Steve Huey’s Blog

The 135th Kentucky Derby was run yesterday on a sloppy track, in the cool air, on a cloudy day.  It was hardly the best weather for the world’s greatest horse race.  As it turned out it was a perfect day for a “Long Shot” to win.  Mine that Bird waited for an opening and then doing something that most don’t slipped in through a whole on the inside of the track to became a 50-1 winner of the Kentucky Derby.

The conditions set up the Long Shot win.  Just as the current economic conditions are setting up opportunities for long shot wins all around us.  I sat in a pitch for a real estate fund – raising ten million to take advantage of “Fire Sales” currently available in the market place. 

A colleague sat in a reunion presentation where the dean of the school stated that now was the time not to cower in a hole but to boldly step forth and take advantage of the opportunities that the economy has produced.

I agree with the dean.  Now is the time!  It is a sloppy track out there right now and right NOW is the time to be bold and make your move.  Long shots do pay and usually it is in sloppy conditions.

The number one thing you can do to build a great company is to build a great team.  I call this the “FIRST FACT”. 

There have been tons of books written on this topic and on the fact that building a great team is the most important thing a manager can do.  Good to Great put forth “first who then what”.  The Five Dysfunctions of a Team is devoted to getting the team to work better together.  The whole “Strengths series” is dedicated to either finding your strength or you peoples strengths.  Book after book expounds on either how to build a team, pick a team,  or wring the most out of your team.

So why do we forget this simple First Fact. 

Every day you should be working on the FIRST FACT.  Here are my thoughts on what you should do:

1. You should work every day to attract the right people to your cause – Tribes by Seth Godin is dedicated to the idea that we need leaders who can do this.  Find people who have diverse skills and actually believe in what your company does (simple for what your company’s mission is).
2. Make the people around you better.  Each person you manage should have a development plan.  You should have a development plan.  What can they do to be better?  What five things should they be working on to be better?  What can you do to help? 
3. Build the team!  You have to continually Build TRUST, promote constructive CONFLICT, promote COMMITTMENT to results, establish within the team ACCOUNTABILITY and focus the team on RESULTS that further the cause.

I encourage you to start tomorrow by thinking of the FIRST FACT and how you can help attract great people, make them better, and help them work as a team.

At an angel meeting today.  Heard a decent company pitch where the guy ran out of time.  He didn’t communicate all his points because he was side tracked showing how his sight was quoted in a few blog posts.  First getting quoted in blog posts is not that impressive if I have never heard of the Blog.  Second it took way too much time to describe the benefit and tie it to the story.

The net was make every word count.  If you have 20 minutes to present don’t spend 5 on the story of your last company.  Yes establish credibility but squeeze it down to a proportionate size – remember you have a ton of points to cover and the pitch should only serve to get Angels interested in finding out more.

 Define for me the qualities of a place where you would like to work.

Here are mine:

• Where we can have fun, 
• Where we work as a team, 
• Where hard work is rewarded, 
• Where we can make a difference, 
• Where we are challenged and can grow.

Tom Peters frequently issues the advice of the 1% rule.  What he says is to go to the company / department budget and look for 1% to cut that is money not spent well.  I have always liked the idea but feel that in these times cutting the budget by another 1% just adds to the company anxiety.  My idea is more fun…

Go through the revenue being generated and find the opportunities to increase sales by just 1% – heck find more if you can but look for 1%.  Don’t do what the airlines did and impose a baggage fee or look for ways to gouge your clients for more.  No way!

Look for a way to sell 1% more or increase value for your client or find just one more client or increase traffic to your site by just 1% more.

Its challenging but I bet that if you turn the subject to finding 1% more in revenue to your leadership team the mentality will begin to shift from cost cutting to growth.  Growth is what we all need now.

The great thing about entrepreneurs is that they have a lot of cutting edge ideas.  The bad thing about entrepreneurs is that they have a lot of cutting edge ideas.  They frequently try to do too much, too fast, too soon.  They stretch their organizations too thin and never focus on the things that could or are making them successful.  How do you balance focus with cutting edge ideas and opportunities you should exploit?  What about the following scenario:

• Is the new idea currently within the scope of what your company does?  An example – if you are an accounting firm, should you also provide car washes – answer is easy: No! but what if the new service is tax preparation?  If you have no tax experts in your shop and your specialty is book keeping services the answer may be no as well.
• What if you have one person that knows taxes but that person is currently your best skilled bookkeeper managing a great and growing client?  The answer may still be no.
• What if that one person is serving your best client and you can see that bookkeeping services are being off shored to India?  Then the answer may be yes.
• What if your firm does bookkeeping and you are growing at 35% a quarter and there are clients who want your services but you just can’t serve?  The answer should be to focus on growing your current business instead of adding a new one.

The scenarios are many – there are a few key questions:

1. Is your current business growing at an acceptable pace? If yes, then stay the course.
2. Is there some systemic threat to your current business that requires you to look for profits somewhere else?  If no, why divide your attention?
3. Do you have the resources to adequately serve the new initiative?  Can you get them?  If no, then don’t stretch.
4. If you try and fail at the new services, do risk your current clients and business?  How great is that risk?  If yes, and the risk is great don’t do it.
5. Is the adjacency or new initiative within the perceived scope of your current business?  If it is outside do not tie the business together.

In all most of the time you should not move too far afield.  A start-up should focus and give the original model time to grow.  You should be worried if you are spending too much time thinking about expanded services and not growing the core.

If you are walking into the den to pitch your company you should get a feel on how a potential investor will be evaluating your idea.  I know there are a ton of advice that focuses on the business idea.  The following few examples are part of the whole but not the whole:

• Market Size
• Management Experience
• Business Model
• Ability to attract clients
• What problem are you solving
• Can you identify the people who want the solution
• Can the people who want the solution afford to buy it
• etc. etc.

These are great things to think about but I would like to add the following for consideration:

• The Idea: This is probably the superset of all questions asked above so answer them.
• Management: Why did I pull this one out because in Louisville “You always bet on the jockey not the horse”.
• Timing: First is this an idea or product that will take years to catch on or is it a little too late?  Second how long will it take to grow the company and how long will it take to get my cash back.
• Valuation: Too frequently a management team does not address the valuation question in the pitch – preferring for the investors to set the price.  Hey that falls under that quaint rule “Who ever names the price first loses.” – Don’t believe it – name the price get your money and grow your business.

Look I hate to add four more things to the mix but thinking about them before you do your pitch really will help.

Hey – want to do better on your next pitch – try some of these tips:

1. Adding up years of experience is really lame!  As in, “Our management team has over 30 years of industry experience.”  What?  How many people on the team 25?
2. Word walls on PowerPoint presentations BLOW!  Then again so does crusty PowerPoint presentations.
3. Demo of a website – Always expect there to be no connectivity.  It never fails the internet connection you were gauranteed to have does not work or there is a firewall issue, or no one told the IT guy or… you get it.  If you are to demo a website make sure you have the bandwidth prior to your pitch and always have a plan B and C.
4. Don’t use the opportunity to let everyone in your management team have a chance to talk.  Too many switches of presentation giver is bad.  I have seen four people give one pitch.  This ruins the continuity and interrupts the flow.  Inevitably one of you step on the other.
5. Never contradict one of your team mates.  I had a group actually start arguing over an industry fact – like I am going to invest in a management team who argues in front of investors.
6. Answer the key five questions http://hueyequity.com/blogg/2008/05/19/the-1-thing-a-web-company-should-provide-to-potential-investors/

I hope this quick reminder helps you as you pitch your business.

I sat in on another pitch the other day – staring at a PowerPoint…

I think you might guess where this is going.  Why is every pitch a boring PowerPoint?  Show your product if you can.  Do something different – it is similar to American Idol – where Simon states how disappointed he is as he was hoping the contestant would be memorable but isn’t – do something memorable. Please! 

If you are like everyone else and your company is like every other company – why do I want to invest?  Here is some advise:

1. Don’t have a presentation – give a speech – tell a story
2. Show your product – even a mock up is better than nothing – wire frames of a website are ok.
3. Answer the key questions (http://hueyequity.com/blogg/2008/05/19/the-1-thing-a-web-company-should-provide-to-potential-investors/)
4. If you need to show a slide show it while you are talking about it and then advance to a blank screen as you stop discussing that one point.  By doing this you keep the attention on you as a speaker and not the slide.
5. Hand out the slides or have a leave behind that you distribute after your talk.

Don’t use PowerPoint as a crutch.  Focus the attention on you and your business.

So I was sitting in on a pitch that became way to technical (read boring) and I found myself wondering, “What do I have to believe to make an investment in this company pay off?”  With some fuzzy math I determined that they would need to generate $10 million in revenue with a respectable EBIT.

How did I get there?  That is the part that start-ups need to include in their pitch.  In this case the company was seeking $750,000 for a 34% stake in the company (step 1).   Wait a minute the company expects to raise more money in the fall.  My investment is going to get crammed down.  How much do they intend to raise and what to they plan to give for it?  In this case the company expected to raise an amount that would have cut my 34% down to 16%  and then expected no additional funding needs until a liquidity event (step 2).  This information is what is needed and I call it a “Capital Plan” the pros may call it something else.  You have to have a Capital Plan if you want to raise money. – Funny I never hear anyone explicity state their Capital Plan.

Having heard that I was going to get squeezed down and guessing at the Revenue Multiple (note I know that most company’s do not sell at revenue multiples but I will keep it simple), I arrived at the target that the company will need $10 million in revenue (step 3).  This helped me develop a key assumption and assess whether I believed the story.  Given their product price point and the size of the market, I decided it was too high and took a pass.

If you are pitching a company this logic path of what does an investor have to believe to get a return is a key part of your pitch so don’t forget it.