All posts by Matt Hottle

23 Jan 2017
Sticky Post By Posted in Entrepreneurship Permalink

Entrepreneurs Should Know the Difference Between Can’t and Won’t

Sticky Post By On January 23, 2017
Retro style image of a rustic wooden sign in an autumn park with the words Courage - Fear offering a choice of reaction and attitude with arrows pointing in opposite directions in a conceptual image.

Fear, skepticism and stubbornness are necessary for entrepreneurs. These things keep you between the ditches and make sure the company you’re driving stays on all four wheels. Questioning the wisdom of each action and assuming the worst possible outcome are things we obsess about and spend sleepless nights contemplating.

“…the terrible and the terrific spring from the same source, and that what grants life its beauty and magic is not the absence of terror and tumult but the grace and elegance with which we navigate the gauntlet.” – Maria Popova

When considering solutions, two words tend to come up repeatedly—can’t and won’t.

Can’t is when you are physically, spiritually, operationally, or structurally unable to do something—you don’t have the option to do it.

You can’t fly, see through walls, or run as fast as a car without mechanical advantages (or Kryptonian genes).

Won’t means there is a decision being made. The decider has some optionality. They can choose to do something or not.

I could go run a marathon but I won’t because it seems really hard, and I get winded going to the refrigerator.

As entrepreneurs find themselves making important decisions, won’t is often misrepresented as can’t.

Can’t is easy to say. Can’t is easy to justify and explain. Can’t ends the conversation. Can’t means you will likely take fewer risks, endure fewer setbacks and in the process, find justification in that risk-mitigating approach.

Won’t can be painful. Won’t is much harder to admit. Won’t is the honest answer most of the time. As entrepreneurs, we sometimes live in won’t but call it can’t.

Won’t limits risk like can’t, but there is far more sincerity and self-awareness in won’t. We had the choice and decided we wouldn’t do it. We considered the opportunity and decided not to do it even though we could.

Won’t can be the right answer but we don’t like categorizing it that way. We are more comfortable telling ourselves and others it can’t be done. Won’t begs for debate and further consideration and we should be more willing to engage in that discussion.

29 Dec 2016
Sticky Post By Posted in Funding, Sales, Start-ups With No Comments Permalink

For Most Startups, Revenue Isn’t Optional

Sticky Post By On December 29, 2016 With No Comments

Your logo is badass, your product or service sounds really innovative and those business cards seem to be made out of some kind of cheetah fur.

I’m interested in hearing about how you plan to scale your user base and grow your adoption rates. I’m also interested in hearing about what conferences you are going to attend, the panels you plan to participate in and how you will attract that rock star CTO.

But I’m more interested in how you’re going to make money, how much you’re going to generate and when you’ll be at breakeven.

At some point in the not so distant past, there was a slide in a pitch deck that showed a potential revenue number against some trillion-dollar market opportunity that may or may not actually exist. Investors got excited about that logo, those sick business cards and that recruiting plan for the Michael Jordan of CTOs and stroked some funding checks.

Seven months later, you’re planning your four-month-long schedule for raising a second round because your expenses have outpaced your revenue faster than expected.

You had to re-design your UX, improve your security back-end and launch an expansive social media campaign. You gained thousands of users, received a few accolades for your startup and generated some revenue. You didn’t hire that sales guy you knew you needed or re-price the product to improve margins and instead spent that time, money and energy on making a better product and gaining users. Unfortunately, that sagging revenue is shortening your runway.

In a startup, you’re constantly prioritizing and reprioritizing work. The tension between product development, creating scale and maintaining positive numbers on your balance sheet can be a daily struggle. There are always more things to do than you have the resources to complete.

Generating revenue should be your top priority.

Like it or not, generating sales revenue is the path for success for most startups. Venture capital passes on all but a few of the deals they are pitched and less than half the tech startups will even attempt to pitch VCs. There may be no investor cash available.

We see the Techcrunch headlines and Medium articles about the startups that sold for $50 million even though they never actually created an operational profit for themselves or their investors. Behind that small selection of successes lie the other 90% of startups that folded. Running out of money is usually cited in most of these collapses as a primary cause.

Think about the optionality sales revenue provides.

  • The option of pivoting your offering.
  • The option of going after your competitors more aggressively.
  • The option of taking a risk on a new set of features or an additional product line.
  • The option of reinvesting the profits back into the growth of the company.
  • The option of upgrading your human capital.
  • The option of taking on additional investors or bootstrapping your growth.

Sales revenue also provides a wider margin for failure. Your financial projections, budgets and planning are mostly works of fiction so when something doesn’t go the way you need, that extra cash will certainly help you smooth out that rough spot.

Lastly, generating positive cash flow is a signal to future investors, employees, vendors, and other stakeholders that the product is viable and worth their participation.

Sales isn’t as fun or sexy to talk about as UX or branding. You usually can’t do it at 2am or between rounds at the shuffleboard table. But if the rest of you want to eat, you need a solid sales program staffed with competent, motivated people. If you’re not sure where to start, give me a call.

21 Dec 2016
Sticky Post By Posted in Entrepreneurship, Start-ups Permalink

Read This Before You Join an Accelerator Program

Sticky Post By On December 21, 2016

I’m not creative and have never had that moment of total clarity where I had an idea worth turning into a product and company. I’m a services entrepreneur and love what I do. However, founders and startups comprise a large segment of my client list. While I’ve never participated in an accelerator program as a founder of a startup, I’ve been involved in programs as a mentor, resource and even in organizational design projects. Over the course of the last few years, I’ve become increasingly fascinated with accelerator and incubator programs.

At their core, they represent an amazing approach to helping startups gain perspective and traction as they throw themselves into making the next great thing. What’s even more amazing is talking to the people who’ve participated in them. I’ve tried to capture the things they’ve learned and shared with me. Hopefully, this will help aspiring participants make some decisions about which program may be right for them.

There are some globally-recognized programs that have impressive lists of graduates with several branches throughout the world. Techstars, Y-Combinator and others are the Ivy League of accelerators. They take the top 3% of the applicant pool. Their programming, mentorship and cohort selection breeds success on a scale not realized on other platforms. If you are selected to participate in either of those programs, you definitely should.

Most startups won’t be granted a spot in one those programs, but with the proliferation of smaller accelerators, you may find some that are worthwhile. There are several new programs gaining an incredible reputation after only a few cohorts.

First, let me start with the basics.

  • Most accelerators will offer some kind of seed/award/prize money for being in the program. You don’t always get it up front. You may get it in a series of smaller payments or after clearing certain hurdles.
  • These programs are broken into cohorts between 5 and 20 companies depending on their format and programming. It is most common to see 10 companies in a cohort.
  • Programs usually take place over 12-14 weeks.
  • Within these accelerators, you will’ve some kind of administrator or director, an entrepreneur in residence (EIR), mentors and investors. Some programs will have a stratified management layer of managing and non-managing “members.”

These accelerators can attract some amazing talent and be a critical springboard for your startup—provided you pick one best positioned for you.

Here are a couple of things to consider when picking a program:

Who’s Running it?

The directors, EIR and management should be successful entrepreneurs. You should look for programs where the leadership has been successful in a specific aspect of business where you also need to succeed. If you must generate revenue and scale your business, an EIR who exited their previous company with $2 million in debt may not be a good fit for you. Accelerators can become a form of “business welfare” where friends and associates who are otherwise unqualified to serve in those capacities get lucrative EIR positions or board seats.

It’s also a huge benefit when the leadership has been through an accelerator program—especially a prestigious one. Nate Schmidt of the Velocity Accelerator in Birmingham is a Techstars graduate and will be able to relate to his cohorts in a powerful way.

General and Specialized Accelerators

Specialization is an encouraging new trend in accelerators. Instead of operating general “tech” accelerators, savvy programs are starting to look for the underserved or emerging industries ripe for innovation. The Dynamo Accelerator in Chattanooga and Boomtown Healthtech in Boulder are great examples of this kind of specialization. By focusing on a specific market, they can attract better companies and highly qualified industry experts as mentors and programming that focuses on the specific challenges of that industry.

Funding Sources

Consider the motivations of those who are funding the program. For accelerators that have industry or venture capital support as their main source of operating cash, you may see a higher level of execution and greater sense of accountability than those backed primarily by academic or municipal stakeholders. For the former, they are participating to make money, benefit from the innovation created and boost their prestige as an accelerator. For the latter, the PR alone is often worth the cost of the program. They are largely spending tax money from a general budget or endowments that were granted out of philanthropic interests. If it is successful, that’s a bonus, but they win simply by participating and launching the program. That isn’t to assert those can’t be successful or that industry giants don’t get significant positive PR from sponsoring an accelerator. Understanding what the “money” gets from providing the funding is worth considering.

Benefits Provided other than Money

Excellent programming, mentors, EIRs and leadership can make an under-funded or new accelerator incredibly worthwhile. The inverse is true as well. Top programs should be actively helping you connect with important outside resources and finding new customers even before the program is over.

The mentors can be an incredible source of business deals and networking—provided they are the kinds of mentors you need. Are you building the next great wearable technology? Maybe you should take a second look at that roster of mentors dominated by bankers and lawyers.

Participants in the Cohorts

I’ve heard from dozens of accelerator graduates who’ve talked about how much they gained from the other participants in their cohort. These success stories range from finding their new CIO to merging with another graduate.

Are the other companies as hungry as you are—financially and ambitiously—or are they simply taking easy money to half-heartedly pursue a side project while they maintain their full-time salaried job? I’ve seen some startups play the system by participating in as many accelerators, launch programs and competitions as possible to generate cash. I know of one company that participated in three programs in 2016 alone.

Are they from various parts of the country or world or are they all from the same place? That may not matter to you, but if every company comes from the same town, you’ll sacrifice the unique perspectives only a diverse cohort can provide.

Choosing to participate in an accelerator is a big decision. The time it takes to even apply is a significant commitment. Make sure you consider what you want to get out of the experience and whether the programs you are considering can deliver.

31 Oct 2016
Sticky Post By Posted in Redhawk Permalink

Celebrating Two Years of Success

Sticky Post By On October 31, 2016

Starting a new business from scratch is scary, doing it on Halloween is just asking for it. Redhawk Consulting was started on October 31st, 2014 at 1:30pm. As we celebrate another All Hallows’ Eve and our second year in business, I’m reflective about how much has changed since 2015.

In our first year of operation, we were laser-focused on revenue and generating the “next” client. Because we work with only entrepreneurial companies and non-profits on a project basis, we are constantly working ourselves out of a job—by design. We don’t advertise our services; almost all our clients are referrals. The next client is crucially important to us.

When I talked to people in that first year about Redhawk and what we did, I spoke in theory since most of that work had not been done or proven to be effective yet. I was confident in our approach, even if it was purely philosophical at that point. We killed ourselves to deliver value as our approach was far from refined.

Having survived the first year and proven that our business model was actually viable, we started to expand our client base, the services we offered, and our efficacy. I started the business in 2015 with one very large client. I hadn’t done any of the business development activities normally associated with starting a new business, because I was too busy working on that client’s projects. It was almost a full year before I started pounding the pavement and talking about Redhawk in our own local market.

The grind was real. I wasted time trying to farm members of the local chamber of commerce. I participated in several “networking” groups that were equal parts useless and creepy. I spent countless evenings going to startup events. Of the hundreds of meetings and other activities, only a handful of those produced anything worthwhile.

Then I started focusing on finding professional connections for whom I could add value. I demonstrated how the consulting we could do would directly benefit their clients, associates, friends, or other stakeholders. Stealing a page from Gary Vaynerchuk, I worked to create value first and relied on that to generate opportunities in the future.

Through that combination of brute force, strategic networking, and value creation, we started capturing more opportunities. Here are some highlights from our second year:

  • We went from 4 clients in 2015 to 24 in 2016 (and growing)
  • Clients’ total revenues in 2015 were $12 million; in 2016 that number is more than $100 million
  • Redhawk engaged in 18 new industry sectors in 2016
  • Of the 20 new clients added in 2016, 18 of them were referrals from existing clients
  • 90% of our clients hired us for additional work after our initial engagement
  • We added marketing, branding, and legal consulting to our slate of services
  • We donated 17 hours of time in 2015 and more than 100 hours in 2016
  • We have zero dollars written off to bad debt, despite generous payment terms

We’re looking forward to growing, learning, and developing Redhawk in 2017 and beyond. To our families and friends who’ve put up with our constant rescheduling and dereliction of personal responsibilities—thank you. None of this would be possible without your understanding, generosity, and unconditional love.

20 Jul 2016
Sticky Post By Posted in Funding, Start-ups With No Comments Permalink

Venture Capital May Stop Unicorn-Hunting

Sticky Post By On July 20, 2016 With No Comments

A few months ago, Oscar Williams-Grut wrote a great piece in Business Insider talking about the shift in investing interest from “unicorns” to what he coined “cockroaches.” His definition of a cockroach was a company that could survive anything. These were companies that were more interested in profits, self-funding, minimizing costs, and measured growth. Certainly a departure from the kinds of pre-revenue VC darlings that received massive funding in 2014 and 2015.

I was surprised that his article didn’t gain more traction and that #cockroaches didn’t become a thing.

At present, he is looking prophetic.

Theranos has all but imploded. Twitter is looking a lot less shiny than it once did. Zenefits is worth half what it was a year ago. Tesla cars are driving themselves into other objects at high speed.

During last year’s $4.2 billion spike in private investment deals, 59% of that total went to just three companies: Airbnb, Spotify, and Zenefits. There were 39 other “tech” deals in that same period for the remaining 41% of the $4.2 million. That’s a lot of investment money living in only 42 companies.

With this kind of concentration in private investment, fund-raising that used to be an incredible long-shot for the average non-valley-based startup just became impossible. At some point, the money is all spent.

Theranos, Twitter, and Zenefits could turn it around. With that much investor money involved, the sunk cost fallacy should encourage investors to pour in more cash if things get dire. If, however, these companies improve PE and VC rationalizations in value and fund-raising, that could be a very good thing for the rest of us.

Potential, rather than probability, has been favored for a long time among the millionaires providing VC cash to build various funds. The biggest of gambles were worth it because it only required 1 in 15 startup investments to actually make it. Now that ratio seems to be slipping further and private investment may find incremental growth far sexier than it did in the past. Risk mitigation, at some point, becomes a basic fiduciary responsibility and cockroach companies could benefit from that shift in investment theory.

Here are three fundamental shifts I predict could happen in the next 18 months:

  1. VCs start putting together “balanced” funds that act more like low-risk securities. Filled with smaller investments across more “bets,” these funds start to look for companies that exhibit clear paths to profits. This would also create a way to attract lower net worth investors to a fund.
  2. VC money will shelve tech-for-consumer concepts in favor of tech-for-business solutions. Private investment money isn’t willing to put down the app develop crack pipe just yet, but they will look more closely at those companies creating B2B applications as that market is, historically, less capricious.
  3. PE firms will be increasingly interested in finding opportunities in non-traditional hotbeds. GE Capital just partnered with Lamppost Group on their new logistics accelerator, Dynamo, in Chattanooga, Tennessee. There is a concentration of capital in a handful of places in the US, but ideas and innovation are not landlocked. The return on invested capital will be far greater in less expensive locales.

Of course, I could be completely wrong. Money can be inherently dumb and illogical. Companies who’ll champion the moniker of “cockroach” will focus on the things that make them hard to kill. Their survivalist mindset will lead to different decisions than one betting on run-rates, future value, and traffic monetization.

 

 

28 May 2016
Sticky Post By Posted in Business Headlines With No Comments Permalink

How will each presidential candidate affect your bottom line?

Sticky Post By On May 28, 2016 With No Comments

Owning or running a small business is precarious in the best of circumstances. Like the “Butterfly Effect,” small gyrations by legislative and regulatory bodies can have a hurricane’s effect by the time it filters down to entrepreneurial businesses.

Just last week, the Department of Labor issued new rules regarding overtime pay for salaried employees that could help compensate exempt employees for extra hours worked. This, of course, seems exceedingly fair on paper and was squarely aimed at large companies that employ thousands of people in the salary range this regulation covers. Having them add several million to their payrolls hurts but is more annoying- like getting a papercut when reviewing a multi-national corporate P&L.

Having spoken to several small business owners over the last two weeks, their reaction is not encouraging. The immediate response was to start planning for more part-time employees, contractors or shipping work overseas. If the average small business sees wages increase 10% -15% across the board, that isn’t something many of them can digest between now and the first of the year. With one act, the DOL has put thousands of small businesses in jeopardy.

Couple this DOL legislation with the presidential race and three candidates with very different views on the economy and you have an incredibly uncertain environment for small businesses. Sanders, Clinton and Trump all have spoken directly about issues that affect businesses and their platforms are largely full of promises that speak to their base’s most fervent beliefs. So which candidate would be the best for small businesses?

Bernie Sanders

An admitted democratic socialist, Sanders fits the role of the working man’s candidate. A champion of raising taxes on the wealthiest 1% and increasing minimum wage more than 100%, Sanders has spoken to a segment of the voting public that has been underserved and underrepresented since the formation of our current political system. He has been relatively quiet on the issues of small businesses outside of the obligatory mention about how they are an integral part of the US economy.

Sanders has supported initiatives such as increasing the lending limits for SBA loans as well as the Small Business Jobs Act that created $30 billion in funds for smaller banks to loan.

Unfortunately for small businesses, Sanders’ minimum wage proposals, higher taxes on the wealthiest individuals and no concrete plan to pay for all of the other programs he has proposed will make it very difficult for businesses to scale. Running a successful business would be more expensive and less lucrative for the founders.

Donald Trump

Pinning Trump’s policy down is extremely difficult as his position seems to change hourly or depending on which cable news outlet is interviewing him. He has positioned himself as the only candidate who understands business, the economy and trade.

I’m extremely skeptical of his business acumen. He started his career as the president of his father’s firm which was worth about $200 million at the time. If that company had been liquidated and all of that cash rolled into the S&P 500, he would be worth roughly the same amount as he is now based on the last estimate of his wealth by Forbes- about $8.7 billion. Of course, Trump also claims his “brand” is worth in excess of $10 billion. I’m not sure how his brand has created jobs or stimulated the economy outside of his own bank accounts.

He has been sued excessively in his business career by partners, investors and employees. As of February of this last year, he has been party to at least 169 federal suits. He has filed bankruptcy 4 separate times and while a Chapter 11 restructuring can help a large business survive, it is usually not a viable option for small business owners.

Trump wants to significantly penalize foreign products through raising tariff rates- believing that will create more demand for American-made products. Unfortunately, the US is no longer the world’s manufacturing leader with labor rates 10-15 times higher than foreign countries. Many small businesses use strategic outsourcing to create advantages needed to compete with larger vertically-integrated companies. If their supply chain costs go up, they lose the ability to turn meaningful profits and self-fund their own growth.

Hillary Clinton

Clinton is probably the most mixed of the three candidates. While Trump can’t be pinned down to commit or even be consistent in his messaging, and Sanders is very pro-labor, Clinton seems to occupy a confusing middle ground.

Like Sanders, Clinton is pro-labor and pro-union. She has proposed a number of new regulations that would be imposed on businesses of all sizes. Pay transparency, fair scheduling, a rising minimum wage and employer-provided child care are all causes she has promoted vigorously. For the average small business owner, these regulations will certainly add direct operational costs as each business must expand its employee services and prove compliance.

Unlike Sanders, she has a long reputation of being Wall Street-friendly. A regular paid speaker for big Wall Street firms and the Clinton’s charitable foundations are direct beneficiaries of donations from those firms. She has talked about assessing “risk fees” to companies that are more likely to contribute to a potential financial crisis in the future and closing loopholes for hedge funds. She has not intimated she has any issues with Wall Street’s ability to generate capital itself and has not proposed putting any limitations on raising that capital.

There is no Truman Here

There were at least 8 presidents who owned and operated small businesses prior to being elected to the White House. Lincoln owned a general store and law practice. Harding bought a struggling newspaper. Harry S. Truman was a partner in a haberdashery. Many decades later, both George H.W. Bush and George W. Bush were successful business people before they became president.

Having the unique experience of being a small business owner or operator is not something that can be adequately imagined or synthesized. The only way to understand that is to actually do it.

Unfortunately, we don’t have any candidates currently running that have that background. Sure, Trump turned $200 million into $8 billion, but that seems like starting a marathon at mile 22 and only having to get to 26.2. Truthfully, none of these candidates can really commiserate with small business owners and hold any real credibility.

The Choice

Small business owners would need to choose between dealing with the increased regulations and legislation that Clinton and Sanders propose or the likely increase in supply chain costs with Trump. In many ways, it’s a coin flip between Sanders and Clinton as their policies are very similar. It’s probably simple enough to think of Sanders’s policies as a more extreme version of the Clinton platform.

Companies that would be better off with Clinton or Sanders:

  • Businesses with fewer than 25 people
    • Most current federal regulations apply to companies a bit larger so the extra operational cost of future regulations will not likely apply to smaller companies.
    • Minimum wage increases are going to hurt, but there may be equitable ways of mitigating that cost with some careful planning.
  • Operations that need access to small business loans or government-sponsored lending programs
  • Companies that use imported products or supplies to build products or support services
    • This would also include operations that manufacture overseas and ship into the US

Companies that would be better off with Trump:

  • Large companies that need to find cost savings in their human resources
    • Increases in minimum wage for companies with a large percentage of hourly employees could be difficult to absorb and would likely get pushed through to customers.
  • Vertically integrated companies that manufacture domestically and haven’t been able to compete on price with foreign competition
  • Companies that are trying to grow rapidly and have the ability to self-fund that growth

It’s important to recognize that all the candidates talk about doing things they really don’t have the constitutional authority to do. Most of the things they promise require some level of involvement from Congress, so this isn’t something they can magically create. I know many people will point to the number and frequency of President Obama’s executive orders as precedent for a future executive branch to make sweeping changes, but there are limitations to the President’s executive powers. The President does, however, expect their respective party to vote in support of their agendas. For that reason, it is very important to understand what each candidate would likely push and vote accordingly.

16 Apr 2016
Sticky Post By Posted in Redhawk Permalink

Redhawk teams with Tripp Watson and the Watson Firm

Sticky Post By On April 16, 2016

Redhawk Consulting is pleased to announce the addition of Tripp Watson and The Watson Firm to our team of entrepreneurially focused consultants and advisors. Tripp and his firm specialize in representing entrepreneurs and helping them navigate the various legal hurdles from formation through operational maturity. He’ll join Redhawk founder Matt Hottle and Marketing Director Jen Barnett.

“Entrepreneurship is exploding in Birmingham, and along with that growth comes the need for business services,” says Watson. “More than any firm in Birmingham, we’re uniquely positioned to advise those businesses on issues from formation and licensing to HR and sales.”

Redhawk and the Watson firm will work together to provide cross-functional expertise to clients of both firms. While Watson offers legal counsel, Redhawk offers management, HR, sales, and marketing support based on a client’s needs.

Legal requirements for businesses can often derail their success. “We see a fair amount of entrepreneurs with poorly drafted operating agreements and other formation paperwork that lead to partner disputes and business disruption,” says Hottle. “Tripp and the Watson firm can be huge asset for them.”

12 Apr 2016
Sticky Post By Posted in Audio & Video, Digital, Marketing & PR, Redhawk Permalink

Welcome Marketing & Digital Consultant Jen Barnett!

Sticky Post By On April 12, 2016

Redhawk Consulting is excited to add Jen Barnett to our consulting team. You may know Jen from her businesses Freshfully and Bottle & Bone, both local Birmingham food endeavors with e-commerce components. She also has 24 years of marketing experience with clients from hospitals and banks to foodservice and retail. She’s worked with blue-chip veterans and day-old start-ups on marketing and digital strategy, web development, and branding.

Jen has an MBA from Emory University’s Goizueta Business School, with concentrations in marketing and innovation.

She spoke at TEDx Birmingham on being brave, one of the core tenets of entrepreneurship. Watch her talk below.

29 Mar 2016
Sticky Post By Posted in Redhawk Permalink

Welcome New Client Rock Wool Manufacturing!

Sticky Post By On March 29, 2016

Redhawk Consulting is pleased to announce it’s newest client engagement with Rock Wool Manufacturing. Established in 1943, Rock Wool is one the most respected brands in the mineral wool insulation market. Their products are used for both residential and commercial insulation applications throughout the country.

Known for their best-in-class customer service, Rock Wool engaged Redhawk to help them design and implement a sales process that delivers actionable reporting, data capture, a more predictable sales pipeline and greater visibility into sales activities for the executive team. This information and process orientation will allow Rock Wool to continue to improve their customers’ experience. To fully realize the benefits of this new sales process, Redhawk will also program a fully functional and customized CRM solution using the Nutshell platform.

According to Matt Hottle of Redhawk, Rock Wool’s willingness to try new things was key to creating this project. “This company has been well-known and respected in their industry for more than 70 years. The fact that they are willing to re-examine their existing processes is a testament to their leadership and their commitment to always get better at everything they do.”

Rock Wool is headquartered in Leeds, AL with plants in multiple US locations. They supply pipe, sheet and blanket insulation to the distributor and contractor markets throughout the country.

28 Mar 2016
Sticky Post By Posted in Funding, Start-ups With No Comments Permalink

Read this Before Taking on Investors

Sticky Post By On March 28, 2016 With No Comments

There comes a point for all startup businesses where they have to consider taking on investors versus bootstrapping their operations to grow the company. For a lot of founders, they wrestle with this decision several times in the first few years.

While I do think bootstrapping is sexy as hell, I’m not opposed to investors. Some startups can’t even take a business idea off paper without significant seed investment and many investors are absolute rock stars that will do anything they can to help an investment succeed.

With that stated, there are a few things to consider before taking on investors. For the sake of this article, I’m going to consider accelerators, incubators, venture capital and any other scenarios where equity is exchanged for cash or subsidies as an “investment.”

  1. A VC fund is considered successful if 10% of their investments do well while you could 100% fail like any of the other 90% of their plays that don’t pan out. Don’t believe the hype; succeeding as a company is way better than “learning from failing.”What is it about that VC fund that makes sense for you- other than their stacks of cash? A typical VC probably only has about 2% of their capital invested in your company while you may have every credit card maxed out, loans from friends and family due and employees to pay at the end of the week. The stakes for you are ALWAYS much higher than your VC investors. Choose wisely.
  2. Who is actually managing that accelerator or incubator? Are they a subject matter expert in the markets their incubated companies are competing in or are they just a big name in the startup world? Name recognition can be a huge asset as long as it’s big enough. Minor celebrities in those communities are probably not driving enough value if they aren’t also providing super-relevant industry experience.
  3. Be careful not to fall for the “easy” country-club deal. Raising money among friends and acquaintances can be a legit way to generate capital but they require much of the same structure, governance and construction as a VC/ PE deal.For example, I found one deal where a minority owner provided capital in exchange for equity but then expected their investment to be paid back first before any other owners could receive any distributions of profit. That’s a pretty crappy provision considering this came with a measly $20k investment.
  4. Pick your startup competitions with care. As I have previously pontificated, startup competitions can be a total waste of time when they are poorly conceived, executed or judged.There was a competition recently announced here in Birmingham where the contestants have to pay $50 to enter, compete in three rounds over a 6 month time frame, 50 companies could enter and the prize was only $10k.The lost-opportunity cost alone is higher than $10k and the contestants are actually subsidizing 25% of the prize money through their own “application fees.” By winning, you would be doing so on the backs of other start-ups. That just seems crappy and it a massive waste of time and resources.

Capital, or the lack thereof, is always a primary concern for a company wanting to start, grow or innovate. Every founder needs to seriously consider their individual opportunities for outside investment. It should not be an easy question to answer and the more thought expended when considering funding options, the higher the likelihood that a company finds investors that are passionate, supportive and truly helpful. If the total value of what they offer is measured in decimal places, you may need to consider other options.

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