Papa John’s: Trying to Slice Schnatter out of the Brand

The last couple of weeks have not been good for John Schnatter and his Papa John’s pizza empire. After using a racial slur during a conference call with his media agency, losing his job, watching the removal of Papa John’s name at the University of Louisville’s Cardinal Stadium, imploding marketing relationships with a handful of NFL teams and talking trash about the NFL Commissioner Roger Goodell, Schnatter was physically barred from Papa John’s Louisville headquarters.

I’ve left out a half dozen other things he and the brand have forfeited during this downward spiral but suffice to say, it’s been ugly.

It should be ugly and absolute and painful. What he said was atrocious and the follow-up missteps were pretty awful. This shows that even when your name (even a self-created nickname) is on the building, you’re not bigger than the brand.

There are some interesting things that happen when a company’s brand is built around a person. The accelerated humanizing of a brand when it uses an individual as it’s moniker is appealing and the business case for doing so is a proven model. We’ve recently watched several Jenner offspring create successful businesses based off their names and notoriety even if they personally had no expertise or unique value proposition to offer. The downside, of course, is losing the ability to create separation between the person and the brand.

When the person does some really dumb things, defrauds investors or shows they are just a terrible human being, the brand struggles to re-identify as a separate entity. What got them here was the person as the brand. When a founder becomes radioactive, the brand is identified with that as well.

Even when the founder is the implied brand of the company, the brand runs a significant risk that whole human being may have serious flaws.

For example, Apple was Steve Jobs. Most would say that brand/ persona fusion worked well; creating a religious-like consumer following. Steve was far from perfect. He spent decades disavowing his daughter and tormenting employees who didn’t get his way of doing things. Fortunately for him and Apple, he later recanted on both fronts and it certainly didn’t hurt that the products his company produced were extraordinarily good.

Likewise, Theranos was Elizabeth Holmes. Read any story written about Theranos from the early glory days through the post-meltdown autopsies and more than 90% of the article will be about Holmes the person. Partially that’s because the whole thing was a scam and there really wasn’t anything there. She garnered $9 billion in investment based on her persona. The technology was always promised as an output of her unmitigated will. She was Theranos.

These two examples are the physical incarnations of this founder-as-a-brand risk/reward consideration. Apple would never have been the Apple of today without Jobs. Theranos would never have raised $9 billion on a fraudulent business model if it wasn’t centered around Holmes.

Twenty years ago, a well-drafted PR statement, a public mea culpa from the offending founder and a sizeable donation to charities that specifically combat the kind of behavior they displayed would suffice to smooth things over.

People now are far less likely to let these indiscretions slide and hold founders responsible for their behavior. Consumers know purchasing power and their ability to mobilize like-mindedness are powerful tools to get companies to listen to their concerns and take actions to correct mistakes.

During the next three weeks, executives at Papa John’s will be deep in damage control mode. Drastic steps, including changing the name of the company will, at least, be discussed. The brand now shares the toxicity of the founder’s name.

Public-facing founders play a major role in developing a successful brand but no matter how big or successful a company may be, the consumer ultimately determines what the brand is worth.

Hustle U is Now In Session

The only thing better than failing fast is not failing at all. There’s definitely a non-negotiable learning curve to becoming an entrepreneur, but the right tools can make that curve flatter and cheaper. That’s why we’re building Hustle U—essential classes for startups, small businesses, and entrepreneurs.

Three classes are available now: Creating Your Performance Evaluation Process ($19), Building an Effective Sales Team (free) and Strategic Planning for Entrepreneurs ($49). We’ll be adding more classes soon. Let us know what you’d most like to learn by leaving a comment or talking to us on social. Or just call us at 205-530-3722.

Is Birmingham Shipt Out of Luck?: What Amazon’s Whole Foods Acquisition Means for Shipt

Within 10 days of Shipt announcing it had secured an additional $40 million through series B funding, Amazon announced it had purchased Whole Foods for almost $14 billion, and Instacart announced it will become the only official partner of Publix in 2020 and offer delivery service through every Publix location, beginning in Shipt’s Birmingham backyard.

“Alexa, Bring Me a Dozen Bananas.”

Amazon has already been delivering on-demand grocery pickups through its AmazonFresh service in limited locations. With the addition of the 431 Whole Foods locations and the investment Amazon has already made in advanced logistics, it’s almost a given they will start offering pickup and delivery services in each of those locations. Shipt points to the 43 cities they’re currently servicing in the Southeast and Midwest markets as validation of demand and their ability to scale. Amazon likely agrees. With their new Whole Foods retail footprint, an estimated 65 million Amazon Prime subscribers already paying annual memberships to the online giant, and Amazon’s ability to recreate the basic architecture of Shipt’s app/ interface/ automation tech, what is really stopping them from supplanting Shipt?

Instacart Moving Into B and C Markets

Shipt specifically targeted smaller markets in the regions of the country where Instacart and others had a weak or non-existent presence. Last year, Instacart started offering delivery in smaller markets and found enough success to ink their recent exclusive deal with Publix. This is a big deal as Publix is a major partner for Shipt and has more than 1,100 locations in the Southeast—with 773 of those in Florida alone. Shipt will probably still be able to offer delivery from Publix locations but won’t be considered an official partner—which means any marketing fees, promotional consideration, or branding received from Publix will go away. If that’s the case, those shops become far less profitable and Shipt will either have to raise subscriber fees or eliminate popular Publix as an option for Shipt members.

Is the $60 Million in Funding a Problem for Shipt?

Instacart raised $400 million on a $3.4 billion valuation in March of this year. In total, they have raised $675 million over seven rounds. They currently offer service in more than 1,200 cities. That translates into $562,333 of investment per city. Shipt has raised $65.2 million over three rounds which translates into more than $1.5 million of investment per city. The bulk of that funding, $40 million, was announced just days before the Instacart/Publix deal and a week before the Amazon/Whole Foods deal. Is their future valuation now lower than what it was last week? Assuming they’ll need even more capital to compete against Amazon and Instacart, how will that affect future fundraising?

Don’t Forget About Walmart

Walmart has also been testing its own delivery service by paying their employees small fees for delivering products to customers that are on the employee’s way home. Time will tell if this becomes a meaningful segment for Walmart, but with a $219 billion market cap, Walmart can launch whatever service it wants in the same smaller cities Shipt already services.

What’s Next for Shipt

There is likely going to be some form of pivot coming from Shipt, and no one outside of their boardroom really knows what that will be. Anything is possible—from going after even more funding to compete in the space to aggressively shopping Shipt for acquisition. Bill Smith, the founder of Shipt, is a savvy and accomplished entrepreneur. From an outside perspective, he has built a solid team, and the culture within Shipt is reported to be strong. All of which will serve them well as they consider their options in this new landscape. Amazon may choose not to pursue delivery. Walmart may not enter the market. It’s entirely possible that Shipt finds a way of successfully competing with Amazon, Instacart, and Walmart even if they plan to pursue the same opportunities as Shipt. If they do pull off a successful competitive strategy, they will have cemented their reputation as the big startup “win” Birmingham has been hoping they are.

 

Preparing to Scale Your Business

 

Scaling at any cost has become a strategic roadmap for too many companies. Over the years, it seems this is the common playbook being run by high tech startups—especially if they’re VC backed. From certain perspectives and assuming certain motivations, that can be totally understandable. Your investors are looking for 10X or even 100X returns (however unrealistic that may be), and that only happens if the companies can quickly add ridiculous amounts of users, customers, or some other measure of market capture. The problem, of course, is that most companies have no idea how to do this and how to avoid the inevitable outcome—the company grows too fast, makes some unrecoverable mistakes, and becomes another Icarus-like cautionary tale of startup failure.

Incremental growth can be challenging enough without adding unnecessary velocity. At some point, you’ll get to the fork in the road between staying at your current size and scale or deciding to take steps to grow the business. Payroll is being met. Clients are happy. Bills are being paid on time. Customers are being acquired. It could be a logical conclusion that this is a perfectly satisfactory place to remain. Most entrepreneurs, however, are not happy with their current scale, size, or capabilities. They remain focused on growth forever.

Planning to scale a business isn’t difficult, but it requires some discipline. Using Marcus Lemonis’s Three Ps approach, we can break it into those categories.

People

Scaling your human capital and capabilities is foundational for successful growth. Consider the following:

  • What jobs and tasks are the founders doing that need to be delegated? How will you prepare people to take on those responsibilities, and what resources will be required to do so?
  • Do you have the right people in the right spots?
    • Right Person + Wrong Spot = can you find a better spot/role/job for them?
    • Wrong Person + Right Spot = how will you replace that person?
    • Wrong Person + Wrong Spot = position eliminated
    • Right Person + Right Spot = congrats!
  • Whose job will be expanding or changing? How will you plan to support that change?

Product

Products don’t always scale easily.

  • How will your production and logistics requirements change? Can you make more and deliver it as efficiency at scale as you previously have?
  • Are there smaller product offerings that simply can’t scale with the rest of the product line? Do those products get eliminated?
  • Any implementation/rollout/delivery issues created with additional product sales? How will you mitigate those issues?
  • How will you preserve quality?

Process

This trips up more companies than anything else. Having processes that people can follow and execute autonomously is crucial.

  • Are your processes documented and available for people to access/review/use?
  • What processes can only be executed by specific individuals? What is the plan for eliminating that bottleneck?
  • Are your processes current and are they still relevant at scale?
  • Where are your processes likely to fail at scale and what could cause that failure? How will you try to futureproof those procedures?

This, of course, is only a partial list but cover the high points. I would say these are equally weighted and only working through one or two of these is not sufficient. Growth is exciting and is the fundamental point of having a business for most of us. Companies can grow exponentially and actually make less money than before that growth occurred if has been poorly planned.

How Small-City Startups Can Get the Funds They Need

Small cities can be uniquely positioned to help startups get up and running. With lower costs to operate, less competition for resources, and high levels of public interest in new companies spinning up, smaller markets can be great incubators. Despite those tailwinds, companies in smaller cities often struggle to find private investment funding. It’s not that there isn’t any money to be invested—quite the contrary. Most metropolitan areas have at least one anchor industry creating wealth that spans multiple generations. Economic development organizations bring public money to the table as well.

Creating a minimally viable product and proving market traction are normally required before a startup lands sizeable investment money. Building that MVP and proving market validity takes time and money that many new ventures don’t have.

When founders decide to take on a funding partner, they often think in terms of securing $500k or more. That kind of investment falls in a gap that normally goes unfunded—too small for institutional investment and too big for individual investors. Pre-revenue startups who want to raise a year’s or more worth of runway in a single round are often left without any dance partners.

The fragmented nature of private individual investors, relatively finite size of public money offering, and the follow-on investment plays of institutional funds perpetuate this seed funding gap.

Overcoming this gap requires founders to change their thinking.

Step 1: Take a strategic look at what it will take to create the MVP. Consider what kind of money and resources it requires, and strip out anything that isn’t absolutely crucial.

Step 2: Determine how you’ll prove market traction. Whether that includes landing the first customer, attracting users, or building models around credible survey data, plan for this before you ever determine how much money you’ll need to raise and how quickly you’ll need to raise it.

Step 3: Complete the financial projections to determine the amount you absolutely need to pull off Steps 1 and 2. Decide how much equity you’re willing to give up (hint: it will be more than you want to give up).

Operating under the assumption that this seed funding won’t get you very far—only to the point of launching an MVP and proving market validity—the new funding number is likely far smaller than $500k. If the numbers fall between $50k and $120k, you could very well find an individual investor or small group of investors who shares your vision and is willing to risk cash in exchange for a sizeable chunk of equity.

Once you’ve launched the MVP and proved market traction, the size and options for investment funding expand. Not only will local sources of investment be more readily available, but investors from other cities, areas, or regions may be more approachable as well. Closing the funding gap is something pre-revenue startups can do for themselves as long as they tailor their timeline, product development, and overall approach to the funding sources available.

For Most Startups, Revenue Isn’t Optional

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.

Read This Before You Join an Accelerator Program

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.

Credda: The Lawfully Good Leasing Company

The only thing better than competing in a business competition is enjoying one from the audience. You get all the thrills of watching energetic young businesses share their value propositions and competitive advantages, with none of the chest-crushing stress that comes from waiting for your own results. All pitch, no panic attacks.

That’s how I met Credda. This leasing company out of Spartanburg, SC pitched at the 36/86 semi-final held at Iron City on April 6 of this year. I immediately loved their story and their commitment to providing empathetic service to leasing customers.

I got to visit them in June and help them identify their core brand values. I’ve done this for dozens of companies—it not only informs your marketing messages and corporate culture, it also helps you make business decisions and communicate your purpose to a variety of stakeholders.

This was the first time I found a company who had more than a set of core brand values—they had a moral alignment. This nerdy term comes from Dungeons & Dragons and helps define a character’s outlook on life. The tool has been used to describe lots of characters outside the role-playing game universe, too.

Here’s an overview of the concept:

lnc-archetypes

What I love about Credda is that they are inarguably the Lawful Good. They’re unceasing in their approach to helping their clients make money while helping their end customers save money. They do it through rigorous analytics, relentless legal compliance, and an empathetic outlook wherein they put themselves in customers’ shoes.

credda core brand value map for blog.001

What’s your company’s moral alignment? How does it fit with your core brand values? Do you know your core brand values? Do they separate you from the pack, or are they generic? The better your values describe what’s unique about your company, the more likely they are to help differentiate you in the marketplace.

 

Venture Capital May Stop Unicorn-Hunting

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.

 

 

Read this Before Taking on Investors

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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