A Sack of Seattle

Join me at Open Coffee tomorrow ...and on most Tuesday mornings at Louisa's cafe!

After taking a year off, I've started attending weekly open coffee at Louisa's Cafe again.  I missed the ritual and the pleasure of sharing coffee with other entrepreneurs....

What is open coffee? Every week entrepreneurs and investors meet to chat about their startup experiences, feel free to come discuss your new startup ideas and meet some cool people. We are usually sitting at the big tables in the middle, event starts at 8:30AM and ends at 10AM. I'm there frequently -- but not always.  John Secrest has generously picked up and kept the tradition going so he's there frequently too. 

For more info on the meetup click here.

Hope to see you there!

What are the top 3 goals for a CEO of a startup?

I've been having having breakfast with Aaron Bird, CEO of Bizible pretty regularly since TechStars.  His company raised 1.7MM in capital in November 2012.  The company has historically been focused on he calls, "closed loop marketing" for the SMB marketplace.  Closed loop marketing connects leads from different sources of marketing to sales so you have much more effective marketing spend than you would otherwise.  At breakfast today, he stated that his goal was to get cash flow break even on the money he raised.  I think it's possible that Aaron and team might be able to achieve this goal. However, after listening to him for a while, I suggested to him that his focus as founding CEO should not be on getting to break even -- rather he should focus on the following in this order:

1. Nailing product market fit in a big fast moving market  
2. Nailing the unit economics of his business 
3. Getting to cash flow break even

It's important to note that these goals are not mutually exclusive. Rather, solving one often leads to the second and third. But, ranking these priorities in this way has the founding CEO focused on the thing that requires the most psychic attention and testing. 

When it's time for an entrepreneur to ....phone an entrepreneur

I received a call on Friday from an entrepreneur I've known for a 7 years.  He's a few years younger than me and has a company backed by venture capitalists.  He's raised approximately 6MM dollars and has been trying to strike lighting -- professionally speaking -- for about 3 years.  He started the call by saying, I've got a situation and thought I'd phone a friend. 

He proceeded to tell me that he had already pivotted the company once about 1 year ago.  He's since come to the conclusion that the path he's put the company on is a losing one. He's torn between two choices:

1. Pivot again -- to something bold and he isn't exactly sure what that is
2. Return capital -- Of the original 6MM raised, he still had 1.5MM

I empathized with his predicament....and his instinct to phone an entrepreneur (friend).

It was approximately 6 years ago that I made a similar call to a entrepreneur friend of mine name Tom Higley.  I remember it vividly. It was a Friday night. I was CEO of Judy's Book at the time. We had pivoted once and had not caught lightning in a bottle.  On that call, Tom asked me what my gut was.  I told him I thought that I should shut the company down and return $0.50 on the dollar to my investors.  By Tuesday of the following week, that's exactly what I did. 

I did two things on the call with my friend.  First, I asked this entrepreneur the same question that Tom asked me.  I asked him what his gut thought he should do. Like most of entrepreneurship, there's no right answer to situations like this.  Second, I told him the story of Judy's Book, what I did and what I learned with the benefit of hindsight.  I told him I was glad I was decisive and acted on my guy but if I had a re-do I wish I had persevered.   I think the fear of failing is worse than actually failing and in the situation with Judy's Book many things happened in the market after we sold the assets that would have totally changed my perspective.  The iphone  and twitter became phenomena providing the market context for Judy's Book and local search to take off.  I could never have known these market externalities in advance. Ahhh....hindsight is 20-20 :-) 

It was a fun call. I don't knwo what my entrepreneurial friend is going to do. I gave him some shared experience that I am sure he'll consider as he weighs his gut and his options.  It's moments like this that make entrepreneurship so exciting and profound of a choice.  There is no right answer and he's a meaningful player in determining a positive or negative outcome.  He's on the field of life and business!  

 

Hack Things Heitz Things

Well, it's really just a "hack things" meetup sponsored and organized by one of the great entrepreneurs in Seattle and better human beings :-) Joe Heitzeberg.  It's a meetup of Hacker + Startup friends: if you're interested in how connected devices like the Fitbit are actually made, please come here Jon speak at the inaugural "Hack Things" meetup in on Feb 21st in Seattle - http://www.hackthings.com/meetup.   This should be very cool. I wish I could make it...I'll be at the next one. 

Great first event at Code Fellows last night -- some tactical and strategic lessons learned

It's been a whirlwind 2 weeks since the first public launch of Code Fellows on Jan 2, 2013.  Last night, we had a great job learning event called "How to get an awesome job at a Seattle startup?" -- the event was aimed at high growth early stage technology companies with a focus on engineering and design candidates. 

Overall the event was really good.  Feedback was positive from both the companies attending and from candidates.  We had over 100 candidates there and 10 recruiting companies in attendance. We learned a lot -- and it's funny the kind of lessons one learns when you launch stuff like this. 

A lot of the lessons are tactical and trivial. For example, big tactical lessons were lighting for our CTO panel was terrible.  Also -- there was a tv on behind the panel that was super distracting to the audience. These lessons came from simple feedback from the attendees.  This feedback is great -- and critical to us doing a better job next time. 

The more valuable feedback was :

* The fact that we were able to pull this event off as successfully as did is a tribute to market validation that we're onto something.  In many ways, this first event was our MVP and we wanted to see if we could event get attendees -- we actually had a waitlist to attend the event and we soldout the company spots!  

* Lots to do as we prepare for the first class of Code Fellows which we will be sold out as well.   

Onward and upward. 

 

3 lessons I learned from meeting with a 21 year old entrepreneur

My friend, Dan Levine, introduced me to a nice young Jewish boy named Grant, the 21 year old. Grant is going to graduate UW in May 2013 and wanted some life advice.  Grant emailed me and asked me if he could bring his friend, Tony, the 22 year old who graduated in May 2012.  I scheduled to meet them this week at Zoka, a local coffee shop for 30 minutes.  We were scheduled to meet at 4PM.  I showed up at 4:10 and Grant and Tony were sitting by the door.  We had never met but I knew it was them that I was meeting.  They jumped up and introduced themselves.   I got a soy latte and sat down with them.  Grant started to talk. I wasn't sure exactly where the conversation was going to go but it was the end of the day and their enthusiasm was engaging.  It became clear -- 3 minutes into the conversation -- that they wanted to talk about their mobile app and business that they had been working on for the last 6 months.  I heard about the founding of the business -- Tony had started it while he lived in San Diego.  He had moved back home to Seattle and had partnered with Tony while Tony was finishing up at UW.  They weren't making any money yet.  But they had this little business and were trying to figure out whether it was worth continueing to pursue. I'm not going to divulge their business idea -- but in the past 6 months they clearly demonstrated some learnings from the market. I was impressed with what they had figured out -- and I was more aware than them of what they didn't know that they didn't know.  But in the end -- I end up staying and talking with them about their idea for 2 hours. Trying to help them and give them tips so they might actually turn this thing into a success.  At the end of the coffee meeting, I reflected and realized I had learned at this meeting...

i) Naivete and enthusiasm are an entrepreneurs friend.  These attributes can be a HUGE asset and what may seem impossible ...may in fact not be. 

ii) Writing down ones key assumptions and figuring out what tests one wants to run is the entrepreneurs job.  The definition of the test reflects the frame or lens of the entrepreneur.  These assumptions and tests point the direction of the most likely learning that will be obtained. A lot of the learning that one actually does in these market tests can not be known a-priori. 

iii) Listening AND selling are equally critical skills to accomplishing the entrepreneurial goal. 

How to be a fintech company

There are 5 fintech companies that I've been paying attention to as I try to figure out the model for Lighter Capital -- actually -- there's many more than that...but for the purpose of this blog post, let's focus on:

1. Second Market
2. Receivables Exchange
3. Wanga (UK)
4. Kabbage
5. OnDeck Capital

There are lots of differences and variants to these businesses but I like all of them and it seems like they follow a somewhat simple formula.

• Market segmentation -- Each company in its own way focusses on a market that is underserved by the capital markets.  One way or another, the underlying businesses need capital. 

• High rents (i.e charge a lot) The above businesses make capital available to the customer via the internet and charge a rather high rent. Wanga is off the charts!

• They've figured out repeatable customer acquisition --  to varying degrees the above customers has each figured out how to acquire customers cost effectively.

At lighter capital, we're trying to make sure we accomplish these goals as quickly as possible. 

Risk adjusted returns: Struggling to balance the gas and brake pedals

My career as an entrepreneur and as a seed stage equity investor has me look at a company and a team and think about what could go right.  It has me dream the possible. While working on refining the boundaries of a RevenueLoan, I find myself really thinking hard about reality -- and what could go wrong.

I find myself focused on risk-adjusted returns and yield. Prior to Lighter Capital, I never really thought about those concepts. Internally, we're debating the benefits of providing smaller revenueloans to companies earlier in their revenue life cycle. So, I find myself wondering -- what risk am I taking by moving earlier? Traditionally, people would say that moving earlier increases the risk -- and that's the obvious answer. But there's some benefit from a risk perspective to moving earlier. The main thing I find myself thinking about is that the fixed costs that get a company in trouble further into the revenue life cycle are not yet in place and so the entrepreneur is able (theoretically) to better able structure the organization to include those fixed costs.

The other thing to I find myself wondering about is that for each marginal dollar earlier in the revenue life cycle, I think I'm likely increasing my potential return by much more than one dollar. One dilemma for me is how to think about pricing this risk -- and there, frankly, right now, I have no clue! ;-)

WTF? RevenueLoan changed its name to...

A couple weeks ago, I wrote about how naming a company is a real pain ....but never mentioned the results of our naming efforts. Well, in this post, I'm happy to share with all of you that RevenueLoan is now LIGHTER CAPITAL.

Why Lighter Capital, you ask?

- We’re about more than RevenueLoans

- We're a lighter financial institution, as in fun and lighthearted

- And we plan on making raising capital lighter, as in easier and faster funding for small businesses

We’re about more than RevenueLoans

As we worked with small businesses over the past year, we realized there’s a lot more opportunity to disrupt the small business growth capital and lending incumbents.  We intend to be the team that causes that disruption. What’s screwed up about small business capital now? That really merits its own post, but…let's just say there's lots that's screwed up and if you're an entrepreneur with a business that is growing getting access to capital to grow your business is way too hard and the process success.  Getting money takes too much time, hassle, and work and the investors ask for too much (equity, control, interest rates, etc.) Lighter Capital changes all that -- and we do so with a deep understanding of what it takes to be an entrepreneur.

Lighter, as in fun and lighthearted

We aren’t your father’s local 3-6-3 bankers.  We don’t wear suits. Our offices don’t smell of rich mahogany. We know building a business takes hard work - getting funding shouldn’t make your life harder. So we wanted our name to represent our focus on keeping business upbeat and lighter. And even it we don't fund your business, we want to do so with respect and a smile and leave you feeling like you haven't wasted your time or had to dress up to be someone your not. We like quirkiness and appreciate weirdness and generally want to have fun building this company as you should have fun building yours.

Lighter, as in lightweight funding

I’ve been in both the entreprenuer’s shoes and the financier’s shoes for long enough to have seen where taking outside funding can get painful. Under the right circumstances, taking bank debt or VC funding can make sense, but we’ve seen a lot of companies where those sources of capital start to weigh-down a company instead of lifting it up. RevenueLoans give companies more flexibility without demanding your first-born-child. And we’re working to make it faster and simpler to get our money, so entrepreneurs can focus on what they do best – building exciting new businesses.

Expect to see some of these changes in our company and loan process in the coming months. I’m psyched out of my mind about some of the work our team is doing, and this name change is an exciting step in the direction we’re taking.

In the interest of being open and light – check out this video of our team debating the name change:

How not to name your company

A couple days ago I talked about why it’s so hard to name your company, it's harder to name an existing company than I had thought. Coming up with a new name for RevenueLoan lead me down some funny paths. Throughout the process the team and I got frustrated enough that we tried some random strategies to keep the process fun and lighthearted. Some weird things we tried:

1) Roll the dice

2) Riff on James Bond movies

3) Name after your intern

Roll the dice

At one point, we had reduced the list of possible company names down to 3 names, all of which we decided were "good enough". After spending too many hours sitting around and debating the pros and cons of each name, I wrote the names on 3 slips of paper, crumpled them up, and threw them on the ground. The plan was to name the company with the name on the first piece of paper I picked up. I picked the first one up, read it aloud, and as I did....I changed the rules of the roll the dice game. I knew instantly that the first name was not the name I wanted and said "no, that's not it". And then there were two crumbled up pieces of paper and I declared that we were now in a roll the dice process of elimination game for the name.  I picked the second piece of crumbled paper and the second company name didn't feel that good either.  And low and behold, the third name felt pretty good. So I went with it. We announced to the team that we were [name on crumpled paper #3] (to be announced).

An hour later, I was driving home, and I decided I didn't like the name. So I sent an email to everyone saying I was having brand remorse and we needed to go back to the drawing board. Ugg. I was totally indecisive and was dragging everyone through a terrible process. I felt crappy.

Takeaway: Using the roll the dice strategy actually can work.  I just wouldn't commit to which ever one you pick first or last (too much chance)....rather, I'd suggest picking them with an idea that the last one you pick is the right name and then watch your emotional reaction to the names that you pick first or second. If you feel instant regret that the 3rd name is the name that chance picked for you then you probably have the wrong name. In other words, let your immediate reaction to the names shed light on which company name you choose. And whatever name you decide on using this process, sit on the name for at least a day before you just go without it. And it's OK to try again.

Riff on James Bond movies

Yes, this was something we tried. Basically, we plugged "Fund" into a bunch of James Bond movie titles. We came up with the following names

The Fund who Loved Me.

The Spy who Funded me.

Dr. Fund.

You Only Fund Twice.

Live and Let Fund.

You see where this went. Right into the toilet.

Takeaway: In a funny way, we had fun doing this and the names provided some comic relief. We actually liked a couple of the names - Funderball and The Man with the Golden Fund, but ultimately it was too bizarre for us to use as our actual company name.

Name after your intern

Kenton is an awesome developer working for us this summer before he goes to graduate school. In lieu of having an actual name, we began to refer to ourselves as Kenton, or The Kenton Group, or Kenton Financial. There were 2 problems with naming it Kenton - the first problem is that the story wouldn't exactly work. With Judy's Book , the name made sense - it was my mother in law's name and the site was inspired by her book of trusted local services. The second problem is that it sure can get confusing having an employee and a company with the same name - we imagined not knowing who or what we were talking about!

These tactics didn't exactly work for what we’re calling "the company formerly known as RevenueLoan" but they did help us keep our minds open and keep the process fun, or at least less sucky!