California Startup Gold – bring it here to scale it

California Startup Gold – bring it here to scale it

From July 2011,,.

California. Most of my 25 year career has been in California; about half of those in Silicon Valley. I’ve been involved with several amazing companies throughout Northern and Southern Cal; I have expanded, launched, M&A’d, relaunched, liquidated, succeeded and failed, you name it.

I’ve also had the good fortune to operate and sometimes live in several other fledgling tech corridors – Cambridge, NYC, Portland, Boulder, Santa Fe, Austin, Dallas, SLC, Frankfurt, Paris. In every case these other places aspire to be a self sustaining baby Silicon Valley of their own – Silicon Alley, Silicon Prairie, Silicon Coast. But they don’t quite make it. Some come close, like New York or now Boulder but it’s still not quite the same.

The term Silicon Valley is now a misnomer – it has moved way beyond silicon and way beyond the original Santa Clara valley to spread all over California. The new hot spots are San Francisco, Los Angeles, San Diego, the east bay, etc.

San Francisco

San Francisco has actually successfully co-opted the Silicon Valley magic and even surpassed it in some ways (Twitter, Salesforce.com); it’s again a very hot place to be right now and this will continue. Talk about scalability! If you plop your company here, great things could happen. It wasn’t always that way – in the 80’s and much of the 90’s San Fran was a sub-par runner up to SV, trying to catch up. Great PR and finance firms, but not many startups. Houses were cheaper, you couldn’t get good engineers, etc. That has all changed. Now companies have bidding wars for office space amid a major national recession.

There’s a magic and complex dynamic to the combination of things that make California so different. Just say the word and people take notice. There’s a seriousness, a buzz, confidence, reliability, completeness, professionalism. An assumption that you’ll more likely make it there.

Southern California

The “Silicon Basin”  – – With the convergence of social media, the Internet, and digital entertainment, Southern California is now humming as a great startup region. In 2003 Electronic Arts actually moved their headquarters from Silicon Valley to Playa Vista, an crazy move at the time, and accelerated their growth as a result. Several smaller software groups, vfx studios and creative design labs are now benefitting from the movement south. Yahoo, Microsoft, Facebook, Google and others are growing their employee base and presence in L.A. Venture Capital from Northern and Southern Cal is flowing into the L.A. basin. It has the key catalyst – several excellent universities spitting out young engineers and business people. It has a strong and growing angel investor base, tapping one of the largest concentrations of individual wealth in the world.

There are exceptions to the California phenomenon; several amazing companies have emanated from these other areas, always have, and many of these ecosystems are now of course self sustaining, but they’re not the same as California. Countless companies have moved there for this advantage, reference Mark Zuckerberg/Facebook. Good move. If you’re somewhere else, it’s because you’ve made a tradeoff, a compromise. I know as I’ve done it myself several times and I’m glad I did. I’ve rooted for other places to approach California’s ecosystem, but  I know they’ll  never come close.

If you want maximum scalability for your business, you should be in California. If you the best capital providers, the best people, the highest valuations, you gotta be in Cali. You could get more advantages from a couple of visits to a coffee shop in Palo Alto than spending a year in some other town.  @tomnora  @cowlow

Replacing The CEO

The vast majority of early stage companies will companies replace the CEO in the first 2-3 years.

A person or group peers starts with an idea and turns a spark into a flame. Once that flame is s going they don’t want to let it die. They often conclude that a more seasoned, well connected, well rounded CEO will attract money, partners and revenues, taking the company to “The Next Level“.

All this will hopefully help the company grow in the right ways and produce cash flow. Cash allows small companies to fulfill growth and other objectives; cash generated organically helps do this without giving up ownership and control.

But t’s a bit more complicated. Introducing a new leader, whether internal or external, voluntarily or forced, s a delicate process. I’ve been the incoming CEO a few times, and found that acceptance happens quickly or usually not at all. Most startups have no experience doing this, are not prepared, and cause their company damage by not doing this correctly – they accidentally blow out the flame.

There are some basic guidelines that can help make the new CEO stick.

1. Choose the New CEO Very Carefully. This is where most startups make the wrong choice. They base their choice on the wrong criteria and/or a limited pool of candidates, or peer pressure, or using one of the investors, etc. Be methodical and objective here. Engage experts if possible.

2. Put The Egos Away – mMake sure everyone is on board and understands that the new CEO is the right answer, including the outgoing CEO. Outgoing CEOs who can’t let go are one of the top reasons early stage companies fail at this process.

3. No Sacred Cows – Allow the new CEO to make the changes he/she wants mmediately. This requires trust on the part of the extant management team but you must let them manage the whole puzzle, not just parts of it (see #1).

f these things are done correctly the succession process can actually be a great experience for all involved. If you would like to discuss further please contact me. @tomnora

INTERNAL VS. EXTERNAL GROWTH

What’s more important for your company, growth that is stimulated internally or externally? Which is more Organic? More Sustainable?

The answer is that both are equally important, and quite dependent upon each other. Internal (proactive and reactive) actions by your team must intertwine and hopefully spawn and tune external factors that match your growth goals.

Externally stimulated growth, where the market is coming to you, is when the outside world has significant impact on your message, your “buzz” increases as well as your message hitting where you want it to. Viral growth. Can’t be stopped (for now).

External growth is more exciting, also more difficult and more expensive, but can be quite rewarding. Expensive means using precious cash, which most startups are very reluctant to do. On the other hand, if well placed promo dollars (internal) cause external market to take off on it’s own, it may be worth it.

Internally stimulated growth is all the things you do, inorganic, synthesized. A strong internal growth plan focuses on coordinated, timed, manipulated maneuvers, paying for press releases, making sales priority 1. Internal growth is safer and controllable but limited in it’s effect without your message catching on externally. Old school internal growth strategies are still vital to the plan: marketing, advertising, marcom, sales, work ethic, camaraderie, common vision, right attitudes, belief in the leader. All of these things help you to be prepared for external spark when it happens.

But External growth is harder to synthesize, unless you’re Steve Jobs. Stimulation can come from many places – the momentum of the market, outbound marketing, results from outbound marketing, all trying to create this external alchemy.

The best channel these days for external pop is Instant Social Media. Instant Social Media can make your message travel very rapidly to giant volumes of people, into the highest levels of the market, for little money and hassle, viral marketing. For more see my Instant Social Media blog entry.

The key to all this is to challenge yourself for the best in both areas. Please contact me if you want to discuss your situation and plans.

FIRST REVENUES – THAT CRITICAL STEP

First revenue are a major validation milestone for a startup after much sweat and tears. You’ve gone through initial idea, sat at coffee shops or peoples houses brainstorming, discussed and executed the company formation, started building a product, are going through your launch, interacting with first users and maybe even have gotten some press, but none of that compares to people paying for something you’ve created from nothing. It also is the first “organic” fuel for the building process for your company.

Recent developments in web business models have made this hurdle much lower. For example Googles AdSense, Facebooks virtual economy, micro-payments and wide use of the Freemium web model. But it’s still quite a nice feeling to see revenues coming into your enterprise, and makes you want to figure out how to build upon it.

Revenue can change many things for you and your company – valuation, respect, confidence, negotiating position, attraction of other revenue and cash, retention of your equity, and the ability to attract key people and partners. If the revenue is significant, as in a major partnership that pays six figures or more, it can set in motion the next phase of your strategic planning.

Preparation, a Chief Revenue Officer

Also, you must be tactically ready for this step before it happens – know exactly how you want to accept revenue, prepare all required forms, build template legal agreements that may be required, seek help from experts where needed, have your banking in order.

But how to get these first revenues? Aside from the low hurdle examples above, there are many other ways. These days almost everything involves the web and automation, but there is an all important factor  – human to human contact. Call it sales or marketing or bus dev, but the important piece is dedicating yourself to spending some time face to face with those you hope will be your highest consistent paying customers. Not “unpaying” users or beta testers, but strategic customers, partners, influencers, those who will take you to your first levels of success beyond investors. This is how you “get it going”, how you start the revenue ramp upwards.

For many startups this face-to-face part of revenue development is where they spend the least amount of their time, for hundreds of reasons, but mostly because they aren’t comfortable with this part of the process. If you can overcome that issue, you’ve overcome a major hurdle to growing revenues. The impact of hearing live from another human about your product is immeasurable, proven over generations of business.

One way to vastly increase your company face-to-face hours per week is to early on have a dedicated partner/co-founder who does only this – “Chief Revenue Officer” – talks to people, gets out there, constantly hunts for new money for the company and articulates the vision. In the beginning the rainmaker is usually the founder/de-facto CEO, but not always. Some startups bring in someone pre-revenue to take responsibility solely for getting the first revenues. I’ve actually been that person at a few startups; it’s a great job for the right person, whether you call it sales, business development or even CEO. The key is getting the right person/people, indoctrinate and empower. And get that first revenue.

Are you a Decisive Leader?

Are you a Decisive Leader?

The last blog entry I wrote [Who’s the Boss? What is a CEO?] made me think about overall business decisiveness and it’s critical role in growing a startup properly. There are many synonyms and attributes of decisiveness – certainty, determination, finality, resolve, authority. But there’s no single formula or magic combination for this quality.

Decisiveness is one of the key skills for the leader of a startup to succeed; not everyone involved, but definitely the leader/CEO. It’s fine if you’re not that type, just be honest about it and find someone to take role. An indecisive leader will get run over by the crowd quickly and lose the respect of those around him/her; better to let someone else run the show and focus on another task.

A strong CEO in an active startup should be making and implementing several decisions every day. The job of CEO of a real operating company includes many lonely times, no matter how many people surround you. But no matter what, the bullseye in on your head.

For most strong leaders decisiveness is an innate quality, a feeling of empowerment and confidence that comes from somewhere within as well as the support of those around you. Some people are just born with it, or into it. A great example is Sophia Amoruso.

You thrive on the pressure of making decisions. Inspiration comes from beating obstacles in your past, overcoming a hardship or two, intense desire to succeed, past (or current) poverty, or some other experience in life where correct decision making took you from bad to good. Also, a startup CEO is usually much more decisive in his/her 2nd or 3rd startup than the first. They’ve “been there before”, understand the forks in the road, have been hardened and/or humbled a little by mistakes.

Lack of decisiveness at the top impedes growth. Lack of decisiveness running a startup usually is related to lack of experience, a different personality, or lack of desire to be that person. Can decisiveness be developed or taught? I think so. Self-confidence?

Probably not so easily acquired. I was quite lucky early in my career to have several great role models (and a few bad ones). Examples and proactive mentoring came from several places for me, some quite early in my career. I’m now trying to give back by advising others and mentoring startups.

So be decisive as the overall leader of your startup and surround yourself with support to make better decisions. Find mentors, delegate, let go of details. Or be honest with yourself if this isn’t you and find find someone qualified whom you trust to take that role and let them run with it.

Your startup will be the winner.

Find me on Twitter.

Who’s The Boss? What is a CEO?

I had dinner recently with a former colleague and good friend, let’s call him Al, who has recently transitioned from CTO to CEO of an early stage company he founded; he’s struggling with every aspect of his new job. Al was originally the de-facto leader through his first funding round, then at the urging of many around him recruited an experienced CEO to “take it to the next level”. Potential investors, former bosses, and current shareholders felt this was a critical step in for them to invest more time or money. The common line was “You’re not a CEO”. The new CEO was performing well, hitting milestones, preparing new funding and building the business, but he and Al couldn’t get along.

So now Al is now back in charge. This happens often in the early stages, sometimes because the new CEO is a bad match, but that’s usually just an excuse. Usually the CEO leaves for good or bad reasons, or the founder can’t let go of control of the company. In this case it was the latter. Als investors and employees are quite unhappy and he’s not sleeping much.

In hearing his frustrations I figured out his main problem –  he’s having serious problems making decisions and sticking with them, which is why he brought in a professional CEO in the first place. He has no reference point for many key decisions so lacks the confidence to execute decisions. His frustration is that this doesn’t happen to him in technical matters – he’s brilliant at those decisions. Technical leaders frequently underestimate the job of the CEO or business leader in a fledgling startup. They use the logic – hey, I’m extremely smart, so marketing, sales, and business development can’t be as hard as developing an entire software platform. This is a big mistake, and a common reason why startups never get out of the gate.

I’ve been the incoming CEO several times in early stage startups, taking over for the founder. This transition is difficult to pull off, but necessary for many companies to scale. Emotionally it’s very hard for a founder to “let go” and trust an outsider to care as much as he/she does about their baby. There are also others around the founder that can feel ownership and impede the new CEO – a spouse, other early employees, a displaced senior manager who thought he/she had a shot at the job. I’ve experienced all of these situations, but I’ve also had many good experiences where I did have sponsorship and support, and succeeded.

In Al’s case, he never really committed himself to stepping aside, even though he said the words. He admits that now. In his actions he inadvertently sabotaged his new partner, changing the CEOs decisions without discussion, etc. He felt that the new CEO was making “too many” decisions. He obviously wasn’t ready. I realize that he still isn’t ready.

The reason for our meeting was to see if I was interested in the job – he feels that our long term relationship would provide the foundation for a successful transition, but I know it wouldn’t work. I explained to him what CEO means to me – the final decision maker in a company, answerable to a real Board of Directors, of which the founder is a member but not the only member. The E in CEO stands for execution, making things happen, responsible for the results. The CEO must communicate clearly to everyone involved what he/she is doing, especially if taking over the reins from a founder, but should be supported by all as the final major decision maker. If that process works, the company works. Without that authority they become ineffective quickly and are only doing portions of the job, and can’t take full responsibility; then they leave and you have to start all over.

I explained to Al two reasons why I wouldn’t join his company: 1) With all due respect, I don’t feel that he’s any more ready to let go than he was a year ago, even though he respects my abilities and has comfortably worked for me before, and 2) the company is distressed now, unhappy employees, unhappy investors, delays in both the business and technical initiatives, messy equity stakes and a decrease in trust all around. Like I said, a Big Mistake. I told him his best chance is to try to learn how to be a CEO or merge his company as fast as possible. But this one is most likely kaput.