it milestone #1), figure out WHO needs to be on the team to get you to milestone 1. Don’t try to recruit “top talent” at the management level yet. Focus your energy on the people who will actually build/sell your product.

3. Now figure out what it would cost you to hire and support those people in real cash dollars. Add in all the other operating costs to get you to milestone 1. (Once you have picked yourself off the floor…continue to step 4).

4. Decide how you are going to fund this team (personal resources, seed funding round, loans). Take VC and Angel funding off the list for now. That will not be an option until after you have passed milestone 1.

Recruiting top talent really comes down to the CEO’s credibility, vision and charisma. Recruiting top talent comes down to you being able to present your vision to them in a way that engages their attention and tickles their capitalistic desires.

Chances are, you have a strong network of individuals who know, like and trust you. That should be the first group you recruit from. If your immediate network does not have the quality of people your venture needs, consider using LinkedIn as a tool to find potential candidates. (This is why step 1 and 2 are so important).

You should have no trouble finding high-quality candidates on LinkedIn. If all else fails, consider using a headhunting firm in your industry. My guess is that if you do step 1 correctly and leverage your linkedIn network, you’ll be able to find just the right people to join your team.

But as a reminder… The MOST IMPORTANT piece of the puzzle is the CEO (you). You must have a clear vision and strategic plan ready to share with potential recruits. A recruit will base a significant part of their decision to join a startup on the CEO’s charisma, leadership quality, vision and passion.

If there is any chance you are going to have to use equity to compensate these individuals, it just adds more importance to you having a very exciting and visionary plan in place.

In summary – design your business plan on a paper napkin, figure out who you MUST have on your team to get you to milestone 1, figure out how to compensate them (cash, equity etc) and finally, pitch them on joining you with as much passion, vision and creativity you can muster.”

Questions? Post em below.

Startup Dilemma: Getting my business idea ripped off

// January 4th, 2010 // View Comments // business startup

I recently answered a question on LinkedIn for an entrepreneur concerned about getting their business model ripped off by a bigger player with deeper pockets.

Question: As a startup, specially when the presence is quite small, how does one deal with preventing the business model from being copied by another company, which probably has a better platform or other advantages?

My Answer:

Who cares if they copy you? (Although chances are they won’t).



If you have done the right homework, you already know they exist and you would have built your strategic plan around them. 



Larger entities are like battleships. They are hard to turn on a dime. Especially if you are talking about an entire business model, a larger player is not going to turn their entire business upside down.



Your advantage as a startup is that you are quick, agile and ready to take advantage of a market niche that the big guys have not captured. 

It is a common mis-conception among first-time entrepreneurs that their business idea is so unique and un-thought of that as soon as it hits the market, it will get ripped off by a bigger player. 



The fact is, if the business idea is that unique and un-thought of, the bigger players will simply buy it. They won’t waste their time (or brand) stealing the concept. More importantly, chances are the business idea has already been thought about, studied and abandoned by the big guys.



Your bigger risk is from guys working in their garage waiting for the next twitter or facebook to get launched so they can build a carbon copy with a different logo. In other words, the risk is not from the big guys, it is from the “nobodys” looking to get rich. There is NOTHING you can do about that. 



NDAs and Patents are great, but unless you have a few hundred grand in your legal fund to fight the thieves, the NDA’s are worth the paper they are printed on. Patents are valuable when it’s time to sell your company, but I know entrepreneurs who have gone broke getting and protecting their patents. 



So build away with the confidence that if you have the right company, the right strategic plan and the right team, you’ll be just fine. If you can secure a patent (ideally several concentric ones) along the way, do that as well.

ADDITIONAL NOTE: I’m not discounting the importance of NDA’s and patents by any means. I just don’t want entrepreneurs in startup mode thinking that a signed NDA can do more than it really can. Always use an NDA when discussing your confidential information with outsiders. Those with integrity will honor it without having to engage legal counsel.

A dishonest person/company is going to do dishonest things no matter what. I’d rather you spend your time doing due diligence on someone before sharing confidential information.

Before You Buy That Business Plan Template

// November 9th, 2009 // View Comments // business startup

Writing a business plan can be a daunting task. Unless you earned an MBA and learned how to build a business plan from the ground up, you may be tempted to take a shortcut.

Buying business plan software or a business plan template is seldom the right choice.

Don’t get me wrong, if you are just looking to put your business strategy on paper to use as a “play book” for your management team, then consider buying a business plan template or purchasing business plan software.
However, if you have any intention of using your business plan to raise startup capital from an investor, I’d strongly recommend not using a business plan template or software system.

Why?

Because I get to see a lot of business plans every month. Some are from friends who actively invest in startups and small business. Others come directly from entrepreneurs looking for advice, input and even funding. Guess where the templated business plans go? In my electronic (or physical) trash bin. And I’m not the only one.

“An entrepreneur who wants to short cut the business planning process by buying a $300 template or software is going to try and shortcut other mission-critical strategic processes. That entrepreneur is a risk factor to our portfolio”.

That’s a quote from an Angel investor friend of mine.

So if you’re looking to write a business plan to raise capital, consider the following tips.

1. Get the facts right: So many entrepreneurs go about the business plan writing phase as follows. “I’ll write my business plan and submit it to VCs. If that doesn’t work, I’ll send it out to some Angel networks. If that fails, I’ll show it to some bankers. If that doesn’t work, then I’ll…” That’s not how it works! The investor world is not a pyramid structure with VC’s at the top and the loan shark at the bottom. Each investor group is a separate silo. VC’s are their own silo. The rules of engagement with them are unique to them. From the qualifications to deal structure to exit strategy, VC deals look, act and smell like VC deals. The same is true of the other silos. So get your facts right and don’t assume that one-size (of business plan) fits all.

2. Ask yourself who your target audience is: Is your ideal investor a VC, a sophisticated Angel investor, a wealthy friend/family member, a grant committee or banker? Each of these audiences require a very different business plan and funding offering. Think about it. Does a banker care about the same things a VC does? Absolutely not! So how can the same document be given to both parties? Do some homework on each group’s M.O, needs and requirements. If you do your homework correctly, you’ll find yourself leaning toward a single target audience.

3. Build your business plan around your target audience: If you qualify for VC funding, then develop your entire business plan and presentation around their needs. Instead, if your audience is a grant committee, then cater to their needs. Keep in mind that only a fraction of 1% of all business plans get VC funding. About the same percentage earn Angel funding. NEWS FLASH – The number of VC’s who provide seed funding to companies can be counted on one hand. A majority of them focus on $20 million to $200 million dollar companies looking for significant market expansion.

4. Get expert guidance: Find someone in your target audience to mentor you and review your business plan as it takes shape. If you are going after banks, find a banker to mentor you. If you are going after friends and family, find a trusted high-net-worth family member to do the same. Let your target audience tell you how well your business plan is resonating with them. It will keep you from going too far down the path only to find that your business plan isn’t working to achieve it’s objective.

5. “Get real” on valuation: One of the big reasons a lot of good business plans go unfunded is because the entrepreneur has over-valued their company. You have big dreams and goals for your company. We get that. However, when it’s at the idea/seed stage, your company is probably not worth ten million or even a million bucks. Don’t go to the market asking for $100,000 of investor capital in exchange for 5% of your company at the seed stage. I don’t care if your company is the next facebook or Coca Cola. It isn’t yet. Your investor is going to need a significant position in your company to provide you with seed funds of $100,000. Don’t worry, as you perform, you can buy back or earn back your equity. A good legal and capital sourcing advisor can help you structure a win-win relationship, but get real on valuation. You’ll ensure a better funding event.

6. Have a Plan B: The reality is that we live in “interesting” economic times. Even some of the best business ideas and management teams are sitting on the sidelines unfunded right now. A good strategic plan should include a play book for “when we get funded” as well as a play book for “if we don’t get funded”. Be wise and figure out how you can get your company up, running and generating revenues without investor capital. That will dramatically improve your chances of success (and long-term funding).

Questions, comments or objections? That’s what the comment box below is for

Answers to Raising Capital

// October 1st, 2009 // View Comments // business startup

Here’s a question that came in from an entrepreneur. It identifies a common mis-understanding about Angel investors. Hope this helps others reading the blog.

I’m starting up a bicycle restoration shop / bicycle themed bar in the heart of Williamsburg Brooklyn. I’m also considering purchasing a mixed-use investment building on the Bedford ave strip in which the startup will sign a lease [maintaining two separate entities]. 

In your opinion – should I focus my efforts on pitching a package deal with both the startup business and the real estate – or will I find it easier to attract larger pools of investors by keeping them separate? Also, introductions or tips for networking with angels are much appreciated. Thanks.

Joe’s Answer

Ryan, an angel investor will be very concerned if it looks like you are going to have to wear 2 hats (bike shop owner and landlord). Angel investors tend to focus on very specific industries and seldom like to cross-over to industries that they do not have deep domain expertise. So assuming you found an angel interested in the real-estate deal, the chances of them having a retail focus are slim to none. It will end up deterring from your success in raising capital.

Here’s the real kicker though… A VC/angel investor (in the traditional sense of the word) will not invest in someone who does not have a proven track record of having started up/built/sold a business already. In other words, unless this is your second bike shop project (with the first one having been very successful), you’ll have a hard time getting an angel investor’s interest. Most traditional angel investors are former VC’s and they act, think and invest like a VC. The only difference is that they are on their own and working with their own personal pool of funds. They will be looking for your educational pedigree (MBA), industry track record, management team and the industry type.

Now if by angel investor, you mean a high-net-worth individual who would take a liking to you and your project, you may be in luck. You’ll find the everyday millionaire everywhere.

So in summary, based on your project, I’d steer away from traditional angel investors (retail and real estate are industries where there is little-to-no angel investing going on).

Focus instead on high-net-worth individuals in your area who have a passion for real estate or biking. Get around them. Share your vision and you may be pleasantly surprised with the results.

Your Fan,

Joe…

SCORE and SBA.gov tips

// September 25th, 2009 // View Comments // Small business, business startup

So you’re looking for some advice on the next move to make in your business. You ask around and people recommend going to your local SCORE office or visiting SBA.gov.

After all, just walk in with your business idea or frustration and they’ll help turn it into a million bucks.

Sounds great doesn’t it?

Well…

I want to dispel the myth that SCORE and SBA.gov are the be-all-and-end-all of your small business consulting needs.

Here are some areas where SCORE and SBA.gov are outstanding resources.

1. Reviewing your business plan and giving “book-smart” advice
2. Talking to you about traditional funding options like SBA loans, grants etc.
3. Looking at your financials and helping you find pitfalls/opportunities
4. Pointing you to local resources like the chamber of commerce, economic development office, convention and visitors bureau for help
5. Giving you access to traditional educational tools and best practices

Here are some areas where SCORE and SBA.gov are NOT outstanding resources.

1. Actionable strategy on how to generate growth in your company
2. Hands-on help in actually generating the growth
3. Solutions to the issues of entrepreneurial life
4. Actually helping you raise capital for your startup or small business

Remember, that your SCORE office is primarily staffed by retired executives from large corporations. They will have excellent skills in book-smart areas that you may be weak in. Areas such as financial planning, cash flow management, business plan preparation etc.

However, to expect them to help you solve entrepreneurial challenges or even roll up their sleeves and go to work in your business is like asking a ballet dancer to fix your car.

Then there is SBA.gov which is staffed with government employees.

So asking them for help generating growth in your business is like asking a pygmy for tips on how to drive safely on the autobahn.

So keep things in perspective. SCORE and SBA.gov are powerful resources when used correctly. Go to them with the right expectations.

If it is a tactical issue, go to them.
If it is a strategic issue, don’t.

Should I have a business partner?

// July 15th, 2009 // View Comments // business startup

Having seen the startup, growth, sale (and occasional demise) of hundreds of companies, I have noticed one alarming trend.

A significant majority (I’d say over 80%) of partnerships that start off with the greatest of aspirations and commitment, end.

Some end well. Most end horribly.

So if you’re embarking on a new enterprise, here are 5 tips to consider as it relates to partnerships.

Tip 1: Go it alone: 9 out of 10 times you are going to be better off going it alone rather than bringing in a partner. It may sound crazy but even though a partner may be the obvious way to get free labor and support as you start your company, you’re going to end up paying too much in the long-run. Think about it this way. Let’s say your “partner” works their tail off for 2 years in your business for no compensation. Ask yourself this question. What is their time worth? 100k per year? 250k per year?

Let’s say you give them a 20% (or worse yet, 50%) stake in your company up front? Let’s play this out…

5 years from now you sell the company for $20 Million? What’s 20-50% of 20 Million?

Do you see where I am going with this?

What seems like a great idea when you have no money and equity value becomes a horrible idea when a big conglomerate wants to know where to mail the 10 million dollar check for your “partner’s” piece of your pie.

Go it alone. Especially during the first 2 years of your company. You’ll be glad you did.

Tip 2: Share revenue not control: Ok, let’s say you really do need a key player to be part of your launch team. How about sharing revenue rather than equity? You are way better off splitting profit with them for a window of time rather than giving them a life-time share of equity in your company. Your attorney can give you 15 different ways to draft a revenue share agreement that lets this individual get all the great benefits of working with you without sharing in control through equity.

Tip 3: Do a buy-sell agreement up front: Let’s say you absolutely have to have a partner. Who am I to argue? At least make sure that you have a buy-sell agreement in place the day you form your corporation. I’ll reiterate that so you really hear me on this one. The buy-sell agreement needs to be in place the same day as your company is formed. Waiting a day beyond that is going to complicate the discussion and chances are, you’ll never end up having the discussion.

The fact is, people’s priorities change over time. Your eager partner today can turn into an absolute missing person 15 months from now when you are still working 12 hours a day in the business. My shoulder has been used as a crying post more than a handful of times for entrepreneurs who regretted handing over chunks of their company to individuals who absolutely deserted them when times got tough.

Do a buy-sell agreement so that if your committed partner turns into a missing person, you have a way to take them out of the equation for pennies on the dollar vs. sharing top dollar with them when it’s time to sell the company.

Tip 4: Have realistic expectations: Even after you sign a buy-sell agreement with your partner, have realistic expectations for the long-term partnership. Like I said earlier, people change over time. Heck, you may be the one doing the changing. Maybe you’ll find that 10 months into the business you are the one who has to step out of an active role for personal or business reasons.

Have those open talks with your partner now. Talk about the various scenarios. What if they have to step away? What if you have to?
What if you end up putting in more hours, more money, more contacts? Or vice-versa?

Having those open discussion now and then documenting those discussions will make sure you have a happy transition. If it ever comes.

Tip 5: Get advice: If you are not sure of all the options available outside of a straight equity partnership, get some advice. If you talk to an attorney, make sure you’re talking to one who specializes in corporate law and has a proven track record with small business. Your uncle Jim who happens to be an attorney may not be the best choice.

If you’re talking to a business advisor/coach, make sure they have some personal operating history with partners. Ideally, you should be getting advice from someone with some “partnership battle scars”.

In closing, I don’t want you to get the idea that I am opposed to partnerships. I have had some incredible partnerships that still exist today. However, I’ve also been part of (and seen) some that caused tremendous stress and heartache.

Take the time to look at all your options. Do the hard work and have the difficult conversations now.

You’ll be glad you did.

Your fan,

Joe…

Starting a Business-Step 1

// January 16th, 2009 // View Comments // business startup

Every business typically starts on a paper napkin (or scratch pad, or legal pad, or white board…). The point is, that there’s a magical moment in time when the light bulb goes off for the first time in an entrepreneur’s mind and they reach for pen and paper to jot it down.

I’ve sat at countless restaurant tables with guys and gals after they’ve sold their multi-million dollar enterprise and it’s always interesting to see them reminisce right back to the first day it all began…

The day they first conjured up their company on a piece of paper!

It’s an exciting time that you too will remember for the rest of your business journey.

Believe it or not, this is a very important stage in the startup of your business because it’s typically your first opportunity to make mistakes!

Yup! You can make a LOT of mistakes at the paper napkin stage…

See, the paper napkin stage is where you end up making mission critical decisions like “who, what, when, how and why”.

Here are the questions you need to answer in this step:

Who…is my customer, is my partner, will be on my team?
What…is my product, is my unique selling proposition?
When…do we open the doors, will I know I need help, will I sell this company?
How…will I earn a profit, am I going to structure the operations, will I spend my time?
Why…am I doing this?

Let me tell you from personal experience (both good and bad) as well as the experience of having built companies with and for a lot of entrepreneurs…

You can do your business a lot of good…and a LOT of harm during this step.

The best advice I can give you if you are at this stage in your venture is to NOT “go it alone”.

Shamelessly avoid any ego trip you may be on, and ask for some help. (It’s a good habit to start early in your business).

Find 3-4 seasoned entrepreneurs (you probably have some within your network of friends and family).

Talk them through your paper napkin. (Important tip: Buy lunch. It’s the cheapest way to get a bunch of “free consulting”)

They’ll probably ask you a ton of questions that you won’t have answers to…

They’ll probably make you feel like you are totally unprepared…

You may even feel like a schmoe for those 45 minutes…

But guess what?

You’ll walk away with insight and wisdom that will save you a ton of money, headaches and heartache in the future.

So like I said earlier, avoid the ego trip (or perfectionist mentality that says “once I have a business plan, then I’ll talk to them”)…

Pick up the phone or fire up your pda and ask for the help now…before it’s too late.

If you don’t have 3-4 seasoned entrepreneurs in your network who you feel comfortable doing your napkin presentation to, then call my staff and they’ll be glad to kick the tires with you. Tell them you read about this on my blog and the entire session is on me with no cost or further obligation.

The paper napkin is the first critical step in your business startup. Do it right, and you’ll enter the next step with confidence, excitement and a healthy anticipation for the good things to come.

Skip this step and you’ll end up with partners you didn’t want, a business idea that doesn’t hold water and possibly a very skewed picture of the potential of the business. (Trust me, you don’t want ANY of those things!!)

7 Steps To Business Startup

// December 22nd, 2008 // View Comments // business startup

Seven Steps?

You mean I just don’t come up with an idea, form a corporation, build a website and get rich? You ask.

Nope!

I’ve watched the statistic of business failure grow from 85% to 96.5% over the past 10 years. A lot of it has to do with how impatient first-time entrepreneurs are with the startup process. You’re not taking the time to make sure your business is starting on the right foundation.

Of the hundreds of companies I’ve been involved with, I’ve extracted out a 7-step process that every single successful enterprise went through.

If you’re an entrepreneur getting ready to embark on a new journey, take the time to study these 7 steps. I’ll be posting some short videos on each of the 7 steps so depending on when you read this blog post, you’ll either have to wait a few days or you may be able to find those videos on this site right away.

So here we go…the 6 steps that savvy entrepreneurs have used to build highly successful companies.

1. The Paper Napkin: This is where you answer questions like who, what, when, how for your business. Who is my customer? What is my product? What is my unique selling proposition? Who are my competitors? What can I learn from them? How will I find customers? etc etc.

2. The Vetting Process: Once you have your paper napkin step complete, its time to take your “idea” and make sure it is viable, profitable and scalable. This is the SINGLE MOST IMPORTANT step in starting your business. This is where you build a strategic plan to achieve your vision. Then you need to have 3-5 very smart people look at your strategic plan so they can help you see past any blind spots.

3. The Business Plan: Now you’re actually ready to write your business plan. If you did the first two steps correctly, this is the easiest step of the process. You won’t have to go and buy a useless business plan template from some website. You’ll have 90% of the strategy in place. You’ll just need to organize it in the right sections.

4. Capital Sourcing: Here’s where you set aside (or raise) the working capital its going to take to get your business off the ground. But hear this from me…If you skipped step 1 and 2 and went right to step 3, you’re not going to raise a penny of startup capital.

5. Team and Infrastructure: With your startup capital in place, you can now build your core team and acquire the basic infrastructure to start operations.

6. Advisory Team: Who is going to be guiding your mission-critical decisions? Who are the people who are going to keep you accountable for the plans you made? This is where you recruit an advisory team who can help you become a better and more effective CEO in the months and years to come.

7. Pre-Launch: This is finally the stage where you start to create your brand, build logos and stationary, design your website and start production on your product/service offering and start pre-marketing your business.

If you take the time to complete each of these steps methodically, you’ll have a safe startup. More importantly, if you follow these steps, your chances of getting that loan or investment are increased exponentially.

I’ve seen a lot of entrepreneurs short-cut this system in the excitement of the moment. But then again, most if not all their companies either failed or are struggling to get off the ground.

Take the time to study these steps. Ask any questions below…