Archive | January 2012

For the Sake of Your Startup, Let Go of Secrecy and Get Rid of the NDA

Many new aspiring entrepreneurs make the mistake of being too secretive with their business idea because they believe that it will be the next big thing and do not want anyone to steal their idea. However, such secrecy does more harm than good for a number of reasons:

  • Excessive secrecy just isn’t a good look.

When you tell people that you’re starting a new company but refuse to share what the company does, you come off as arrogant, naive, and afraid of competition. You seem arrogant  because you are suggesting to people that you believe you are the only person smart enough or creative enough to have come up with whatever idea you have. Unfortunately, that is almost certainly not true. Even if your idea is truly “one in a million,” there are approximately 313 million people in the United States, meaning that you are one of 313 people in this country alone with that “one in a million” idea. It makes you seem naive because it implies that you believe the key to success is the idea, not the execution of that idea. Finally, it makes you seem like you’re afraid of competition because, well, you clearly are if you don’t want anyone else to know what you’re working on.

If your key to success is being the only one that knows what you’re working on, your company is dead in the water already. You must have some competitive advantage so that you can defend yourself against copy-cats and other competitors or your business is going to fail.

  • You can’t get funding.

The kiss of death for many an entrepreneur has been insisting that potential investors sign a non-disclosure agreement (NDA) before being given any information. Almost without exception, VCs and Angel Investors will NEVER sign an NDA. It simply doesn’t make any sense for them to do so. In addition to the fact that you’ve probably already diminished the investors’ impression of your ability to run a successful company based on the factors discussed above, you’ve also created a situation where they cannot look at your business plan even if they want to due to risk of future litigation. As we discussed, entrepreneurs always think they have an incredibly unique concept, yet in reality there are hundreds of other would-be entrepreneurs with the same (or at least similar) ideas. If an investor were to sign your NDA, decline to invest, and then end up investing in a similar company he/she would be setting him/herself up for a law suit. No investor wants the expense, aggravation, and bad PR of a lawsuit. Therefore, to avoid the potential for one, they simply refuse to sign NDAs and if you insist on one, they will simply refuse to hear your pitch.

  • You miss out on the advice, guidance, and mentorship that is essential for first time entrepreneurs.

If you won’t share your idea with the people you meet, you won’t ever be able to get any feedback, guidance, advice, or mentorship from the entrepreneurs and business people that came before you. This advice is invaluable to a budding entrepreneur and his/her startup, so to forgo it because you’re afraid of someone stealing your idea is insane. You want to share your idea with as many potential mentors as possible so that you can validate the idea, get strategy development ideas, and learn what mistakes to avoid.

  • You miss out on word of mouth promotion.

If your idea truly is the next big thing, don’t you want people to be talking about it? Why give up free publicity? If you’re a founder, you need to get the word out any way you can. Put up a landing page for your still-in-development site that gives a teaser about the product or service and allows interested parties to get added to the wait list and be notified when you launch. Then, talk about your new company to anyone who will listen. Get the name and the concept out there so that you have potential customers anxiously waiting to sign up. Don’t be forgotten because you were too afraid to share.

At the end of the day, excessive secrecy about your startup hurts nobody but you so take a deep breath and start talking.  I don’t mean to say that you should give your competitors a road map to your business model or that you should be loose-lipped with trade secrets, but you need to be willing to share the main idea behind your new business. The advice and publicity you can gain will far outweigh the risk of someone “stealing” your ideas and you’ll come off as more confident, likable, and competent to potential investors and potential customers.

FYI Google, I Am Not a Man Simply Because I Am Interested in Business

As I’m sure you’ve all heard, Google is updating it’s privacy policy, effective March 1st. Because of this, I was poking around in Google to explore what the changes mean for me and ended up checking out my “Google Ad Preferences” page. This is where Google tells you what it thinks your interests are and what demographic groups it thinks you fall into based on those preferences.

Google hit the nail on the head with the categories I am interested in and got my age range correct, however, it seems to think that I am a male.

Why does it think I’m a male? Because I’m interested in business and computers, apparently. On the page Google states: “We infer your age and gender based on the websites you’ve visited.” Here is a snapshot of what my interests are, taken directly from the ad preferences page:

Please don’t get me wrong: this is no way a complaint against Google. Let me reiterate that: this is NOT a complaint against Google. Google simply uses an algorithm that crunches statistics and makes these demographic assumptions based on the massive amounts of data it has. There is no reason for Google to be sexist in any way. Its motivation is to make sure the most relevant ads are shown so that it makes the most money.

The problem is that, apparently even in 2012, it’s still mostly men that are spending their online time focused on venture capital, small business, and computers & electronics and that is deeply saddening.

Ladies, please get out there into the business world! If we want to even the playing field, we need to be a presence that can’t be ignored. We need to be knowledgeable, capable, and dedicated. We need to find business interesting. It needs to be something that we would read about, learn about, and talk about even if we didn’t have to.

Amazing female entrepreneurs that are already out there, please continue to be an inspiration to aspiring female entrepreneurs. Please serve as mentors and advisers to other women hoping to be business owners.

Aspiring female entrepreneurs, please go for it! Utilize the resources that are available to you and jump into the business world.

Google shouldn’t be able to guess if I’m a man or a woman based on the fact that I frequent business sites, and hopefully soon it won’t be able too.

Entrepreneurship Pep Talk: Don’t Be Intimidated!

Just a quick post today because I can’t help but be energized after a meeting I had this morning. It’s really more of a pep talk than a post, but here it is anyway:

A week ago I posted a link to an article about conquering your fears of entrepreneurship. Today I had a great conversation with one of the leaders of the Extreme Entrepreneurship Tour about how to encourage more people to see themselves as future entrepreneurs and to go after their dreams, so I wanted to revisit the topic.

Starting a business is extremely intimidating, especially to those without a formal business background. That’s one of the reasons that I started this blog: to be an approachable resource to get straight-forward information about starting a business for those that don’t know all of the ins and outs of entrepreneurship. During my chat with the EET leader today, we discussed strategies the Tour uses to make sure that their events attract and include young people from all backgrounds, not just students currently working on a business degree, because one of the biggest hurdles to entrepreneurial success is fear…fear of failure, fear of success, fear of judgment. The key seems to be getting people to recognize the entrepreneurial traits they already possess and to make the process of entrepreneurship seem less intimidating by providing examples of entrepreneurs who the audience is able to relate to and who can candidly share how their failures led to their successes. This provides inspiration and hope to those who may otherwise be overwhelmed by the idea of jumping into business ownership.

This is very important to me because you don’t need to be on the path to being the next Google or be an expert in business processes and accounting to be a successful entrepreneur. You just need to be passionate, dedicated, and willing to seek out the advice, knowledge, and resources out there for you. So, if you’re an aspiring entrepreneur and you’re feeling overwhelmed, as all entrepreneurs do at some point (or, more realistically, at many points) along your journey, RELAX. Don’t get down on yourself for being stressed and worried. Look to a role model, mentor, or even just a stranger whom you admire to be reminded that everyone will struggle at some point but the rough patches do not mean you are headed for failure.

If there is something you need to know, just ask! Ask Google, ask your mentor, ask at SBDC or SCORE or another organization that helps entrepreneurs. Or ask me and I will do my best to either answer your question or point you to a resource that can. Just don’t get discouraged.

 

Thoughts on the Early Stage Innovation Fund

Robb Mandelbaum wrote an article for the NYT this morning discussing the proposed Early Stage Innovation Fund program. Essentially, this program would lend matching funds to venture capital firms who raise between $20 million and $50 million on their own and then require that at least half of that fund’s investments be made in companies that do not yet have positive cash flow from operations. The program seeks to utilize $1 billion over 5 years to help 4-10 VC funds in any given year.

Because young, high-growth companies hire, assisting these companies in raising funds should help lower the unemployment rate. Additionally, the requirement to fund companies in their earliest stages should help companies caught  needing funding in order to grow but needing to grow in order to get funding. Additionally, the program hopes to be able to encourage venture investment outside of California, Massachusetts, and New York as these three states currently receive nearly 75% of all venture capital investment in the United States.

This program certainly means well and an additional $1 billion for entrepreneurs is not something to be disregarded. However, I see a couple of problems with this program in that it doesn’t address persistent barriers to entry, nor does it do anything for small businesses that are not considered “exponential growth candidates.”

First lets focus on the issue of barriers to entry:

This program will give money to investors who have a track record of success and who are able to raise funds on their own. That means that the people managing this money and making decisions about investments are the same people that already manage venture capital money and make decisions about investments. While the early stage investment requirement may help to  mold behavior slightly, there are much bigger problems with the VC industry, that have been discussed at length, than the unwillingness to invest in very early stage companies and that are also true of the angel investment space (historically more willing to invest in younger, less proven companies).

The major problem is a lack of access. We’ve already mentioned that a massive proportion of VC money goes into just 3 states. Are those the only states where innovation is occurring and good business models are being developed? Of course not. While there is some truth to the argument that because these three states are the startup hubs the most promising entrepreneurs move there, there is also a much bigger reason for this pattern: investors invest in those they know. If you know anyone in the industry or even do a cursory scanning of the blogosphere, you will quickly learn that VCs and angels are notoriously difficult to get a meeting with unless you already know them or at the very least know their friends and can get an introduction.

VCs and angels are a pretty homogeneous bunch: disproportionately White, male, rich, and living in one of the 3 hub states. So, naturally, those able to get meetings with them are going to be those within the same social circle. What does this mean for entrepreneurs who happen to be female, minority, not from MIT or Standford, or living outside of CA, MA, or NY? It means that the already steep uphill battle to get funding is even steeper. Again, there is an endless amount of discussion about the absence of minorities (primarily Blacks and Hispanics) and women in the VC world – both as funders and founders – and studies have shown that investors tend to invest in founders “like them” along these key demographic lines.

For the purposes of this post I don’t intend to open a debate about whether or not there are systemic issues that create unique barriers for minorities and women in the high-growth, venture-funded entrepreneurship space. I take that as a given. My point in mentioning this here is that the Early Stage Innovation Fund will put more money in the hands of these same investors, so it in no way addresses these issues of access.

Secondly, the program focuses exclusively on companies that would be candidates for venture capital investment thereby ignoring the vast majority of small businesses:

While it is true that these high growth companies that are appropriate candidates for venture capital investment are the ones that create major job growth, these companies do not make up the majority of new businesses created each year in this country. As the SBA’s purpose is to advocate for ALL small businesses, a program that funds only 4-10 investment funds per year, which will in turn fund perhaps dozens of businesses, certainly doesn’t have the reach that one may expect when he/she first hears the $1 billion price tag. This is not a “problem” per se, as of course not every program is going to help every entrepreneur, but it’s definitely something to keep in mind when assessing the program.

The SBA hopes to start taking applications from investors in April but the comment period is open until February 7, 2012. If you’d like to give feedback, please click here and then on the “Submit a Comment” button.

Also, make sure to leave your thoughts and responses below! I want to hear what you think the pros and cons of this proposed program are and whether you think it will help entrepreneurs and/or unemployment.

Reactions to “Give Entrepreneurs Room and They Will Grow the Economy” by Steve Case

Steve Case, the chairman of the Startup America Partnership, just posted an opinion piece for the Washington Post titled: Give Entrepreneurs Room and They Will Grow the Economy. In it he discusses potential ways that the government can help encourage entrepreneurship, thereby creating jobs and helping to heal our economy.

Some of the suggestions he discusses include the Startup Act*, the AGREE Act*, crowdfunding allowances, tax rate deductions for investors, adjustments to SOX regulations, and immigration reform.

What do you think of these suggestions? What would you do to help entrepreneurs?

Mr. Case states: “The story of America has always been the story of entrepreneurship — pioneering men and women taking great risks to realize a dream.” Do you think this is still true? Do you think entrepreneurs will be the ones to save our economy? If so, will it be because of or in spite of our government’s leaders?

I want to hear your thoughts!

 

*The links to information are those given in Steve Case’s article and are not necessarily objective.