Monday, March 25, 2013

Great Stories of Survival--Motivational Reading for Startup Entrepreneurs

Posted By: George Deeb - 3/25/2013

One of my hobbies is collecting antique books about adventure and exploration, with stories of survival among my favorites.  Startup entrepr...

One of my hobbies is collecting antique books about adventure and exploration, with stories of survival among my favorites.  Startup entrepreneurs can often be compared to these survivors, helping to get their businesses through whatever hazards that get in their way.  I pulled the below list of survival stories from my collection for your reading enjoyment, for any of you startups that may be staring over the edge of the abyss and need some additional inspiration to help weather the storm.

SURVIVING THE ICE

"Endurance-Shackleton's Incredible Voyage" by Alfred Lansing.   After their ship is crushed in the ice in 1915, Ernest Shackleton and his crew survive over a year stranded in Antarctica, on ice and sea.
"The Worst Journey in the World" by Apsley Cherry Garrard.  A scientific expedition to Antarctica in 1910 goes distastrously wrong.
"Mawson's Will" by Lennard Bickel.  One of the most incredible solo journeys ever, as Douglas Mawson survives brutal conditions in mapping Antarctica's coastline in 1912.
"Four Against the Arctic" by David Roberts.  Russian sailors shipwrecked for six years at the top of the world in 1743.
"Two Years Amongst the Ice" by Otto Nordenskjold.  The first-hand account of survival of a Swedish expedition shipwrecked in the Antarctic Peninsula in 1901.
"Trial by Ice" by Richard Parry.  The true story of murder and survival on the 1871 Polaris expedition, in one of America's attempts to get to the North Pole.

SURVIVING HIGH ALTITUDES

"Conquest of Everest" by Sir John Hunt.  First-hand account of the successful first summit of Mount Everest by Edmund Hillary and Tenzing Norgay in 1953, by the expedition head.
"K2-The Savage Mountain" by Charles Houston.  A riveting read that chronicles the 1953 American attempt to summit K2, trapped in the death zone during a storm.
"Annapurna" by Maurice Herzog.  The first conquest of an 8,000 meter peak, Annapurna, and the survival story thereon in 1950.
"Alive" by Piers Paul Rand.  The survival story of the Uruguayan rugby team stranded for 10 weeks in the Andes high peaks after their plane crashes in 1972.
"Touching the Void" by Joe Simpson.  The true-story of one man's miraculous survival with a broken leg, after being left for dead in a cravasse when his partner "cuts the rope" after a fall in the Andes.
"Left for Dead" by Beck Weathers.  First-hand account of surviving the most deadly storm on Mount Everest in 1996, after being left for dead.

SURVIVING THE SEA

"Journal--1st Voyage to America" by Christopher Columbus.  The first-hand account of blindly leaving Europe in hopes of finding India in 1492.
"Adrift" by Steven Callahan.  First-hand account of being lost at sea for 76 days in an inflatable raft after his small ship capsizes.
"Five Against the Sea" by Ron Arias.  Stranded for 142 days at sea after a 29 foot raft runs into an unexpected storm off the coast of Costa Rica in 1988.
"Wreck of the Whaleship Essex" by Owen Chase.  The inspiration for Moby Dick, the first-hand account of surviving 90 days at sea after a whale attack on their ship in 1820.
"The White Headhunter" by Nigel Randell.  The story of a teenage Scots sailor who survived 2,000 miles adrift at sea, only to land on an island with headhunters in 1868.

SURVIVING THE WAR

"We Die Alone" by David Howarth.  A World War II epic of escape and endurance, detailing Jan Baalsrud's escape from Nazi-occupied arctic Norway.
"The Long Walk" by  Slavomir Rawicz.  A Polish army officer escapes from a German labor camp in Yakutsk in 1940, and travels across thousands of miles on foot to freedom in British India.
"No Picnic on Mount Keyna" by Felice Benuzzi.  Three Italian compratiots escape a British POW camp in East Africa in 1943, with the simple goal of summiting Mount Kenya.

SURVIVING AFRICA

"Sufferings in Africa" by James Riley.  The amazing true story of an Irish-American sailor enslaved in the deserts of North Africa, after being shipwrecked in 1815 off the coast of Morocco.
"The Man-Eaters of Tsavo" by John Henry Patterson.  Desert heat, fever-ridden jungles and man-eating lions cannot stop the British from laying 580 miles of train rails across East Africa.

SURVIVING THE JOURNEY

"Undaunted Courage" by Stephen Ambrose.  The story of Lewis & Clark and their search for a waterway to the Pacific Ocean.
"Spirit of St. Louis" by Charles Lindbergh.  The first-hand story of the perilous first trans-Atlantic flight in a single engine plane by Charles Lindbergh in 1927.
"Lost Moon" by Jim Lovell.  The first-hand account of the perilous survival story of the crew of Apollo 13 which had to abort their mission to the moon.

SURVIVAL ANTHOLOGIES

"Survivors" by John Letterman.  Extraordinary collection of stories about human endurance, resourcefulness, courage and luck--in perilous circumstances and against greatest odds.

All of the above titles are linked to their matching page at Amazon.com for your convenience.  If you think I am missing any good stories, add them in the comments field below.  Happy reading!

For future posts, please follow me at: www.twitter.com/georgedeeb

Monday, March 18, 2013

Lesson #138: Why VC's Bias Technology Startups

Posted By: George Deeb - 3/18/2013

I have had hundreds of startups reach out to me at Red Rocket looking for fund raising assistance.  Most with hungry, passionate entrepreneu...

I have had hundreds of startups reach out to me at Red Rocket looking for fund raising assistance.  Most with hungry, passionate entrepreneurs trying to build a great company in their space.  But, it is typically the technology startups that get through the filter of what I think is "fundable" by professional venture capitalists, based on my conversations with those investors.  Which leaves many of the startups in other categories (e.g., CPG, retail, restaurants, real estate, manufacturing) struggling to secure startup capital.  Today's lesson is going to address why that is the case.

RISK LARGELY LIMITED TO EXECUTION

Technology startups typically have normal business/execution risks that VC's are willing to take, especially after they have flushed out the concept seeing a material proof of concept already acheived before investing their capital.  But, think about other startups.  Restaurants and retailers have the additional risk of real estate locations (e.g., what happens if the road you are located on goes under construction).  They also have the additional inventory obsolence risk (e.g., what happens if you pick the wrong products to sell).  So, instead of taking on multiple types of risk (e.g., execution, real estate, inventory), the VC will typically take the other risks off the table, and focus on technology startups where the risks are much reduced.

LOW UPFRONT CAPITAL REQUIRED

The cost of building a technology startup has dramatically reduced over the last decade.  No longer do you need to pay for hardware, or code commonly-used tools, or pay for big support teams.  Websites today are hosted in the cloud and use open source software, taking the cost of the build-out down from the millions a decade ago to the hundreds of thousands today.  Compare that to the multi-million dollars of capital required to launch a new big box retailer or manufacturing facility or real estate development.  Or, the additional capital required to fund all the inventory that goes therein.  Or, the additional financial burden of a long term real estate lease if the business fails.  The VC's mentality is why invest big money upfront (or over time if things turn south), when you can invest little money in a tech business, for the same big upside returns.

FEWER EMPLOYEES, EASIER TO SCALE

VC's just don't like startups that are human supported businesses out of the gate.  People cost money, people are hard to recruit, human-driven businesses are just less scalable than a simple software-as-a-service business, as an example.   Why invest in a 25% gross margin business, when you can invest in a 90% gross margin business, is the mentality, when you can flow thru all those extra dollars to the bottom line.  Human driven businesses typically attract investor attention later in their development cycle, when private equity firms start to take notice, which have different investment objectives.

HIGH UPSIDE & ROI POTENTIAL

What was the last non-tech company to go public at a valuation of 10x revenues??  Most other industries are valued with much more conservative EBITDA or net income based metrics.  Compare that to a hot technology startup, which is quickly acquiring global users, is given a free pass on the bottom line, to build up a dominant market position (with a "we'll optimize the revenue model later, once the audience is built" mentality of many of the Silicon Valley venture firms).   So, if tech companies average 2x-3x revenues for their valuation, instead of 4x-8x EBITDA for their valuation, and they are given a pass on driving short term profitability, you can better understand the venture firms' natural draw to tech companies.

Hopefully, you now have a better understanding to why VC's bias tech startups.  Which means one of following two things for you: (i) focus on launching tech startups to have a maximum odds of raising venture capital; or (ii) understand going in, that most non-tech startups will need to be financed in other ways, which may or may not be easy for you.

For future posts, please follow me at:  www.twitter.com/georgedeeb

Monday, March 11, 2013

[NEWS] Red Rocket Featured On Tasty Trade!!

Posted By: George Deeb - 3/11/2013

This morning, I had the pleasure of being interviewed by Tom Sosnoff and Tony Battista at TastyTrade, for their online "Bootstrapping i...

This morning, I had the pleasure of being interviewed by Tom Sosnoff and Tony Battista at TastyTrade, for their online "Bootstrapping in America" show about startups.  Here is the video:





If you haven't seen the show, it is really terrific.  Tom and Tony have interviewed some of Chicago's best entrepreneurs who have shared their stories.  Here is a link to the TastyTrade channel on YouTube, to see their other "Bootstrapping in America" interviews.

For future posts, please follow me at:  www.twitter.com/georgedeeb

Lesson #137: The Basic Drivers of E-commerce Growth

Posted By: George Deeb - 3/11/2013

I put this list of core e-commerce growth drivers together for a project I am working on, and I thought it would be useful for all of you ...

I put this list of core e-commerce growth drivers together for a project I am working on, and I thought it would be useful for all of you who are building e-commerce companies.  Follow this playbook in designing your e-commerce growth strategies, and stay on top of key trends over time.

MAKE SURE YOUR E-COMMERCE EFFORTS ARE IN SYNC WITH CORPORATE GOALS

·         Have a clear understanding of company’s overall growth objectives.
·         Have a clear understanding of company’s branding and marketing objectives.
·         Have a clear understanding of company’s target customers & demographics.
·         Have a clear understanding of company’s products/margins – which product sales move the bottom line needle the most.
·         Have a clear understanding of company’s financial targets (revenues, margins, ROI).

OMNI-CHANNEL DESIGN/CUSTOMER OF ONE

·         You are not building a website in isolation from other customer channels—break down divisional silos.
·         All decisions should be made with a customer-centric mindset.
·         Allows customers to shop where, how and when they choose, anytime & anyplace.
·         Means integrating all website, mobile, store, call center systems, etc.
·         Means tailoring offering and messaging down to the person-by-person basis.

DRIVING NEW USERS TO THE SITE

·        Determine the proper marketing plan that works within your budgets.
·        Bias online marketing, as most trackable and one-click away from your site.
·        Constantly test and iterate all offers and creatives being used to maximize engagement.
·        Drive traffic to specific product landing pages, which should be unique and tested.
·        Have a clear understanding of the keywords that matter most for your business, and optimize your site for SEO and PPC efforts.
·        Cross promote e-commerce capabilities across all channels of your business.
·        Cross promote e-commerce links across within all other channel marketing.
·        Leverage the power of social media—maintain and promote your own profile pages on major social networks (e.g., Facebook, Twitter, Pinterest), allow for social sharing from all product pages and conversational communications/viral marketing therefrom.

GETTING EXISTING USERS MORE ENGAGED

·        Continually optimize and fine tune the product/pricing offering to match demand.
·        Maintain consistent communications with customers, via monthly newsletters or other means.
·        Create loyalty programs that reward increased spend with increased rewards.
·        Allow customers to create wishlists that they can send to their friends and family.
·        Tailor product offers to specific customer profile data.
·        Optimize upselling and cross-selling techniques (e.g., promote related items, and “people who bought this, also bought that” functionality).
·        Use machine learning techniques to keep a “memory” of user behaviors, in session and over time, to allow for behavioral targeting.
·        Use targeted pull back ads after a user leaves the site without buying
·        Automated repurchase reminders for things that need to be replaced over time
·        Opt customers into company newsletters during time of e-commerce purchases.

WEBSITE DESIGN/FUNCTIONALITY

·        Need a clear and simple way to navigate the site (e.g., think “one click” away).
·        Constantly test page layouts to increase user engagement, using eye pattern heat maps, user mouse tracking or otherwise.
·        Constantly test shopping cart flow to limit abandon rates.
·        Study all abandon rates to figure out why customers ended up not buying—and address such items.
·        Leverage video where you can, as much more effective than static images and text in terms of driving engagement.
·        Leverage the reviews and feedback of other customers who bought same items.

FULFILLMENT/CUSTOMER SERVICE

·        Offer two-way free shipping for orders over a certain size (e.g., $50)—don’t give users any reason not to buy.
·        Offer no-hassle customer satisfaction guarantees for full refund if not satisfied for any reason.
·        Provide clear communication on all shipping related issues (e.g., time to ship, expected arrival dates), with opportunities to get overnight, if needed.
·        Provide ability to check inventory online, for items available in the stores for same day pickup.
·        Simple credit card processing online, and ability to collect payment information via phone.
·        Allow returns either via mail or direct to the stores.
·        Consider kiosk or tablet-based opportunities and services within the stores.

CRM/BIG DATA

·        Invest in customer CRMs as a central repository to track all client profile, preferences, sales and social media history behavior.
·        Invest in big data analytics technology to make sense of the fire hose of data available.
·        The future of marketing is moving towards person-by-person targeting of products, offers, messaging based on their past behaviors and profile preferences.  It is no longer mass marketing of the same messaging to all.
·        Study cross channel behaviors to learn how customers prefer to engage with the company (e.g., researched online but bought in the store, or vice versa).
·        Test, test and retest all marketing activities, looking to sharpen efforts with each iteration.

MOBILITY

·        The PC market is actually declining while the mobile market is exploding—you need to have native mobile apps built for each major platform (e.g., Apple, Android) or a mobile friendly touch site.
·        Take advantage of mobile locations of your customers, with targeted offers and services related to their exact location (e.g., check out our new store near your location, here are local restaurant deals to go with your recent movie tickets purchase, here is our mobile mapping app to go with your new car).

For future posts, please follow me:  www.twitter.com/georgedeeb.

Monday, March 4, 2013

Lesson #136: Save Taxes With "Profits Interests" vs. "Stock Options"

Posted By: George Deeb - 3/04/2013

I recently read an interesting article on how startup employees with material equity stakes can materially save on their long term cap...

I recently read an interesting article on how startup employees with material equity stakes can materially save on their long term capital gains taxes, written by Ken Obel, a startup attorney at GoodCounsel here in Chicago.  Ken was gratious enough to let me share it with all of you.

 
Many startups launch their companies as limited liability companies (LLCs), enjoying the flexibility and tax-efficiency that this type of entity offers (please re-read Lesson #56 for more details here).  A lesser known, but quite significant, advantage of LLC’s is the ability to provide incentive equity in the form of “profits interests”, instead of the more typically seen stock option plans used for incentivizing employees.  A profits interest allows an LLC to give service providers option-like equity without the need for these individuals to put money at risk in order to obtain long-term capital gains tax treatment.

Consider the following example.  In the traditional startup, a company issues options to a new employee priced at the company’s then-fair market value of $1 per share. Issuance of the options has no current tax impact, however, if the employee exercises the options when the company is later acquired at a price of $3 per share, the gain or “spread” of $2 per share will be taxed to the employee at short-term capital gains rates – which can be as high as 35% depending on your income. This is because the holding period for the equity starts upon exercise of the options, not their issuance. Wouldn’t it be better for the employee to exercise the options and hold the underlying equity for a year, in order to receive long-term capital gains treatment at the time of sale -- lowering their tax rate closer to 20%? Of course. But this requires the optionholder to come out of pocket to pay the exercise price (with cash they may not have) and to take the risk that during that year, the equity may lose its value. Few employees will take that risk, and will instead hold the options until a profitable exit is at hand, swallowing the significantly higher tax rate as the price of reducing the risk.

In an LLC, a profits interest is economically equivalent to an option. If a unit of LLC equity has a value of $1, a profits interest issued at that moment comes with a right to participate only in those proceeds of a liquidity event that are in excess of that dollar. (This “hurdle amount" is the economic equivalent of an option's exercise price – both serving to ensure that the optionholder participates only in the economic value he or she participates in creating.) But, unlike an option, which is not "property" (in the view of the IRS), the profits interest is property, and therefore, the capital gains holding period begins to run upon issuance – and the employee never has to come out of pocket with cash. In the previous example, when the company sells for $3 per share, the profits interest holder would receive his or her share of the proceeds beyond the $1 hurdle amount, or $2 per unit, and (assuming at least a year had elapsed between issuance and the sale) these proceeds would be taxed at the lower long-term capital gains rate.

What should you consider before issuing profits interests? First, you have to be an LLC, so you have to be comfortable that this is the right entity for you, your business and your investors (remembering most VC's will most likely require you to be a C-Corp in order for them to invest). Next, consider that profits interests are not the easiest form of incentive equity to explain to your employees. The typical employee understands what an option is; odds are they’ve never heard of a profits interest. But, one view is, if their incentive equity grant is significant, their tax savings from a profits interest stands to be worth a great deal in long term tax savings to them – enough for them to take a few minutes to understand how this works for their benefit.

The most significant negatives arise from the fact that a profits interest holder in an LLC is considered an equity owner, and equity owners are ineligible to be paid as a regular W-2 employee. Instead, the company must report all compensation on a form K-1 (relating to the partner). This has negative ramifications regarding the employee's responsibility for paying their own self-employment taxes and the deductibility of company contributions toward healthcare and other benefits.
 
These are issues that should be discussed with tax and legal advisors before making a decision about the proper form of incentive equity.  But, in cases where you have a material equity-owning employee, looking to acheive material long term capital gains tax savings, and is willing to deal with the "equity owner vs. employee" tax treatment along the way, this could be a good road to pursue.
 
Thanks, Ken, for sharing your wisdom here.  If anyone has questions from here, feel free to reach out to Ken directly at 312-380-9406, or e-mail him at the GoodCounsel website.
 
For future posts, please follow me at: www.twitter.com/georgedeeb.


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