This post is all about failures. I realize that some people prefer and maybe learn from other people's failures better than successes. I tend to prefer the latter as there are many ways to fail but fewer ways to succeed. So intuitively, it makes more sense to emulate and adopt successful behaviours and thoughts/mental models than to learn to avoid failed models and mindsets. But it is always instructive to see things from both sides i guess. Below are failures i have made in the past 14 years.
1) Failure to be transparent about cofounder committment & expectations
Problem : Did not initially spell out intentions and feeling about key topics like how to handle working shareholder departures. So when working shareholder decided to not to work full time, there was much difficulty in resolving feelings.
Result : Much stress and difficult conversations when trying to buy out minority shareholder. It took me some 1-2 months and much distraction to settle this issue. Also had to pay out a good 6 figure sum.
Takeaway - Always spell out various scenerios when contemplating a venture with multiple shareholders. Make sure there is agreement. Don't fall into the temptation of taking the easy way to out and just glossing over difficult items like exit cases, valuation, roles etc. Then encapsulate it all in a written and signed shareholder agreement. If you cannot agree on tough points, it could mean your team has problems.
2) Failure to spearhead new venture & blind faith
Problem : Thought that it made perfect sense to venture out into a recruitment agency work back in the early days. Hired 1 manager & 3 pax and burnt through 40-50K of revenue in 3 months with little to show for it. Believed the manager that they can just start a new wing.
Result : Wasted mgmt focus on sideline and wasted money pursuing it.
Takeaway - New ventures, even adjacent ones take longer than expected. Also in startups, new areas need to be spearheaded by top management. Seldom will an outside middle level hire be able to do it even if they seem to firmly believe it. Most middle (and some top) mgmt are used to having established brand and structure to help them, so they may actually believe they can start up something if only given the chance. Dont believe them and if you must believe them, still watch them like a hawk.
3) Failure to focus on sales & that Sales manager
Problem : A parallel of point (2) is believing that hiring an experienced sales director/manager will help you settle sales while you focus on product. This is 99% pure bullshit. Founders must spearhear their own sales almost all of the time initially. I never fell prey to this but a portfolio company of mine has. They raised money, spent it on hiring sales team and sales mgmt then hands off!
Result : Total waste of money as the founder discovered that a hired sales mgmt will never be as dedicated to chasing down each lead, helping to get feedback and care as much as a founder. End result was 1 year wasted and damage so bad it may kill the company. Pain to me is also a possibly wasted 6 figure investment.
Takeaway - Always spearhead your own sales effort via a founder in the first few years. Not only will sell better but will also iterate product better since closer to client. You also squeeze the most out of your other sales hires since you are leading them. Did i mention investors also like sales driven founders?
4) Failure to plan for worst case.
Problem : When things are doing well, that is the best time to raise more money than you need. Another company i invested in had an opportunity to raise money that is equivalent to 2 years cash burn. Business was doing well and so there was also an option to not raise too but it required no mistakes and continued flawness execution. The founder chose not to raise.
Result : As usual, bad things happened and metrics did not grow as expected. Cash crunch started looming. Had to scramble to reverse the metrics. Work in progress.
Takeaway - Always do a worst case scenario and if in that scenerio, you dont need funding, then dont do it. Be paranoid!
Hope the above helps! Feel free to comment and add on.
Thoughts on startup scene in South East Asia. While effort is made to be accurate in terms of numbers, i may sometimes get the data wrong. My purpose is to share what i know and what i have learned over the past 23 years. Feel free to leave comments or to email me. And if you are keen to learn more about Angel Investing pls visit https://www.angelcentral.co/investors/membership
Showing posts with label sales. Show all posts
Showing posts with label sales. Show all posts
Sunday, May 4, 2014
Sunday, March 2, 2014
How to think about Revenues and Costs in a startup
Over the years, i have been both running internet business and investing in internet businesses. In both cases, management will always have a profit and loss projection for the year. I have seen enough internet P&Ls and tracked enough such P&Ls that i have come to some conclusions for our region. Here are 2 major :
1) Revenue projections are almost always optimistic.
I have must seen and helped or tracked more than 100 internet businesses by now based in SG and MY. Of these, only a handful have revenue projections that are largely achieved. And these are usually achieved due to market conditions being extremely favourable. A good example is Groupon SG and MY which rode the adoption of ecommerce in a big way. Or job portals and property portals which rode the economic growth and property market growth. Of course execution matters equally too. Usually companies that achieve their projections are those who executed very well on a day to day sales and operations basis and which are also aided by market trends which added wind to their sails.
What about the rest? Most of the other startups fall short of their projections. A common mistake is to assume a certain conversion rate for platform plays without taking into account that as one scales up, the conversion rates could change for the worse. For sales team plays, a common mistake is to assume scalability of sales staff without taking into account the fact that it takes time to train up a sales staff and that attrition for corporate sales startups is pretty high. Also sales management is not something easy to get right from the start.
Another common mistake is to assume revenue from new markets based on old market assumptions. I have seen many business plans where SG makes X revenue and the assumption is to grow MY and ID at the same pace as SG. This is quite dangerous. Many reasons. One is that core team that made it work is still in SG and not the new country. Another reason is that SG core assumptions are significantly different from new market. Another close parallel of this is assuming in your projection that you can sell a complementary product as easily as your core. For example, an ecommerce company thinking that it can branch out and sell to the same clients advertising media.
2) Costs are usually at projections or worse above projections.
On the other side of the income statement, most startups manage to spend what they say they will spend. Unfortunately, when coupled with (1), this means many startups fail to hit their EBITDA goals. While not damning if they are growing fast enough, some startups do get caught and run out of cash.
Implications of the above 2 observations.
If the above 2 are usually correct, then it means that startups should always have a ultra conservative plan which requires them to project revenue at the worst case scenario and then spend at the worst case scenario. And be reactive enough so that if revenue comes in as expected, then ramp up the cost to match it. But never let cost ramp up in anticipation of revenue.
Now i know some people will say that is extremely conservative and startups that practise what i just suggested probably cant scale up super fast. Also, some people may also wonder how such a startup will get funded. I have 2 answers for this.
First, use your average to optimistic scenario for fund raising but use your conservative one once you get funding. This will solve your funding valuation issue and investors usually dont mind if the entrepreneur is more careful with their money.
Second, it really depends on market adoption or revenue growth. If market are growing like crazy (read over 100% per year), then yes, by all means ramp up the costs. But if market is still those that require you to educate clients (like job portals during the 2000-2003 days)... then perhaps it makes sense to pace costs to revenues.
Feel free to comment!
1) Revenue projections are almost always optimistic.
I have must seen and helped or tracked more than 100 internet businesses by now based in SG and MY. Of these, only a handful have revenue projections that are largely achieved. And these are usually achieved due to market conditions being extremely favourable. A good example is Groupon SG and MY which rode the adoption of ecommerce in a big way. Or job portals and property portals which rode the economic growth and property market growth. Of course execution matters equally too. Usually companies that achieve their projections are those who executed very well on a day to day sales and operations basis and which are also aided by market trends which added wind to their sails.
What about the rest? Most of the other startups fall short of their projections. A common mistake is to assume a certain conversion rate for platform plays without taking into account that as one scales up, the conversion rates could change for the worse. For sales team plays, a common mistake is to assume scalability of sales staff without taking into account the fact that it takes time to train up a sales staff and that attrition for corporate sales startups is pretty high. Also sales management is not something easy to get right from the start.
Another common mistake is to assume revenue from new markets based on old market assumptions. I have seen many business plans where SG makes X revenue and the assumption is to grow MY and ID at the same pace as SG. This is quite dangerous. Many reasons. One is that core team that made it work is still in SG and not the new country. Another reason is that SG core assumptions are significantly different from new market. Another close parallel of this is assuming in your projection that you can sell a complementary product as easily as your core. For example, an ecommerce company thinking that it can branch out and sell to the same clients advertising media.
2) Costs are usually at projections or worse above projections.
On the other side of the income statement, most startups manage to spend what they say they will spend. Unfortunately, when coupled with (1), this means many startups fail to hit their EBITDA goals. While not damning if they are growing fast enough, some startups do get caught and run out of cash.
Implications of the above 2 observations.
If the above 2 are usually correct, then it means that startups should always have a ultra conservative plan which requires them to project revenue at the worst case scenario and then spend at the worst case scenario. And be reactive enough so that if revenue comes in as expected, then ramp up the cost to match it. But never let cost ramp up in anticipation of revenue.
Now i know some people will say that is extremely conservative and startups that practise what i just suggested probably cant scale up super fast. Also, some people may also wonder how such a startup will get funded. I have 2 answers for this.
First, use your average to optimistic scenario for fund raising but use your conservative one once you get funding. This will solve your funding valuation issue and investors usually dont mind if the entrepreneur is more careful with their money.
Second, it really depends on market adoption or revenue growth. If market are growing like crazy (read over 100% per year), then yes, by all means ramp up the costs. But if market is still those that require you to educate clients (like job portals during the 2000-2003 days)... then perhaps it makes sense to pace costs to revenues.
Feel free to comment!
Sunday, September 29, 2013
5 Must Haves For Superior B2B Selling
As entrepreneurs, all of us are deeply involved in the sales process. Many successful entrepreneurs believe that selling is the key skill to master. Whether it is convincing investors, or clients or internal staff, we are always selling the dream and the potential of our business. So what is required to sell well in a B2B environment? I have it distilled my 13 years experience to a few key points below :
1) Belief in your company and goal - I have an unshakable conviction that what my company offers works and that clients should buy it. This allows me to be authentic when pitching. Whether it is to investors, staff, cofounders or clients. And people can smell authenticity and confidence from a mile away. It helps tremendously with credibility building.
2) Belief in value i personally offer. I believe i add value to the people i interact with. This may sound very egoistical, but what it means is that i genuinely feel that their time is well spent on interacting with me. For a client, it is because i know my product and my industry well enough to add value to their business. For staff, it is because i can help them do their job better. And i realize that because of this belief, i am genuine when dealing with people and i do not come across as just trying to sell them something.
Another way to see this is that i try to always make win win partnerships. Since i add value, then it makes sense that everyone should spend time and work with me since it is to their benefit too.
3) Persistence. Ask any sales guy and they will tell you this matters a whole lot. Sometimes, it just takes that 1 more knock or call to get a client interested in a meeting. When do i give up? Only when there is a lower lying fruit to go after. If not, i dont give up. And even then, I will pass the lead on to someone else or work on it again some time later. Of course, i don't mean to blindly keep bugging people when i say this. Use your common sense.
4) Being intellectual. Who says sales jobs are for non-academically inclined people? We need to apply intellectual rigor to the sales process. Understand what the client needs are, what their industry is about, current issues and approach from that angle. This is especially important the higher up the corporate ladder we sell.
Better yet, don't just apply needs based consultative selling. Apply genuine insights from what we learned and use it to add value to the client. A good example is the difference between a super real estate agent and an average one. The former asks all the right profiling questions, knows all about the condo/market in question and applies it to find suitable buyers for the client. Even better, the former is able to recommend correct pricing and timing of sale due to insight on the market. We always hear about owners willing to pay more to get the right agent representing them. Why do you think this is so?
5) Selling as a Company. Sales is not just a sales person's job. It is the entire company's job. A client engages with not just our sales staff but also our finance, operations and customer service people. Sometimes, they interact with our marketing staff and even our tech people. So we need to make sure that all our staff have the right client centric mentally when providing service. And we can go further than that. Why not get non-sales staff to attend sales meetings with clients. Not only do they give an added dimension to the company, they also pique the clients interest and help us walk the talk that our company is client centric.
Many companies are already doing this. It is common for magazine publishers to have their editorial staff join in sales meetings to better understand advertiser need. Or for tech consultants to join sales on pre-sales client meetings to answer more technical questions and to understand what clients are looking for.
The spinoff benefits are many. Better sales/ops relationships, quicker product improvements, better client understanding, multiple touchpoints/relationships with clients etc.
Notice i did not talk about negotiation skills. I believe if we apply the above points well, clients will pay us what we want. Feel free to share your experiences in selling!
1) Belief in your company and goal - I have an unshakable conviction that what my company offers works and that clients should buy it. This allows me to be authentic when pitching. Whether it is to investors, staff, cofounders or clients. And people can smell authenticity and confidence from a mile away. It helps tremendously with credibility building.
2) Belief in value i personally offer. I believe i add value to the people i interact with. This may sound very egoistical, but what it means is that i genuinely feel that their time is well spent on interacting with me. For a client, it is because i know my product and my industry well enough to add value to their business. For staff, it is because i can help them do their job better. And i realize that because of this belief, i am genuine when dealing with people and i do not come across as just trying to sell them something.
Another way to see this is that i try to always make win win partnerships. Since i add value, then it makes sense that everyone should spend time and work with me since it is to their benefit too.
3) Persistence. Ask any sales guy and they will tell you this matters a whole lot. Sometimes, it just takes that 1 more knock or call to get a client interested in a meeting. When do i give up? Only when there is a lower lying fruit to go after. If not, i dont give up. And even then, I will pass the lead on to someone else or work on it again some time later. Of course, i don't mean to blindly keep bugging people when i say this. Use your common sense.
4) Being intellectual. Who says sales jobs are for non-academically inclined people? We need to apply intellectual rigor to the sales process. Understand what the client needs are, what their industry is about, current issues and approach from that angle. This is especially important the higher up the corporate ladder we sell.
Better yet, don't just apply needs based consultative selling. Apply genuine insights from what we learned and use it to add value to the client. A good example is the difference between a super real estate agent and an average one. The former asks all the right profiling questions, knows all about the condo/market in question and applies it to find suitable buyers for the client. Even better, the former is able to recommend correct pricing and timing of sale due to insight on the market. We always hear about owners willing to pay more to get the right agent representing them. Why do you think this is so?
5) Selling as a Company. Sales is not just a sales person's job. It is the entire company's job. A client engages with not just our sales staff but also our finance, operations and customer service people. Sometimes, they interact with our marketing staff and even our tech people. So we need to make sure that all our staff have the right client centric mentally when providing service. And we can go further than that. Why not get non-sales staff to attend sales meetings with clients. Not only do they give an added dimension to the company, they also pique the clients interest and help us walk the talk that our company is client centric.
Many companies are already doing this. It is common for magazine publishers to have their editorial staff join in sales meetings to better understand advertiser need. Or for tech consultants to join sales on pre-sales client meetings to answer more technical questions and to understand what clients are looking for.
The spinoff benefits are many. Better sales/ops relationships, quicker product improvements, better client understanding, multiple touchpoints/relationships with clients etc.
Notice i did not talk about negotiation skills. I believe if we apply the above points well, clients will pay us what we want. Feel free to share your experiences in selling!
Friday, September 13, 2013
Ethics while running a business
My topic today is about Ethics and the various experiences I have witnessed that illustrates these points. I believe as entrepreneurs, we will encounter many circumstances which test us and it is up to us how we react. How we react will determine what kind of a person we are. I am a firm believer in living a good and moral life and in the innate goodness of man. When I die, all I achieve is worth nothing as I cannot bring it along. So i would want to die knowing i did right at best as I can.
For me, it also helps tremendously that my cofounder and life partner is even more clear on ethics than I am. So with us reinforcing each other, it helps a lot.
1) Overpayment. You will be surprised that some clients procurement will make mistakes and overpay us for an invoice. Figure can range from hundreds to $10K! Our policy is to always notify the client nicely and pay back.
2) Honoring our mistakes. You or your staff will sometimes make mistakes too and basically misquote to the client. My policy is to always come clean and admit it is a misquote. And we will try our best to either honor that misquote or at least give a sweetener to show that we know we made a boo boo.
I have been on the other receiving end of this before. I had an association who owed us money. And the Executive Director had the cheek to call us down and say that his manager (who had left) signed the contract and used the services without his knowledge. I told him that even if this was true, he still owed us the money (about $4000) since i had a manager's signature in black and white. This guy actually threatened me (back then 27-28 year old) and told me that he will not pay. In fact, if we do not back off, he will complain about us to his university contacts who were my partners.
I felt so bad at that time because i could not believe i was being threatened because his organization made a mistake. (and that is assuming he was not lying). Managed to resolve this by basically giving him face and accepting half payment and the other half in contra. And i think he agreed simply because i played on his ego. In front of his staff, i counterproposed and told him we are already giving in and he should not bully a startup. But i left the room with 2 thoughts.
First, i wrote off that man and never thought well of him subsequently. Anyone who does not honor their word and who tries to bully because they can does not deserve any respect from anyone.
Second, I resolved to never do that to another person. We will honor our word even if it costs us.
3) Conspiring to cheat. Early in my business, i had a potential acquirer who was running a decent sized executive search firm. Founder claimed to be a Goldman Sachs MD. At that time naive me thought that an MD was a big shot. Now i know it is just a middle ranking position in IB. Pays about US$600K a year all in. Its the partners that earn the real money. Anyway, this guy pretended to be all interested in investing in us and naive us believed him as he had a fancy car and office.
After a bit of discussion, this guy called us and said they will invest. My partner and i were so happy we bought an $800 spa espirit spa package as a reward. Next thing we knew, they wanted our jobportal functional specs and made copies of it. After that, we never heard from them and they later when chased, said change of mind. Couple of months later, they launched a job portal. Of course it died a few years later. It was run by his mistress.
This experience taught me to be a lot more careful about people. Luckily my line depends on execution and day to day effort. Not some incredible piece of IP. It also taught me that i will never want to do that to another person.
Nowadays i take extra care to always declare conflict of interests and to always make sure i am transparent in my dealings. Many times i have had people come to me for investments who are in my job portal or related space. I always take care to tell them not to reveal anything that is proprietary and to remind them that i run a job portal which may be a competitor to them.
4) Dishonest to investors/cofounders. I think trust between cofounders is most important. Even if intentions are the best, there are already sure to be areas of conflict over roles, compensation, alignment of interests etc. But it gets worse if cofounders consciously do something that affects the basic trust. For me, if someone is willing to work with me and embark on a major risk like a new business, then he or she deserves my trust and faith unless proven otherwise. And i will feel very betrayed if my cofounder does anything to betray that trust. In fact, i think if it happens, i will probably start to work out how to disengage the offending co-founder already.
For investors, i have heard and witnessed startups who are really selfish. They signed on an investor for a venture which requires them to work full time on it and by extension that means to put in their full 110% effort like any startup. However, with a bit of setback or perhaps out of greed, they start to create a business plan for another new venture and basically try to raise funds for that. I don't know if it is naivety or stupidity but which VC will fund a founder that is unable to focus and who is perfectly willing to screw their original set of investors? And word does get around in our industry. SG is really small.
5) Sweat the small stuff. It is easy to cheat your own company. All you need to do is to claim entertainment expenses that aren't strictly entertainment, or pay your personal mobile, petrol bills via the company. My stand is that this is fine if you own 100% of it since technically that is your own money. But if you have external investors or other cofounders who are not aware of this, then it is their money you are stealing. It is better for cofounder dynamics to be transparent and just work it in?
From investor angle, most investors will not sweat the small stuff and will not begrudge you some extra claims that are actually for personal use. We rely on your personal integrity and how you view things. Strictly speaking, the shareholder agreement will say that your annual compensation cannot exceed $XXK without their agreement and so you can declare such items to be part of your legal compensation. So do that.
6) Sales people who lie. Wow! I have seen so many examples of this. Basically it is quite common to hire sales staff who seem to view ethics as something that one can be creative about. You can create the best commission systems to tie reward to actual performance but there will be sales staff who will spend time and effort to game the system. And this includes outright conspiring with the client if they have a good enough relationship.
My philosophy in office is to accept no unethical behavior. If we can prove that you tried to cheat us, we will terminate on the spot without recourse and i will be happy to tell all subsequent background checking employers the reason for termination. I dont care how much money you bring in for the company. I strongly suggest readers do the same, life is too short to have to hang around cheaters.
I am sure you will encounter many more experiences that will test you. So try to do the right thing!
For me, it also helps tremendously that my cofounder and life partner is even more clear on ethics than I am. So with us reinforcing each other, it helps a lot.
1) Overpayment. You will be surprised that some clients procurement will make mistakes and overpay us for an invoice. Figure can range from hundreds to $10K! Our policy is to always notify the client nicely and pay back.
2) Honoring our mistakes. You or your staff will sometimes make mistakes too and basically misquote to the client. My policy is to always come clean and admit it is a misquote. And we will try our best to either honor that misquote or at least give a sweetener to show that we know we made a boo boo.
I have been on the other receiving end of this before. I had an association who owed us money. And the Executive Director had the cheek to call us down and say that his manager (who had left) signed the contract and used the services without his knowledge. I told him that even if this was true, he still owed us the money (about $4000) since i had a manager's signature in black and white. This guy actually threatened me (back then 27-28 year old) and told me that he will not pay. In fact, if we do not back off, he will complain about us to his university contacts who were my partners.
I felt so bad at that time because i could not believe i was being threatened because his organization made a mistake. (and that is assuming he was not lying). Managed to resolve this by basically giving him face and accepting half payment and the other half in contra. And i think he agreed simply because i played on his ego. In front of his staff, i counterproposed and told him we are already giving in and he should not bully a startup. But i left the room with 2 thoughts.
First, i wrote off that man and never thought well of him subsequently. Anyone who does not honor their word and who tries to bully because they can does not deserve any respect from anyone.
Second, I resolved to never do that to another person. We will honor our word even if it costs us.
3) Conspiring to cheat. Early in my business, i had a potential acquirer who was running a decent sized executive search firm. Founder claimed to be a Goldman Sachs MD. At that time naive me thought that an MD was a big shot. Now i know it is just a middle ranking position in IB. Pays about US$600K a year all in. Its the partners that earn the real money. Anyway, this guy pretended to be all interested in investing in us and naive us believed him as he had a fancy car and office.
After a bit of discussion, this guy called us and said they will invest. My partner and i were so happy we bought an $800 spa espirit spa package as a reward. Next thing we knew, they wanted our jobportal functional specs and made copies of it. After that, we never heard from them and they later when chased, said change of mind. Couple of months later, they launched a job portal. Of course it died a few years later. It was run by his mistress.
This experience taught me to be a lot more careful about people. Luckily my line depends on execution and day to day effort. Not some incredible piece of IP. It also taught me that i will never want to do that to another person.
Nowadays i take extra care to always declare conflict of interests and to always make sure i am transparent in my dealings. Many times i have had people come to me for investments who are in my job portal or related space. I always take care to tell them not to reveal anything that is proprietary and to remind them that i run a job portal which may be a competitor to them.
4) Dishonest to investors/cofounders. I think trust between cofounders is most important. Even if intentions are the best, there are already sure to be areas of conflict over roles, compensation, alignment of interests etc. But it gets worse if cofounders consciously do something that affects the basic trust. For me, if someone is willing to work with me and embark on a major risk like a new business, then he or she deserves my trust and faith unless proven otherwise. And i will feel very betrayed if my cofounder does anything to betray that trust. In fact, i think if it happens, i will probably start to work out how to disengage the offending co-founder already.
For investors, i have heard and witnessed startups who are really selfish. They signed on an investor for a venture which requires them to work full time on it and by extension that means to put in their full 110% effort like any startup. However, with a bit of setback or perhaps out of greed, they start to create a business plan for another new venture and basically try to raise funds for that. I don't know if it is naivety or stupidity but which VC will fund a founder that is unable to focus and who is perfectly willing to screw their original set of investors? And word does get around in our industry. SG is really small.
5) Sweat the small stuff. It is easy to cheat your own company. All you need to do is to claim entertainment expenses that aren't strictly entertainment, or pay your personal mobile, petrol bills via the company. My stand is that this is fine if you own 100% of it since technically that is your own money. But if you have external investors or other cofounders who are not aware of this, then it is their money you are stealing. It is better for cofounder dynamics to be transparent and just work it in?
From investor angle, most investors will not sweat the small stuff and will not begrudge you some extra claims that are actually for personal use. We rely on your personal integrity and how you view things. Strictly speaking, the shareholder agreement will say that your annual compensation cannot exceed $XXK without their agreement and so you can declare such items to be part of your legal compensation. So do that.
6) Sales people who lie. Wow! I have seen so many examples of this. Basically it is quite common to hire sales staff who seem to view ethics as something that one can be creative about. You can create the best commission systems to tie reward to actual performance but there will be sales staff who will spend time and effort to game the system. And this includes outright conspiring with the client if they have a good enough relationship.
My philosophy in office is to accept no unethical behavior. If we can prove that you tried to cheat us, we will terminate on the spot without recourse and i will be happy to tell all subsequent background checking employers the reason for termination. I dont care how much money you bring in for the company. I strongly suggest readers do the same, life is too short to have to hang around cheaters.
I am sure you will encounter many more experiences that will test you. So try to do the right thing!
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