Beware of the “Connected”

Another of our clients has been stung by someone they hired because of a promise to “open doors” and introduce them to connections in high places.

Here’s the thing. If someone approaches you claiming to be highly connected and promises to introduce your business to those connections, they aren’t and they won’t. They aren’t highly connected (no matter how many LinkedIn connections they have) because anyone that is well-networked would never make that claim. Who wants to be connected to someone who insists on repeatedly introducing them to any old tat just because there’s a fee in it? And that’s why they won’t successfully introduce you to anyone. They might try, but it’s very unlikely that you will build any meaningful relationships.

Let’s just call these people what they are: sales agents. There’s nothing wrong in that. For the right business model, a good sales person is worth her weight in gold. But giving a slice of equity away because somebody claims to be well-networked is a nonsense. Put them on a commission, train them up and let them get on with it.

Anybody that is well-networked would NEVER claim to be. Because that defeats the point of being well-networked. Any successful networker knows that the value in her network is the value derived by both parties that are the subject of an introduction.

Think deeper, people. Not wider…

Julie Meyer On the Mistakes That Entrepreneurs Make

Adopted Brit VC and ex-California girl Julie Meyer is a big favourite of ours at *particular (although I didn’t rate her book “Welcome to Entrepreneur Country” especially). Yesterday’s Good Morning Silicon Valley led with an interview with her in which she describes the biggest mistakes that entrepreneurs make. There are a number of gems there, but the one that really strikes a chord is something that drives my business partner, corporate finance specialist Deb McGargle crazy. So-called “loyalty” or “reward” equity:

Julie Meyer, CEO of Ariadne Capital

Julie Meyer, CEO of Ariadne Capital

“There are many [mistakes] I’ve seen in the 15 years I’ve been doing this. These are some that can be deadly:

“Making all your friends co-founders with founding equity, when only two of you are doing the work. Once you’ve given the founding equity away, you can’t get it back.”

She also mentions another that is of relevance to us:

“Not reading the investment documents thoroughly. I once had to break the bad news to a (not stupid) guy who hadn’t realized when he signed with his Series A investors that if he missed some milestones, a massive amount of his firm was going to be transferred to the venture capitalists.”

Last year, we were asked to put together a series of videos to take the teams participating in Searchcamp through their invest. Unfortunately they were never used, but we had made similar suggestions to both Rivers Capital Partners and North Star (both of whom have invested in many of our clients) and were rebuffed.

The other mistake that she mentions that jumps out at me is this:

“Outsourcing the development of the product to an agency of some sort. If the product is not built in-house, don’t invest.”

Advice to investors as much as entrepreneurs perhaps, but proof (were it needed) that the old ONE North East funded investment model has no place in the real world.  It’s not the role of an equity investor to fund a third party’s profit margin on the creation of the key asset.  If you can’t develop the product in-house, you either have to bootstrap or raise debt finance.  Or find a fund that is based on public money and that doesn’t really care so much about where the money goes…

Read the whole piece here:
http://www.siliconbeat.com/2014/03/17/elevator-pitch-julie-meyer-of-ariadne-capital-on-how-to-crush-it-in-europe/

LinkedIn: Wider or Deeper?

This is a question I have posed to our LinkedIn group.

As previously recorded in this blog, I have always connected only with people I’ve actually met. If I received a connection request from somebody I hadn’t met, I would invite them to meet up. This tactic always worked extremely well and resulted in a number of new instructions. However, perhaps it’s time to revaluate because more recently, I’ve noticed a significant drop-off in its effectiveness.

A cup of tea.

Fancy a cuppa?

Some of those sending a connection request don’t bother to respond at all. Of those that do, about half say that they were only looking to expand their networks (and so, the implication is, they can’t be bothered to meet face to face – what’s that about? And of the last 5 that have arranged to meet, 3 have not shown up. One I never heard from again, one said there was some diary confusion at their end and this morning I wasted 75 minutes on somebody who told me that I hadn’t confirmed the meeting. This despite a chain of emails in which we’d narrowed the options to one date, time and location.

What is this, a transatlantic flight? Do I have to re-confirm meetings?

So I’m wondering how you use LinkedIn. Do you use it to strengthen ties with people you know? Do you use it to connect with people you don’t? And if the latter, does it bother you whether you have actually met and had a meaningful conversation with that person or not?

Am I the last person to treat LinkedIn as online support for real networking as opposed to a business Facebook? Because it’s really starting to feel that way.

Well, I’m not going to change the way I use LinkedIn. Save for the fact that when I receive connection requests in future, instead of inviting the person out to coffee, I’m simply going to ask them to confirm whether we’ve met and if not, why we should. Maybe it’s a consequence of approaching middle age but really, I just don’t have the time or the patience for this charade anymore.

Knuckle Down, Fit In.

About 13 years ago, I had my first appraisal at what was then my new firm: Prettys in Ipswich.  Colourful shirts, floppy hair and a passion for doing things differently, I think it’s fair to say that I was already rubbing my supervising partner up the wrong way.

“You need to knuckle down”, he said.  “You have to fit in.”  I still have the notes I made at the appraisal, which was something of a character assassination.  Those notes contain just four words:

KNUCKLE DOWN

FIT IN

And for a long time I had them pinned to the wall above my desk, as a badge of pride.

I have never “fitted in” to any law firm that I have worked at.  Which is probably why within a year of meeting the right person to partner up with, I had set up my own practice.  We work hard, we love what we do.  But we will never knuckle down.  We will never fit in.

As a result, we will never again get that magical unexpected call from the huge client of which every lawyer dreams.  (It did happen to me once, when I was at Watson Burton, and I ended up handling all the grey trading litigation for Canon UK.)  But that’s OK.  Because what I’ve realised is that even as a lawyer, it’s OK not to fit in, not to knuckle down.  There are enough people out there who like the way we do things that differentiating ourselves on this basis is a good thing.  A great thing.

Two things happened today that made me decide it was time to write this post.  One, we had some wonderful recommendations (one from a client, one about our iTunes podcast, and finally one being a podcast listener coming to our defence when somebody suggested that my post about it wasn’t suitable for a Facebook group about start-ups in London).  All this in the space of an hour and a half.

And two, I read this post by Seth Godin.  Of course, Seth is all about differentiation.  And you’d know that already if you had read Purple Cow.  But what I love about this very short post is that it summarises in just a few words not only why it’s important to be different, but why the reason for that difference is important.  You’ll see when you read it.  And don’t say you haven’t got time.  It’s less than half the length of this one…

“I’m From The Government and I’m Here to Help… Finance Your Business”

A piece in this morning’s Guardian gives voice to the criticisms of businesses and commentators over the use of funds by the Technology Strategy Board.  It’s slow, it’s bureaucratic, it’s unaccountable. Yada-yada-yada.  Oh, where to start…

The Guardian reports “entrepreneurs are complaining that the significant amount of time it takes to apply for [a TSB grant] is an investment they can’t afford”.

There are 3 ways to raise money to finance your business, people.  Three ways.  Debt finance (people lend you money), equity finance (you sell some of your business in return for money) or grants.  They each have benefits.  They each have drawbacks.  If you want to raise money through grants, yippee, it’s free money.

Well, no, it’s not free money.  It’s not free at all.  You have to jump through hoops to get it and when you’ve got it, you have to account for how it’s spent.  Sometimes you spend days preparing the paperwork and you get knocked back by some bureaucrat who hasn’t bothered to get to grips with your business and your needs and there’s no right of appeal.  What do you want? A medal? Stop your whinging and get on with finding an alternative to fulfil your plans.  Jeesh…

The Guardian reports the words of Andrew Carroll (founder of Paperless Receipts, who, and we’ll take this one step at a time, it quotes as saying:

“We went to the Government for our first round of funding…”.

Er, hello?  Grants should never be seen as a first round of funding.  NEVER.  You simply cannot build a business plan for a growth-oriented enterprise that is based on the availability of a grant.  If the only way you can get your business moving is with a grant, it’s not a business.  I don’t mean that it’s not worth doing.  It’s just not a business.  Not yet, anyway.

Grants are subject to the whims of politicians and the career ambitions of civil servants.  They are used as a power play by the grey sector – that sphere of business that exists somewhere between the public and private sectors, notionally private or at least independent of government but entirely dependent on the flow of public sector capital.  NONE OF THIS SHOULD BE NEWS TO YOU.  If it is, go back to your lab or your studio and leave the business to the grown-ups.

Andrew Carroll continues:

“… and found the process of doing it laborious and lengthy, to the point that it’s just impossible to actually get [eek split infinitive] anywhere in any reasonable timescale.”

First, see above re. the cost of using grants to finance your business.  Second, just what is a reasonable timescale?  If the development of your project depends upon the availability of grant funding, you had better build the requisite timescales into your planning.  Those timescales are the timescales that an organisation like the TSB works to.  That could easily mean a year passing before you get the green light to proceed with a really adventurous project.  You, supposedly being in business, might consider that “unreasonable”.  In reality, it is neither reasonable nor is it unreasonable.  It is what it is.  Stop whinging and get on with it.

“I have a number of friends who have had to turn to venture capitalists because they’ve found the TSB process impossible.”

Really, venture capitalists?  Surely it’s not that bad?

Are you serious?  This guy needs a reality check.  If a VC (or a private investor) is prepared to invest in a project, it’s because s/he sees a return.  Here’s the rub.  You may not yet see the project as a business, but the VC/investor does.  Ergo, it is a business.  And if somebody is prepared to give you money because they see a return, then that’s the appropriate source of money for you, not the Government.  Grants from the likes of the TSB should only ever be for instances where no private sector finance (by which I mean equity finance, since debt finance will not be appropriate at this stage).

Why wouldn’t a VC invest in this situation?  Usually because the prospect of a return is too distant or the technical risk is too great.  Or maybe because the market is too small and does not justify the investment, in which case there could easily be merit in public sector finance provision.  But if this doesn’t apply and you still can’t raise the money, guess what.  You’re on your own.  Or you would be, were it not for the curious notion that the welfare state should extend to business-building.

Now, you might think that these things are pulled out of the Guardian in isolation, given it’s particular reputation for views on these things.  But the Huff Post carried a story this afternoon headlined “British Science Faces ‘Valley of Death’ say MPs”.  The piece reviews the publication of a report by the House of Commons Science and Technoloy Committee.  The Huff Post summarises the report as saying:

“it was “troubling” that so many British technology start-ups have to be acquired by foreign companies before they can grown into thriving businesses”.

Committee chairman Andrew Miller is reported as saying:

“British entrepreneurs are being badly let down by a lack of access to financial support and a system that often forces them to sell out to private equity investors or larger foreign companies to get ideas off the ground.”

Curse those private equity investors and larger foreign companies with their pots of money and willingness to finance our ideas.

And the TSB is criticised for having a lousy record in backing winners.  Good, I say.  I WANT the TSB to give money to things that only have a remote chance of success.  Because that’s the best way of making sure that the person whose ideas are being financed really doesn’t have a more appropriate option for raising money.  So, it’s the best way to guarantee that when there’s a success, it is something that would never have seen the light of the day were it not for the funding.

I have spent a lot of time listening to the Entrepreneurial Thought Leaders podcast series, which is part of the Stanford Technology Ventures Program. (I think that should be “Programme”. Tsk, colonials…).  It is very interesting to compare the approaches taken by businesses growing out of Stanford’s enterprise programme and the contrast with our own approach.  There are grants available in the USA in order to encourage beneficial research for which no equity finance is yet ready to support.  But you would NEVER hear a Stanford graduate describe grant funding as their “first round of funding”.  If equity finance is not available, a Stanford entrepreneur might be encouraged to seek finance from a ‘foundation’, that being an organisation set up by philanthropists to support certain ideals.  But grant funding would never be the first option.  Apart from anything else, life is too short.  Especially life in Silicon Valley.

I am no apologist for the Technology Strategy Board.  But if you think they are there to be a conventional source of finance because you don’t want to give away any ownership or you’re not prepared to bootstrap or not willing to keep schlepping the finance trail, it’s you that’s wrong, not them.

The #CafeClinic

First published as a guest post by Vicki Stone Marketing, it was writing this that led me to write “Six Myths…“.

In Seth Godin’s ‘StartUp School’, the great man is asked about his experience of using lawyers whilst starting a business.  He tells how, in his last year at Stanford, he started a business with a couple of friends and they managed to scrape together $5000 to invest in it.  The university pushed them into taking legal advice – this was long before the days of Eric Ries and the ‘lean’ theory that dominates start-up culture these days.

Seth describes how the lawyer charged him $3000 of the $5000 he had in order to incorporate the company and put everything in order.  Remember, this was in the mid-80s, when $3000 was a lot of money.  Unsurprisingly, the business folded a year or two later and the only person really to benefit was the lawyer.

If you have been through the process of starting your own business, you’ll be aware of just how precious cash is.  It is difficult to justify setting a lot of money aside for professional fees when you’re worried about paying the electricity bill and the rent.  But when you can no longer resist that nagging voice you hear in the middle of the night and do pluck up the courage to make an appointment with Big Law LLP, it doesn’t help when the lawyer you see gives you a list as long as your arm of tasks you need him (or her) to carry out RIGHT NOW!  You know the sort of thing:

  • incorporation
  • shareholders’ agreement
  • director’s service contracts
  • employment terms
  • freelancer agreements
  • privacy policy
  • terms of use for your website
  • terms and conditions of sale
  • review of bank documents
  • procurement terms
  • trade mark registration
  • data protection notification
  • distribution agreements
  • blah blah blah

And before you know it, all your money has been spent on the legals.  In the event that the business is a sustainable success immediately with little further need of cash, you’re sorted.  For everyone else though, the £1000s you’ve just spent is likely to be a significant overspend at best, or a complete waste of money at worst.  But at least you’re keeping the law firm’s equity partners in cushy new Mercedes leather seats, so that’s something at least.

Because we specialise in the commercialisation process, we deal with a lot of start-ups.  I mean A LOT of start-ups.  That’s because most innovation is done by early stage companies, so it’s not surprising.  We try to put time into those start-ups because most of them will become clients eventually, if not right away.  Not having much in the way of spare cash ourselves, you could say that this time is our marketing spend.  But the key with start-ups is to work out what they really definitely absolutely have to do with a lawyer right now.  And the honest answer for most of them is… well, not a whole lot.

So you’re average growth-oriented start-up will already have incorporated. It won’t want a shareholders’ agreement because it will be looking for equity investment and the investment agreement will stand as the shareholders’ agreement going forward. Yes, it’ll need some help with the employment terms for directors and workers, but this probably doesn’t have to be bespoke at this stage.  It’s likely to be some way off being market ready, so terms and conditions etc are not a big issue.  And brand protection is something that you need to worry about in the immediate run up to your launch, but it’s probably a risk you can afford to run until then.  And if you don’t want to risk it, you can do it yourself, with a bit of guidance.

The question is, how do you access that kind of advice.  How do we find you?  Back in the money-laden days of ONE Northeast, programmes were plentiful, allowing us to earn a modest living delivering workshops and clinics with rooms, projectors, tea and coffee all supplied.  Nine times out of ten, these programmes were entirely free to attend, which meant that on average, about 20% of those who registered didn’t attend and about another 20% failed to make it through to the end.

But nobody is paying us to deliver workshops these days.  In fact, one well-known local QUANGO recently asked us to pay them for the privilege of delivering further workshops for them.  We politely refused.

We still need to find you.  You still need to find us.

Fortunately for us all, most people who are starting a business don’t stand on ceremony.  The marble halls of Dickinson Dees are one of our best marketing tools.  If you want the biggest law firm in the region, use them not us.  If you don’t, why pay their rates?  And if you don’t want to pay their rates, you probably aren’t fussed about their conference suites and cocktails on tap.  Well, they don’t have cocktails on tap. I made that bit up.

Being officeless (and paperless and secretaryless), we spend a lot of time meeting clients and colleagues in the cafés of the north of England.  And we spend a lot of time engaged in social media.  So I thought, why not have a crack at staging a clinic ourselves.  In a café that everyone knows, marketing it via Twitter, LinkedIn, Facebook and Google+.  I asked people to get in touch and make free half hour appointments, even last minute if necessary.  But I knew that even if nobody did, I’d still have to go and sit in the café for the day.  That’s not such a chore, really, is it?

But they did come.  Six of them.  All start-ups or early stage businesses.  None of them existing clients and only one of them properly known to me (a certain Vicki Stone Marketing).  They came.  They bought cake, They talked.  And we started the process of building a relationship.

I called it The #CafeClinic.  And I’m going to do more of them, with the next being on Wednesday 13th March at Whites at Boho One in Middlesbrough.  So if you see a tweet mentioning a future #CafeClinic or a LinkedIn status confirming where and when, could you do us and the nation’s start-up community a favour and just pass it on?  We might even buy you a coffee…

Wider vs. Deeper

I had another chance to examine the wider v deeper debate over LinkedIn usage in the last week, this time with a connection – Jeff Fitzpatrick. Jeff is a well-known entrepreneur and investor with particular expertise in ‘turnaround’.  He and I connected a few years ago in connection with his Eco-Panel business.

It’s fair to say that Jeff is an advocate of ‘wider’ whereas dear reader, you will know by now that I favour ‘deeper’.  I suspect it is related to the introvert/extrovert personality traits.  But it got me to thinking, ought I to be making better use of LinkedIn to connect with the contacts of the dim and distant past?

Last night, I was fiddling around with my iPad whilst watching telly I noticed the ‘import contacts’ tool.  I had seen it before, but thinking about it, I wondered whether I might use it to find connections from my personal gmail account.  Boy, did I. I have added about 30 connections in the 12 hours that have passed, some of which are clients that I had long forgotten about but whom I’m delighted to see are still going strong.  There are probably quite a few people who had connection requests from me and are thinking to themselves ‘who the hell is this guy’, but I hope they don’t regard my requests as spam.  After all, we must have corresponded at some point.

I guess this is an exception to the rule.  An example of where wider and deeper can be the same thing.