1. We have no competition- if that’s really the case, perhaps you’re in the wrong business.

2. Our idea is complicated but people will get it – test yourself and ask 5 people before you make that assumption.

3. My advisory board matters – if you mention you’re advisors too much, there’s something wrong with the team.

4. My business plan may not lead to a profitable business but it has significant value to strategic acquirers- consistent cash flows are the most important thing to investors. Don’t count on Google or anyone to buy your business.

5. I’ve told my friends about my business and they all think its great- they are your friends. Off course they think it’s great. Get out there and ask potential customers.

6. I have great technology and it’s patented – its not a science competition- if a start up talks about their patents too much, something must be weak about with the product.

7. The funding source isn’t important – with the time it takes to raise money it is worth getting the right investors rather than getting stuck in a ‘bad marriage’

8. The market is huge, 1% will be my customers – dominate a small market rather thank taking a small piece in a big market. Choose a niche and own it.

9. I don’t want to share my idea because someone might steal it – the benefit of sharing is greater than detriment- investors won’t sign an NDA.

10. I can hire someone else to make sales – It has to be the founders for a while, don’t hurry to hire a salesman.

11. We can give the company away for now and charge for it later – if you are creating value for the customer, get paid for it!

12. The idea is working for another company – first mover advantage is underestimated, if you want to be a ‘fast follower’ beware of the consequences.

13. It is important that I get the business plan exactly right, instead of spending time with customers – wrong. Listening to customers is the best thing you can do in the early stages of your venture.

14. We have the best team in the world – be confident enough to assess the talent gaps in your team and openly communicate it to your investor. They can probably help.

15. It is riskier to start or join a new company than to work in a company – risk is everywhere, the only shot you have 100% chance to miss is the one you didn’t take.

***

Special thanks to Mark Gerson for sharing his insights.

Here’s the transcript to give you some context:

Blake: You call yourself a salesman, you son of a bitch?
Moss: I don’t have to listen to this shit.
Blake: You certainly don’t pal. ‘Cause the good news is — you’re fired. The bad news is you’ve got, all you got, just one week to regain your jobs, starting tonight. Starting with tonights sit. Oh, have I got your attention now? Good. ‘Cause we’re adding a little something to this months sales contest. As you all know, first prize is a Cadillac Eldorado. Anyone want to see second prize? Second prize’s a set of steak knives. Third prize is you’re fired. You get the picture? You’re laughing now? You got leads. Mitch and Murray paid good money. Get their names to sell them! You can’t close the leads you’re given, you can’t close shit, you ARE shit, hit the bricks pal and beat it ’cause you are going out!!!
Levene: The leads are weak.
Blake: ‘The leads are weak.’ Fucking leads are weak? You’re weak. I’ve been in this business fifteen years.
Moss: What’s your name?
Blake: FUCK YOU, that’s my name!! You know why, Mister? ‘Cause you drove a Hyundai to get here tonight, I drove a eighty thousand dollar BMW. That’s my name!! (to Levene) And your name is “you’re wanting.” And you can’t play in a man’s game. You can’t close them. (at a near whisper) And you go home and tell your wife your troubles. (to everyone again) Because only one thing counts in this life! Get them to sign on the line which is dotted! You hear me, you fucking faggots?
(Blake flips over a blackboard which has two sets of letters on it: ABC, and AIDA.)
Blake: A-B-C. A-always, B-be, C-closing. Always be closing! Always be closing!! A-I-D-A. Attention, interest, decision, action. Attention — do I have your attention? Interest — are you interested? I know you are because it’s fuck or walk. You close or you hit the bricks! Decision — have you made your decision for Christ?!! And action. A-I-D-A; get out there!! You got the prospects comin’ in; you think they came in to get out of the rain? Guy doesn’t walk on the lot unless he wants to buy. Sitting out there waiting to give you their money! Are you gonna take it? Are you man enough to take it? (to Moss) What’s the problem pal? You. Moss.

Sounds scary? Maybe, but I’d like to argue that lots of consumer Internet start ups won’t survive 2010 without taking a similar approach.  Since most services are free to use, the ’selling’ is more subtle, but nevertheless critical.

To determine if your start up is actually working on closing, I’d ask three simple questions:

The first question you should ask yourself is “what is our definition of a conversion?” Is it a sign up? A page view? checking out with a cart with products over $30?

The second question should be: “What are we doing in our products to deliver that conversion?”

Does the product UI support your vision? Does your landing page contain a clear call to action for users to sign up? Are you encouraging customers to add products to their carts to reach a certain minimum? Are you attracting your most valuable users? Fred Wilson calls it ‘Ask For the Order‘, and I totally agree.

Thirdly, you want to be able to measure the effectiveness of your conversion. “How are we measuring our success?”

What is ‘king’ in your company? Pageviews/Unique users/ registrations/ RSS readers/ Revenue from sales/ sposnors? Are the targets clearly defined to you and to the rest of the team? Do you celebrate small victories? (highest sign up day in the history of the company, for example).

There are many books about what makes some companies sink and others thrive. Good to Great, Crossing the Chasm and Four Steps to the Epiphany, just to name a few. I’m not sure there is one single silver bullet, but dedication, determination and perseverance must be up there on the list.  We all have them, but sometimes we need to get reminded.

A good way to trigger these qualities is doing a little exercise. Imagine that your investors told you that you’re fired from the CEO role of the company you have founded with blood, sweat and tears. They do however give you a week to win your job back. What would you do differently? What kind of talk would you have with your team? What changes would you make in the product?

Watch the Glengarry Glen Ross clip and remember to learn your ABCs. Hopefully you’ll get inspired.

If you want to learn more, drop me a line at eze [@] vccafe [dot] com.

• Super Stealth – 50 users
• Private beta- 2 months, 10k users after TC50
• Early adopters – 3 months, 12k users
• Organic growth – Invite beta: 3 months, 50k users
• Iteration – 3 months, 60K users
• Public beta – 1 year, 1.5 million users
• Exit beta – 3 months, 2M users
• Paid drivers to increase sign ups – 6 months, 3M users

Five tips that will make people care about your ’stupid little start up’

1) Tie yourself to a bigger trend (read: what market forces will support your organic growth?)
2) Take every opportunity to meet a journalist in person (read: go out and network)
3) Engage with users: positive word of mouth is even better than press coverage (read: hire customer support early)
4) Journalist are lazy. Help them be lazy (read: create a media resources section for your site)
5) Be a source of data (read: content is important, create lots of it and make it useful for the user)

See the Slideshare Embed here:

Contact info, profile pictures, company info and job titles are all organized automatically

Founded in 2006, Xobni provides an Outlook add-in that saves you time finding email, conversations, contact info & attachments. The basic download is available for free and a premium version will cost you $29. Some of the best features include email search, automatic address book, phone number extraction and finally an automatic connection between outlook and the social web.

Hat tip goes to @Ahoova, a social media addict and a virtual friend, for the fine recommendation on Twitter.

Israel VC Indicator Survey –

It all comes down to a simple principle – in order for the VC model to work, the fund needs to compensate its investors for the high risk they are taking, therefore, an investment needs to yield not only an abnormal return (compared to the market and other alternative investments) but it also needs to cover for all those investments that didn’t yield anything at all (see TC’s deadpool for many examples).

I had a chance to meet Fred Wilson of Union Square Ventures in London a few weeks ago. He calls it the Venture Capital Math Problem:

The venture industry has been raising between $20bn and $30bn per year for the past few years. Here’s recent data from the NVCA’s web site.

Let’s be generous and say that the average is $25bn per year (it’s actually more). The math problem is to figure out how much in proceeds every year need to be generated to deliver a reasonable return to the investors.

Here’s how I go about solving it. My math is not perfect and I’d like to hear from all of you how you’d solve it in the comments.

First, the money needs to generate 2.5x net of fees and carry to the investors to deliver a decent return. Fees and carry bump that number to 3x gross returns. So $25bn needs to turn into $75bn per year in proceeds to the venture funds.

Then you need to figure out how much of the companies the VCs normally own. The number bandied about by most VCs is 20%. That means that each VC investor owns, on average 20% of each portfolio company. We’ll use that number but to be honest I think it’s lower, like 15% which makes the math even tougher.

Using the 20% number, that $75bn per year must come from exits producing $375bn in total value.

But it is also true that many of these exits have multiple VC investors in them, sometimes three or four. So you really need to look at the percent ownership by VC funds in the average deal at the time of exit. That number is likely to be over 50% and maybe as high as 60%. If we use 50%, then to get $75bn per year in distributions, we need to get $150bn per year in exits.

Here’s where my math starts to get a little fuzzy and where I’d love some other approaches…

Now put yourself in the shoes of the VC. When you come to pitch him your business idea for a social media application with an ad-supported business model, will you be one of the companies that will get him these results? Can ultra-light start ups even live up to this expectations? Are you  the CEO that they are looking for, one that is willing to go all the way and remain patient until the big payday?

Think about all that and then decide if the VC funding route is the right one for your start up. You may want to save yourself the heartbreak when your board doesn’t approve a ’small’ exit of $20-$50 million and call an angel instead.

Like many Israeli start ups, your company is targeting the US market. You are about to start sales in the US, and you currently accept both credit card and PayPal payments. On the expense side, you’re making payouts to suppliers in the US, but the Israeli banks are charging you outrageous fees and it takes time for transactions to complete, exposing you to currency volatility. Some questions arise:

• Should the Israeli start up open a US bank account?
• Which bank is recommended?
• Can the start up open a US bank account if  it has no physical presence in the US?
• Is it possible to complete the process online online?

The question of whether an Israeli start up should open a US bank account probably comes up in many Israeli start ups.

Joshua Nowack, Chief Numbers Guy at Nowack Strategic Business Advisory & CPA, answered these questions on LinkedIn’s Q&A Service, and I thought it would be good to share them with the readers of VC Cafe.

1) Yes, you can maintain a US-dollar denominated account in the US without having a physical presence.

2) Due to patriot act issues (dealing with the US effort to fight money laundering especially with terrorists), they usually want to see you in person with ID. You might need to have a US tax ID number as well. Not sure if the bank would require it.

3) HSBC would be a great choice from the standpoint of its strong international presence not just here, but everywhere in the world (considering your future growth). Bank Leumi also maintains a US presence, I believe in New York.  (VC Cafe: Silicon Valley Bank operates both in the US and Israel, with a service tailored for start ups. Read more at: Silicon Valley Bank Named Top Bank for Cleantech Companies).

4) The implications of opening account are somewhat limited, but things to consider should include:

• Israel VAT issues – I’m not an Israeli VAT expert by any stretch, but be mindful about whether or not VAT is a consideration on your products being sold in the US – also consider if there is a VAT issue selling to Israeli citizens living abroad. Conversely, you may have US import duties do which would be a tariff imposed on imported goods (into the US). The US sales tax (kind of like a VAT) does not apply on goods that cross state lines.
• Tax issues - Any interest earned on these accounts, if > 10 USD, would receive an interest income statement for use in reporting earnings to the US taxing authority (Internal Revenue Service). Tax rates here are much lower than in Israel so not a big deal, but something nonetheless.
• You might also have a matter relating to incorporation and registering with a particular state depending on state law. (VC Cafe: If you are planning to incorporate in the US, Delaware is the place to go due to the favorable corporate laws in the state, Delaware Intrercorp, has lots of info on its website. The state of incorporation is also valued by investors and potential acquirers)

Bottom line is the bank itself is one piece of the puzzle. Bank Leumi/HSBC/SVB should be able to offer you some additional insight into the matter.

Bottom line #2 is: use the resources available to you for information. LinkedIn Q&A is a great example.

How *NOT* to treat your customers:

1. Aroma Cafe Tel Aviv - Not exactly Internet related, but an experience worth sharing.  I hosted a VC Cafe start up roundtable in the Tel Aviv port branch of Aroma Cafe earlier this month, after a successful experience last year. My short interaction with the branch included the manager hanging up on me, yelling at me in front of the 50 Roundtable guests and threatening to call the police if we don’t get off his property.  The story “An Aroma of Rudeness“ was published yesterday on Ynet, Israel’s most circulated newspaper (Hebrew). There are more than 215 comments on the post already.

Bottom line: being rude and confrontational is not going to result in happy customers – but it’s a great way to get people to gather against you.

2. FeedBurner - when it comes to start ups, both the entrepreneur and the investor dream of the big exit. But did you notice that there’s almost always a decline in quality and user experience for companies that get bought?Feedburner is a great example. Since getting acquired by Google, Feedburner discontinued its blog, and there’s no way to get a response from a customer service representative. They direct you to a Google Group which seems to be a ghost town. Meanwhile, my feed is down and there’s no one to talk to.  I ended up using Feed Validator to remedy the problem myself. We’re talking about Google – not a rogue start up.

Bottom line: good customer service = happy customers = better retention. If your site is based on a long lasting relationship (like feedburner, or a social network/UGC site), make sure you don’t neglect your customers needs. You will drop users like crazy, I’ve seen it happen.  I would recommend using GetSatisfaction or Fixya to crowdsource customer service. 

3. Citicards - why do credit card sites have to be complicated? My conspiracy theory is that they are trying to confuse you, so you miss your payment and they make more money. Citicards.com, where I pay my credit card bills, has a habit of redesigning the UI of the site every other week (nevermind the constant shifting of the payment due date each month). 

Bottom line: Consistency matters! It’s ok to do a major overhaul every now and then (once a year is enough), but incremental improvements need to be as subtle as possible. How would you feel if I changed the order of your keyboard keys? It would probably drive you nuts a little.  Learn from the big search engines – you can barely feel a difference when you are in a test environment. A/B testing is crucial, so make sure you expose a small subset of your users to the change before you roll it out for everyone. 

I’ll let Dilbert summarize it for us: