Why Most Start-Ups Should Never Raise Money

Posted on by

There’s a fascinating conversation recorded (you can read it, too) between Jason Cohen of A Smart Bear and Edwin, who runs a new service called MeetingKing.com. The entire conversation is interesting, mostly focused on how to present a business to customers and where to focus the marketing message, but this segment on fund raising really struck a nerve. I’ve shortened it (but not changed the wording) considerably to make it more reasonable to read here:

Jason: Raising money completely changes what the company is and what the outcomes can be and what your job is.  

Let me ask you this: what is it that you want as the endgame of this company? Do you want to make a billion dollar company? Do you want to make a company in which you personally take home millions of dollars, but it doesn’t really matter what other form that might take as long as that’s happening? Do you want to keep it a tight group of people where you know everyone’s name forever and it’s just a high-performing, awesome group of people? Or do you want to have a thousand employees someday? What is your goal with the whole company?

Again, regardless of how you get there. What do you want? What would be the best end-state for you? Do you want to sell it someday?

Edwin: Yes, but that’s not short-term. In seven years my daughter will go to college and travel is my biggest hobby so it would be great if I can
cash out successfully in seven years. But before that, I would like to build a profitable business, a business that can exist on its own.

Jason: Okay. Why?

Edwin: Well, because I think that’s the very essence of a successful business, that you can make profit with it. I think it is the ultimate measure of you’re offering value to people that they are willing to pay for it. Yes, I think I would get a lot of satisfaction out of that, and I am already getting that.

Jason: That’s true. Okay, and when you say you’d like to exit someday in the next seven years, let’s say between now and seven years from now, what kind of money are we talking about that you want to have from that exit? If it’s half a million dollars, that’s not enough.  I’m guessing if it’s $500 million, it’s enough. So what’s the minimum you want to get out of it to where you’re like bang, I got enough money on it that I never have to worry about money again or whatever it is that your goal is.

Edwin: Ten million, I think I can be very, very happy for the rest of my life.

Jason: Okay, so all the things you’ve said so far are telling me do not raise money. So you said I value making a profitable company. That’s
important to me that it be profitable. That’s the point. That’s the measure of success is that it’s a self-sustaining, profitable, growing company.

When you raise money, that isn’t the goal. That is explicitly not the goal, and that won’t be the goal for those seven years that you’re talking
about wanting to run this for roughly. I know that’s rough, but still. It won’t be the goal, and it won’t be the kind of company that you’re building. So it’s interesting that the fact that that’s kind of against your nature, which I totally understand by the way and agree with that nature, but that isn’t what the goal will be. So that will be dissonance for you.

The second thing is exit. There is no venture capitalist who wants an exit in which you would only make five or ten million. And the trouble with that is you would be happy with that exit, again, assuming it’s a fair exit of course. But assuming it’s a fair exit, a venture capitalist, and I’m explicitly not saying angel because we could talk about angel and they’re sort of special so that might work out.

But a venture capital, if we’re talking about institutional money, venture capital is not interested in any kind of outcome where that’s all the money you make because it means they wouldn’t have made much money and they’re not interested in that. They’re not signed up for that. And to be fair, when you take their money, you’re not signed up for that either or you shouldn’t be.

I’ve talked to lots of budding entrepreneurs over the years. Most of them want to raise money. Most of them want to build profitable businesses with a tight team that could have a reasonable, human-sized exit. Jason so starkly points out that these goals — VC money and profitable, reasonable-sized businesses — don’t match.

I may have to refer people to this post in the future.

A Good Pen Is Hard To Find

Posted on by

On Saturday my favorite black ink pen ran dry. [1] It seems like such a trivial thing but this single pen has lasted me 16 years. It was a throw-away pen from a Palm developer conference exhibitor from 1998. The irony: the company didn’t make it out of the .com era but that pen did!

I never gave much thought to why this pen was so special until it died. [2] Then suddenly I’m scrambling to find a new one. I tried all the pens in the house but none were as good. I found four problems, generally:

  1. They had a cap and caps are too easy to lose. I use my black pen a lot when highlighting physical books. Since I’m selective in my highlighting, it spends large amounts of time in my hand. So I don’t risk writing on myself and because I want to preserve the pen’s useful life, I always keep the pen covered. With a cap, I’d have to use two hands to cap/uncap. A click pen works much better.
  2. They needed to be warmed up. A couple of the pens we had around here seemed to constantly dry. I’d draw a line to highlight a passage, read for a while, draw another. By the time I’d draw the second the stinking ink wouldn’t come out and I’d have to try two or three times to get a line. This happened even if I retracted the tip. How annoying!
  3. They weren’t the right weight. I like a medium tip pen. Thin pens don’t do it for me at all. On top of that, some pens didn’t feel right in my hand. Some were too heavy in the tip and some too heavy in the back.
  4. It didn’t move on all kinds of paper well. I found that many of the pens would work fine on a smooth paper but on a little rougher one, the pen wouldn’t move across the paper well, wouldn’t leave the right amount of ink, or would move with the paper instead of my hand, making my lines jag all over the place.

Silly, right? A little so. Plus, it really shows off my anal retentive nature, something I would have been embarrassed about and hid when I was a teenager but now embrace. [3]

The bottom line, though, I made a rare pilgrimage to my local Office Depot and bought myself a new pen. [4] Hopefully my hunt will be over and I won’t have to go through this hell for another 16 years.

—

[1] Yes, I keep one black ink pen and one blue ink pen on my desk. My blue ink pen, a Cross pen given to me by my high school computer science teacher as a graduation gift, is my absolute favorite pen, mostly for the memories. I use it primarily for contract signing, which I learned long ago to do with a blue pen so I can tell when it had been copied.

[2] May it rest in peace, wherever the souls of great pens go after death.

[3] Thank you, Apple, for making anal retentive-ness okay. And thank you, web, for making “nerd” a positive term.

[4] It’s a Foray 1.2mm advanced ink ballpoint, four to a package, for $3. And yes, I opened the package to try it out first.

The Presentation Mistake You Don’t Know You’re Making

Posted on by

Fascinating study from Harvard Business Review on presentation and how others perceive it. The bottom line: when you present a list of things (features, accomplishments, etc.) mentally those reviewing that list treat it as an average rather than a sum. From the report:

During an interview, your potential new boss asks you to briefly describe your qualifications. At this moment, you have a single objective: be impressive. So you begin to rattle off your list of accomplishments: your degrees from Harvard and Yale, your prestigious internships, your intimate knowledge of essential software and statistical analysis. “Oh,” you add. “And I took two semesters of Spanish in college.” Not technically an impressive accomplishment, but since the company does a lot of business in Latin America, you figure some Spanish is better than none at all.

Or is it?

Actually, it isn’t. You’ve just fallen victim to a phenomenon that psychologists have recently discovered, called the “Presenter’s Paradox.” It’s another fascinating example of how our instincts about selling — ourselves, our company, or our products — can be surprisingly bad.

I’ve seen this a little bit myself. Until recently we kept web pages around for Palm, Windows Mobile and BlackBerry versions of powerOne, even though those products don’t sell anymore. Part of it was just not getting around to removing them and part of it was wanting to make sure that those folks still had access to help resources. [1]

Oddly (to me anyway), we occasionally received emails saying, “You support Palm but not Windows Phone!” or some such modern operating system version, as if we made the recent decision to write for Palm and it isn’t a decade old app we still have around. I can’t help but wonder now whether this Presentation Paradox was in full effect for them.

—

[1] Yes, we still have customers that carry around old PalmPilots just to use our software. While I removed the product pages from view, I minimized the support pages but left them available. They don’t have the same “weight” as the iOS and Android links have.

A New SAT Aims to Realign With Schoolwork

Posted on by

I saw this news yesterday and had to smile: the SAT exam is being redesigned to better match school work. That’s exciting alone because it has been woefully out of touch with the real knowledge required to do well in college.

In particular, this caught my eye (emphasis mine):

The changes are extensive: The SAT’s rarefied vocabulary challenges will be replaced by words that are common in college courses, like “empirical” and “synthesis.” The math questions, now scattered across many topics, will focus more narrowly on linear equations, functions and proportional thinking. The use of a calculator will no longer be allowed on some of the math sections.

For any of you who have been long-term readers of this blog, you know I spent about 1/3 of Infinity Softworks’ history in math education. What we found is that schools will only use in the classroom what is allowed on the exams. Because the AP, SAT and ACT exams only allow hardware calculators, then only hardware calculators are used in the classroom.

We came very close to upsetting this apple cart. Our software on a PalmPilot was approved for trials on AP exams but before we could implement it Palm fired their education team and the College Board backed out. A decade later and there still are no software calculators available for any of these three exams. In fact, I believe we are the only company in the world who has software calculators available in any standardized exams [1].

The best thing that could happen to classroom advancement of mathematics is the elimination of these calculators on these three most critical exams. It’s like using DOS in a windows world. Most students are turned off by the 30-year old technology more so than the topic. Removing them from exams would open up a world where software could penetrate the classroom, and students could finally get back to learning math rather than learning which buttons on their calculator to press.

—

[1] A version of powerOne is available in CLEP exams and in the Praxis, Texas and Georgia teacher licenser exams.

Stop Blaming Developers, Start Blaming Apple

Posted on by

Brilliant interview with indie developer David Bernard. The three passages couldn’t have been more appropriate. Here’s one comment, based on the question, is there more Apple could do to support paid apps?

Currently developers can use IAP for all sorts of convoluted free-to-play schemes, but Apple has a rule against free trials, demo apps, and the like. With a single policy change, Apple could empower developers to use App Store receipts to roll their own free trials. Surely that’s no more user hostile than Candy Crush’s casino-like techniques for milking users for cash.

Exactly! I’ve said this before — and I’ll say it again and again and again — most of the problems with the App Store are Apple’s fault. All of these discussions about search, top ranked, analytics, even the annoying rate my app dialogs, all of them are really about Apple and the policies they put in place.

As David points out, one single deletion in a policy document — not even a technology difference — could completely change how indie developers make a living.