Category: Entrepreneurship

The world that we live in trades on reputation.  What that means is that eventually whether you are raising capital or landing new customers, your references will matter.  If you are an entrepreneur, a VC will want to do some deep reference checks on you and also on any major customers or partners.  If you are trying to land that big customer, naturally the sales propsect will ask to speak with other customers to get a better understanding of the technology and your service.  How you handle and manage these reference calls is crucial to moving to the next step in a funding round or to closing a sale.  I have seen some entrepreneurs take the nonchalant approach, feeling quite secure in their relationships, and freely passing on contact information for their personal references and partners/customers.  Many times these calls will turn out just fine but there is still a big chance that they might not turn out as planned.

In my opinion, the best way to deal with reference calls is to carefully manage the process.  First, I would identify the 4 or 5 best references (customers/partners/personal) and have a call with them to make sure they are willing and have the right attitude and to pre-screen them with questions to make sure they convey the right information to the interested party.  Secondly, I would make sure that you don’t inundate your references with too many calls as they may tire of helping you after awhile.  Finally, I would also set expectations and be quite clear with the VC or potential customer about what to expect from the call.  For example, I was talking to a CEO yesterday, and he mentioned that our strategic partner would take a call from a VC but that the partner was not the most effusive individual and would clearly state the facts but nothing more.  Well, if that is your only reference for that partner, make sure you convey this to the interested party to set expectations (see my earlier post about that). 

As a side note, a couple of my portfolio companies gave pretty big discounts to their first customers but also made sure that as part of the deal they would serve as lead references for other prospective customers and for VCs.  The discounts got the customers to take the leap of faith to buy the portfolio companies’ products and also got them quite excited to freely promote our technology to others.  The point is that you should always think about your reputation, who will be your best reference, and then to cultivate them to really make sure that they can help you grow your business.

During the last month, I have been in board meetings and thinking to myself about what was going well and what wasn’t.  And when the discussion came to revenue, one common theme that always seemed to surface was a focus on the next product.  What I mean is that when discussing why our current product wasn’t selling as well as it should have or getting as many users as projected, the answer was always focused on the next product or feature.  Granted, I have always believed that one needs an insanely great product or service to generate sustainable revenue and that constant iteration is key to success.  However, it is also important to understand why a current product or service is or isn’t doing as well as you thought.  In addition, entrepreneurs must also think about how they are going to get the product to the market and come up with the right messaging.  I have seen a number of situations where entrepreneurs can get too focused about developing and releasing the next product or feature without spending as much or even more time and resources in getting it out to the market.  Then when management and the board sit down to evaluate what went wrong, the answer seems to be that people clearly didn’t care.  That can be a huge failing because the product or service may actually be phenomenal but just may have had no marketing or support in reaching potential customers.

So my advice is that before you place all of your bets on the next product or feature, make sure you put enough effort into crafting the right message and value proposition and that you put just as many resources into getting it out to the market.  In other words, give your product a chance to succeed and don’t starve it to death.  Constantly developing new technology without having a well-thought out plan to get it to market can spell doom!  Developing your way to success can work only if you realize that it is only part of the battle.   

I was waiting for this day to happen.  Each day I go online and also glance at the newspaper, and there is nothing but bad news.  And yes, it is true that some of the best technology companies were built when the economy was at its worst.  And I always like to think that it takes a little longer for some of these negative effects to trickle down to smaller companies and startups.  Just the other day, I got the call from one of my portfolio companies which had won a huge deal last month.  We were waiting for the purchase order and the dreaded call came: "You still have the deal but our CFO needs us to cost justify every dollar we spend on IT – the deal will have to wait until next quarter."  That definitely put a kink in our plans and also caused us to adjust our Q1 forecast.  Fortunately, many of us had been through this before and management had prepared alternative plans based on various growth rates at our last board meeting.  We had a base case model which we were running our expenses on, an upside model which we had hoped we would achieve, and a lower growth scenario which we would have to implement if bookings did not materialize.  I know that this is one data point but all I can say is that if you have not done so already, prepare a few different models to make sure you can make appropriate changes to your business to conserve cash.  I won’t say that we are in a recession but if we get more data points on spending freezes, layoffs, and the like, it is only prudent to be prepared.  And yes, as I stated above, while some of the best technology companies were built when the economy was at its worst, they would not be here today if they weren’t standing when the markets rebounded.  That means that you have to rationalize your business and put more resources behind what is working and not spread yourself too thin.  That means if you are raising another round of funding try to raise more capital rather than less – focus on having about 18 months of fresh dollars to see through the other side.  Finally, stay strong and keep your head up because if you follow the above advice you will have a much stronger business when the markets rebound.