A: Don’t.
I’m frequently asked (by friends, and sometimes, aggressive strangers) to help them find someone to fund their company. Often, but not always, these people are happy to hear the following answer.
1. If you fund your company, even a little, you’ve just sold it. Maybe not today, or tomorrow, but one day. That’s because rational investors are funding your company in the expectation that you are going to sell it and make them a profit. (sure there are exceptions, but not many). So, if you don’t expect that your company will be easy to sell for a big profit, or you don’t ever want to sell your company, it’s not a smart idea to raise money for it.
2. Most companies are not appropriate sites for VC money. That’s because they’re freelance ventures, not entrepreneurial ones. A freelance venture is one where you work to get paid. An entrepreneurial one is where you can make money while you sleep. Meaning that you work really really hard and you scale and suddenly you own real estate or media properties or technology or a system or a brand that people pay for without you actually doing any incremental work yourself.
3. One friend ran a very successful specialty school. He decided he wanted to start a division that would sell books about his system. The numbers on the publishing side were terrific (on the spreadsheet). The investors wanted 40% of the existing business in order to put up sufficient money to recapitalize everything and bring big company thinking etc. etc. I pointed out that this would not only ruin my friend’s life, but probably cripple the economics of both businesses.
The alternative (which might work for you as well) is not to fund the business. It’s to fund the project. That’s how they fund movies. You don’t get a piece of the studio. You get a piece of Rocky XIV.
If you’ve got something that works and you’re ready to go to the next level, consider funding the expansion with the payoff being a scaling piece of the project. Maybe 100% of the proceeds until the investment is repaid, then 25% after that, forever. Once that project pays off, you’ll be able to fund the next project, probably on even better terms. And on and on, with each project having, if you choose, different investors and different payout streams.
4. The real lesson is this: if you absolutely need a lot of money to do a particular business and the terms you’ll need to accept to get that money are unacceptable, find a new business. Nothing wrong with that. The market might be trying to tell you something.
March 23, 2006
The bakery industry has been reeling since Atkins took a whack out of white bread.
The savior, it seems, is the new focus on whole grains. It’s pretty clear that white flour is akin to candy, while true whole wheat (or other grain) bread is actually pretty good for you.
In the rush to make a product that kids and others will find palatable, the bakery industry is falling over itself to lie and weasel their way in. Today at the supermarket I saw "whole grain" bread that had white flour as its main ingredient. Whole wheat english muffins that were less than half whole wheat. My favorite was a loaf of white bread that was actually colored brown with molasses and caramel color. "Hey, it’s not against the law," they say, or, "hey, it’s what people want…"
Actually, that’s not true. What people want is not being tricked. Seduced, but not tricked.
When this menu of fancy teas was new, I’m sure it was impressive. And when they ran out of the first or second flavor, it was probably okay that they crossed out the missing flavor with a mixture of whiteout and blue magic marker.
Now, of course, it’s just a billboard screaming about a lack of attention to detail. Note that broken plastic stand on the bottom.
The profit margin on a cup of tea is 98%. Shame on them.
Several people have sent me links to a video of a juggler named Chris Bliss. It’s going around.
He is working very very hard and earns a standing ovation at the end.
Today, I got a video, featuring Jason, who just might be the best juggler I have ever seen. Same music, similar routine. Except… five balls. Not three, five. Infinitely more difficult. And Jason makes it look easy: YouTube – Chris Bliss Diss Video.
The thing is, even though I know how much more difficult Jason’s routine is and how skilled he is, the very ease of his delivery makes it less likely an audience would give him that same ovation. Interesting how important effort seems to be.
Two envelopes arrived the other day.
The top one is a scam, tricking people into opening it. How, exactly, does this lead to a sale? Not sure, but since direct marketers keep doing it, I have to guess that it works.
The second one is sort of a scam, but in reverse. That humble return address in Buffalo, NY? The one that looks like junk mail? Yes, it’s our check for thousands of dollars in Google ad revenue from the ads on Squidoo. Very easy for a busy person to throw that one in the garbage, no?
Jerry Frear points us to: Colgate buying control of Tom’s of Maine for $100 million – Boston.com.
First, congratulations to Tom and his family. Work hard for 36 years, tell an authentic story about a great product and you too could hit a winner.
Here’s what I wrote about this in the July 2001 Fast Company:
Want soup? The very best soup in the entire world is served by Al
Yeganeh, owner of Soup Kitchen International on West 55th Street in New
York. Slandered in a notorious Seinfeld parody, Al’s
restaurant is busier than ever. Some of the folks in the 30-minute-long
line (waiting to buy a $6 bowl of soup!) are insensitive clods who saw
the TV show and want to experience a real celebrity moment. Others are
longtime customers who are willing to brave the cold to get the real
thing.
At the same time that hundreds of hungry people are waiting to get a
unique bowl of soup from Al, millions are eating lunch at the most
ubiquitous restaurant in the world: McDonald’s. In fact, every single
day, McDonald’s serves a meal to one out of 14 Americans.
Take a drive through Illinois — home to McDonald’s headquarters —
and you might discover that many of the towns you pass don’t have one
"real" restaurant. No diner, no place for a fancy night out. Just a
Hardee’s, a Pizza Hut, and, of course, a McDonald’s. This is not a
phenomenon limited to tiny towns near Springfield. There are thousands
of McDonald’s franchises across the country, along with chains like
Arby’s, Subway, T.G.I. Friday’s, and countless others churning out
anonymous, forgettable meals to people in a hurry. Hey, it’s what we
asked for.
So what’s wrong with selling out? Paradoxically, it seems that once
you become popular, you also become very unpopular. Suddenly, those in
the know aren’t as awed by Wolfgang Puck — not when his name is
displayed in major airports across the country. They look down their
noses at Yo-Yo Ma. They disdain Andy Warhol.
What is it about ubiquity that breeds contempt?
Every day, successful entrepreneurs have to make important choices
about whether to expand, to open another branch, to franchise, to
license. Once you’ve figured out a winning strategy, it seems only
rational to cash out by letting the market have what it wants: more of
you!
As long as you’re giving the market what it wants, what’s the problem? If some is good, isn’t more better?
Here’s the problem: The moment you take your special, authentic,
limited-edition product and leverage it, make it widely available and
normal, the very people who loved it inevitably rebel. "Starbucks isn’t
what it used to be," they tell you. The tastemakers who made you
successful in the first place turn on their heels when they smell that
you’re not authentic anymore.
When a product is everywhere, when it’s hyped in the media and
advertised on the sides of buses, sometimes it seems as if the product
exists and succeeds because it is everywhere. Before ubiquity, when it
seemed as if the product (or its creator) wasn’t in it just for the
money, somehow that felt more real, more wonderful, more authentic.
Marketing has always been one of the most despised aspects of
business. Brands, logos, salesmanship, positioning, and focus groups
have gained a reputation for insincerity and corporate greed. Most of
this comes from people’s desire to have something real — and to get it
from someone who isn’t trying quite so hard to sell it.
Are we ever authentic? Is fresh goat cheese made in tiny batches
(bought on a farm in France) any different from huge vats of goat
cheese produced by Kraft somewhere in Wisconsin and delivered weekly to
your local supermarket? What if you couldn’t tell them apart in a taste
test?
Sure, the vistas, the smell of the sheep, and the excitement of a
true discovery make the first kind of cheese seem to taste far better
than the second. But isn’t that just another form of marketing? Why
does the intention of the creator have so much influence on our
perception of the product?
The paradox: Markets talk. Word spreads. When something is great, we
all want it. We want it to be local and reasonably priced. And we want
reliability. We want it to be just as good every time we experience it.
What’s a marketer to do? On one hand, for something to be authentic, it
needs to be rare and special and live. On the other hand, the market
demands that it be delivered with reliability and in quantity. Which
ice cream do you prefer: Ben & Jerry’s or Häagen-Dazs? Which sports
franchise do you root for: the Chicago Cubs or a newly minted XFL team?
Which jazz performer do you groove to: Miles Davis or Kenny G? What’s
the difference between authentic and manufactured?
If you’re lucky enough to create something authentic, you have real
choices. You need to decide how important it is to be real, how much of
yourself you have tied up in the authentic experience that you’ve
created. Most of all, you need to decide what you’d like to do all day.
Some of us can be happy taking today’s flavor and selling it like
crazy. Others need to have a deeper relationship with their craft,
something that establishes a connection between themselves and their
product. If you ever get a cup of soup from Al, look into his eyes.
You’ll see what I mean.
People who create something authentic but then sell out almost
always end up unhappy. Why? Because once you sell out, any new success
you have isn’t because you are authentic. You’re in a new business now.
Ken Burns is just as authentic as he ever was. But he’s not rewarded
for that. He’s rewarded for ubiquity. Could you be happy with that?
Before you pull the trigger and sell out and scale up, consider a
few questions: Is it better to be big than to be (perceived as) real?
Is spreading the word more important than being admired by a tiny
coterie of truly devoted fans? Should financial rewards come to those
who make good stuff for the masses?
Could you be happy practicing your authentic task for the rest of your life?
If you do get big, you won’t be practicing authenticity for the rest
of your life. When you sell out, you’re making a trade. The big market
wants reliability and conformity. The big market won’t reward you for
being authentic.
Authenticity. If you can fake that, the rest will take care of itself.
March 22, 2006
A: The thing you must remember about just about every corporate or organizational brochure is this:
People won’t read it.
I didn’t say it wasn’t important. I just said it wasn’t going to get read.
People will consider its heft. They might glance at the photos. They will certainly notice the layout. And, if you’re lucky, they’ll read a few captions or testimonials.
At its best, a brochure is begging for someone to judge you. It says, "assume that because we could hire really good printers and photographers and designers and writers, we are talented [surgeons, real estate developers, whatever]" And more often than not, people do just that.
At its worst, a brochure solves a prospect’s problem (the problem of: what should I do about this opportunity?) by giving them an easy way to say "no." "No," she thinks, "I don’t need to talk with you… I’ve reviewed the brochure."
So, the strategies of your brochure might be:
- overinvest in paper and design. Spend twice or even ten times more than you planned. If you can’t afford to do that, don’t have a brochure. Especially if your competition does.
- use less copy. Half as much.
- use testimonials. With photos. Short captions. It’s hard to have too many of the good ones.
- make it funny enough or interesting enough or, hey, remarkable enough that people will want to show it to their friends.
- show, don’t tell. Don’t say you have a tranquil setting… I won’t believe you.
- and most important, make sure you leave several obvious things out… so that people need to talk to you.
first in a possible series of Q&A. Send along a question… no promises, though!
I’m interrupting my regular stream of rants and interesting thoughts to ask you to do something before you leave work today.
Send a fax to your Senators and one to your congressperson. (get the contact info here: Contacting the Congress.)
It’s okay if it just has one word on it, along with your name and address:
Darfur.
If we generate 10,000 notes today, we’ll save far more than 10,000 lives. More info here.
Thanks.
March 21, 2006
