Six Software Services Every Start Up Needs Now

Let the robots optimize it for you at internet scale…

There are generally two things that start up companies need to get right: formation and sales. We’ve seen companies’ fundraising screech to a halt when formation is botched, and nothing kills a start up faster than making something no one wants. So, here are six software tools/services that you really need to know about so you can get these things right.

  1. Clerky – If there is any remote possibility that you will seek venture capital to fund your company, then you must be a Delaware C corporation. Your headquarters can be anywhere you want, just incorporate in Delaware. This is common. This is easy. Clerky does it for you, for a subscription fee, and takes care of annual filings, etc., . More so, it will correctly draft your founding documents, and help you avoid tens of thousands in legal fees. Clerky has legal tutorials and help so that you understand what all this stuff is. Heck, it evens fills out your 83(b) paperwork for you. If you don’t know 83(b), well, get over to Clerky right now. Your pre-IPO attorney’s will thank you.
    https://www.clerky.com/
  2. Wave – Accounting sucks for most founders. Quicken is no longer easy to use, and makes people cry. Wave is free, automatically does double-entry accounting in the background so you don’t even have to know what this is, and will do your payroll for you also (for a nominal fee). It integrates with your bank so you don’t have to do a whole lot other than smile and click send when VCs ask for your accounting. Proper accounting can not be easier than using Wave, period. And yeah, it’s really free, the company has been around ten years, yada, yada, yada…
    https://www.waveapps.com/
  3. Sofos– After you’ve built your MVP and figured out your marketing/product development process, finding investors and customers is pretty much the crappiest part of getting off the ground. First time founders focus on product, second time around you realize that sales matter more. Sofos.ai is like hiring a sales monster to test out every possible permutation of customer and investor opportunity. Starting at $300 a month (the max primo service is around $1,000 a month) it will connect to your LinkedIn network and, like 1980’s Mike Tyson on Leon Spinks, will work over your extended network to set up sales/investors. They even include copy writing help to craft campaign message flows for maximum impact. If you opt for the primo package it includes a BDR who will schedule all sales and investor calls for you so you’ll just spend your days selling and talking to investors back to back.
    https://sofos.ai/
  4. Growth Channel – Marketing agencies are expensive, and mortals have a limited ability to test out every permutation of digital marketing to optimize your company. Growth Channel uses AI to test millions of permutations of digital marketing channels to optimize the best chance for your success. Let’s hear it for the robot marketing apocalypse! Basic help starts at $20 a month (AI doesn’t need much food or shelter) but for the full $250, you get so much additional marketing insight power, it is a no-brainer. With everything from psychographic profiles of your customers to optimization strategies for the big five socials, you get a full service digital agency on a shoestring budget. So, you can spend the next 40 hours trying to figure out where to best place that new campaign and who to target, or just sign up for their service and let the robots optimize it for you at internet scale. Yep, easy choice.
    https://growthchannel.io/
  5. Foundersuite – While Sofos (above) will animalize your LinkedIn network to find and qualify investors, Foundersuite will help you to expand beyond that network and, most importantly, help you structure your IR function early with monthly investor letter update templates and tracking processes that make you look like a Sand Hill Road rock star even if you’re just working from Smallville. More so, they have a whole suite of discount services, templates for documents you’ll need (HR, finance, etc.), as well as a massive database of angels, accelerators and funds that want to be contacted by you now. Their dashboards are clean, easy to use, and informative when tracking large numbers of contacts and new introductions.
    https://foundersuite.com/
  6. Hubspot – If you’ve been reading this list closely and already had a startup, then you’re thinking, “hey, where’s Hubspot?” Yes, closing out our list is the titan of CRMs that does it all. Need a landing page fully integrated into everything else in your company? Yep, got that. Need to track all correspondence across your team with customers, investors and advisors? Yep, got that. Email campaign support? Yes, yes, yes! This is the Swiss army knife of CRMs and will help you to not only maintain good communications, but includes powerful tools to grow your sales dramatically, testing and tracking your efforts with excellent data capture and visualization that is simple, powerful and actionable. Pricing varies (they may even give you 3 months free if you’re a start up in a partner program) but starts at $40 a month for most companies.
    https://www.hubspot.com/

So, get out there and start leveraging tools to incorporate correctly, grow insanely fast, and track metrics that matter. Software can be a powerful force multiplier when overcoming inertia and help spin the flywheel of success faster.

Donald Trump is Neville Chamberlain in the War Against COVID-19

It’s time America unites to fight our common enemy instead of one another.

At the dawn of World War II as Hitler rose to power and started militarizing Nazi Germany, UK Prime Minister, Neville Chamberlain, cut defense spending and engaged in a strategy of placating evil. Sure, historians debate the full extent of Chamberlain’s lack of vision, but his all but flat-out ignoring the threat of Hitler didn’t make the war go away. Today, Chamberlain is regarded as one of the worst PMs in UK history, and one of the leading factors no one checked Hitler’s rise to power earlier.

Enter COVID-19, and US President Donald Trump. We have a new invasion, and in the first year, it will likely kill over 200,000 Americans. World War II took the lives of just over 400,000 Americans, over a period of four years. In short, the war against COVID-19 is deadlier than World War II in its ability to kill Americans faster. And yet, here is the President of the United States, at first denying the risk, then when obvious wearing no mask, ordering testing to slow down, holding massive rallys-cum-super-spreader events, and asking people to ignore the obvious: we are at war. Neville Chamberlain couldn’t have done it better, I think Trump is using his playbook.

When Imperial Japan attacked the United States, a draft card was a sign of patriotism. Many courageous youth even lied about their age and health conditions to get into the fight. Healthy and able Americas were united in their desire to sacrifice whatever was required to protect those who couldn’t fight: E pluribus unum. Presidents and Prime Ministers of Allied forces asked for sacrifice, and a willing country united against a common enemy with patriotic ferver.

Back to COVID-19. Wearing a face mask is the draft card of this war. True patriots wear a face mask to protect Americans who can not protect themselves. Strong leaders care for those who are at risk, and many patriotic Americans wear masks in the great American tradition of doing whatever is required to protect those we love.

Sadly, despots and tyrants use propoganda at times of national crisis in an attempt to aggregate their power. The love of power, and the selfish exercise of power to harm the public good, is why our founding fathers created our democratic system. So that once every four years, we vote and make sure that our country is led by someone who puts others above themselves, in the best traditions of America.

Bring on America’s Winston Churchill. It’s time America unites to fight our common enemy instead of one another.

Fundraising: Don’t Waste Time Convincing Skeptics

Find investors who share your “gospel” and understand what you’re doing.

Ok, full disclosure, the headline is a smart quote from my fund partner, Oksana Malysheva, and, yeah, it is freakin’ brilliant.

Far too often, founders spend inordinate time talking to angels and VCs trying to convince them of their vision, commitment and results. The reality is, a good company, getting good traction, MUST find investors who share their “gospel” and understand what they’re doing. The phrase, “missionaries, not mercenaries,” applies just as equally to early-stage investors as employees.

I just spoke with one of our companies. They have a $600k sales backlog that they’ll complete this month, and about 50% or more of that will be recurring revenue. The product is a complex AI service in an industry vertical that is large and growing fast.

They had a call with an investor who basically questioned their revenue numbers because it seemed to him that they were just too high. How could a company only six months old have $600k in revenue this month? Didn’t make sense to him that the industry vertical had revenue anywhere near their forecast. In short, he didn’t know their industry economics, and instead of jumping at the opportunity to get in early with a VC backed company showing strong sales growth (epic growth, quite frankly), he sits like a stick in the mud.

What was Oksana’s response? “Don’t waste time convincing skeptics.” Truth.

Many angels and VCs will not share your vision. You will not convince them otherwise. There are literally thousands of people who fund companies. If you’re raising money, shift your efforts from convincing those who don’t get it, to those who do. You’re time is as valuable as the VC’s time, even if it doesn’t seem that way from how they treat you.

In fact, it could be argued that time is more valuable than money, especially at an early stage. Don’t waste that precious asset on a road to nowhere. If a prospective investor doesn’t get it, cut bait and move on fast. Politely let them know that it doesn’t look like a good fit, and move on.

Blitzfailing – How to NOT Grow a Company

If your marginal profit per unit sold is negative, no amount of volume will help you be profitable.

Some time around 2016, a company that was raising at a lofty valuation pitched to me requesting capital from one of Sputnik ATX’s antecedent funds. The company pitching was WeWork.

The heart of their presentation was a claim that WeWork represented a new model for coworking space that was going to revolutionize coworking from stodgy folks like Regus, a profitable competitor. At the time, WeWork charged less than Regus to use office space and WeWork had significantly higher unit operating costs, customer acquisition costs, higher churn, and a significantly riskier customer base.

I pointed out to their pitchman that they had lower unit revenue and far higher unit cost than their competitors. How could they make money?

They responded with more of the same balderdash. WeWork’s plan to overcome negative unit economics was to make it up on volume, as they grew faster and faster with additional investment.

Poppycock.

This reminds me of Paul McElroy in the old SNL skit, First Citywide Bank, who claims the bank makes it up on volume. Thus the old joke, “I lose money on every one I sell, but I make it up on volume.”

If your marginal profit per unit sold is negative, no amount of volume will help you be profitable. Taking investment to accelerate losses makes the situation worse.

Blitzscaling is taking in large amounts of venture capital for massive customer acquisition growth in a short period of time. Growing so fast, you can’t be ignored, and then basking in the glow of a sustainable, massively profitable business.

A Blitzscalable business must have positive unit economics so that scaling increases profits, over and above overhead expenses and marketing costs. In short, the net profit selling each unit accrues faster than your expenses. When this happens, your company becomes profitable and sustainable.

Over the past few years large amounts of venture capital have poured into negative unit economic businesses that tout “volume” as the solution to their woes. Unless those businesses have some monopolistic plan to dominate the industry and then jack up prices to alter the unit economics, they will fail.

Of course, they could be hiding a novel new technology that will disrupt industry cost structure to make the unit economics positive, but if they did, why aren’t they using that technology now?

For example, Uber analysts tout that the company may be profitable when driverless technology becomes broadly available. This begs the question why they’re just figuring that out now, after massive investment on a different thesis, but I digress.

Bottom line: when your unit economics are negative, the business is unsustainable and you are blitzfailing if you raise capital to dig your grave at an accelerated pace.

Instead, resourceful entrepreneurs should create disruptive innovation that dramatically lowers the cost to solve a customer’s problem or provide a new, novel service that generates massive consumer surplus that cannot be ignored.

If you choose the path of the resourceful entrepreneur, unit economics and the market will reward you handsomely.

Author’s Note: yes, I love old words like poppycock. So precise!

Sputnik ATX in the COVID-19 Age

Oksana and I had more than just a few meetings in the past few months to discuss how the current pandemic will change investing in early stage companies, and how we can adapt to help companies be safe, and grow through hard times.

So, we’re announcing today that we’re open for our next cohort applications, and have a couple of things you should know:

  1. It is very likely that our next cohort will meet virtually, at least to get started, and we’ll see how it goes. Most of our work can be done remotely, and we don’t want to risk it if things are still dodgy.
  2. Interviews will still be in person, but at a distance, and likely outdoors. This will mean modifying how we interview. You’ll definitely be 20 feet away from us (so get good at projecting your voice), and we will all have masks. With sun shining and a breeze flowing, no need for anyone to take risks on this, but we still want to see who we’re investing in, at a significant distance. And please, don’t come close to us, not because you stink or anything like that, safety first.
  3. Our new SAFE note has two key changes. First, we’ve increased our option to invest up to $500k in your company from $350k where it was today. This reflects the need to pump additional capital into our most promising alumni who need growth capital due to epic demand, and the expectation that many angel investors are limiting new investment. Second, the option period is now 18 months, to ensure that if you hit your growth period after graduation, we’ve still got your back. We’ve already seen graduates from even a year ago coming back when they hit their stride, and we’d like to make that refunding easy.
  4. More than anything, we strongly believe that this shall pass. It is hard but we know the dawn is coming, and we firmly believe that there is a bright future for humanity and the Texas start-up community.

So, let’s get started partnering with you, the dauntless entrepreneur during COVID, and press forward. This will end, and when it does, the future will be amazing.

Five Things to Make Your Business #Coronable

After talking to entrepreneurs over the past two weeks, it seems most businesses are imploding or exploding, depending on how well their business model can adapt to a post-corona virus world. There are five general things you can do now to make your business coronable: survive and thrive in a viral world.

  1. If you have a physical good, start selling online, leveraging Amazon, Shopify, etc. to make it easier for people to buy what you have. Elite Sweets (https://elitedonut.com/) makes a gluten free, keto-friendly donut that is delicious and good for you. The perfect donut to survive the apocalypse, and available directly online. The small coffee shops that usually stock their product are closed, but no fear, you can still enjoy a guiltless pleasure, delivered to your doorstep. Heck, you can even get a free website from downloading the Leia app (https://heyleia.com/) and their powerful AI will build an ecommerce business for you! Consumers are shifting their buying online, move with them now.
  2. If you are a service, start figuring out how to position your product for social distancing using online tools. ZenYala (http://zenyala.com/) is a software suite to manage meetings and make them more productive. When Corona hit, the founder, Jacob Bernstein, quickly realized that his software made virtual meetings even more productive, and because it is designed for results and accountability, was a better way to organize workflow for virtual teams than other products like Slack and Microsoft Teams. He quickly pivoted and created a new brand, ExecuMeetings (preview at http://execumeetings.tilda.ws/) and is aggressively selling to companies desperate to keep productivity high in a corona world. Kanthaka (https://mykanthaka.com/ and in your app store as Kanthaka) is a marketplace where individuals can find highly vetted and certified personal trainers and book them to come to their home. When corona hit, they had a surge in bookings as gyms closed; however, as the need to isolate became more obvious, Sylvia Kampshoff, founder and CEO, quickly added an option for trainers to do virtual sessions, and providing free group sessions called “Mommy and Me” for kids and parents to enjoy from home for free, further raising awareness of her brand.
  3. If you are a local business owner, begin no-contact delivery (drop and go). If you’re blessed to live in the State of Texas, companies like Favor (https://favordelivery.com/), will find and deliver anything to your home. Local businesses can partner with Favor to deliver office supplies, hand sanitizer, and pretty much anything. Consumers can go to favor and ask for anything too, including toilet paper! For those of you who have to suffer living outside of Texas, you will need to hire and locate your own delivery people, or do it yourself. There are some new startups like GoShare (https://www.goshare.co/) that are last-mile delivery on demand and will do no contact delivery. Check who does delivery in your area, and bridge that last mile to the customer!
  4. Learn to nano-target your customers with mobile ads. People will be spending a lot more time on their phones, so learn how to target your ad spend to effectively reach them. Companies like Datum (https://datumxy.com/) can specifically target individuals who are your customers or fit a very specific customer profile and make sure your ads only appear on their phones. For example, if you were a coffee shop owner, you could have Datum only target persons who visit coffee shops daily and live within a two mile radius of your shop. That highly targeted group would make a great audience to launch your new coffee by bike service, eh? The best part of nano-targeting is it’s FAR less expensive than buying bulk ads on Facebook, etc. The good news is that companies like Datum market across all app platforms, so they save you money and keep you in relevant digital locations for your customer base.
  5. Get cash. We don’t know how long this will last, so make sure that you tap all your lines of credit, raise new equity, sell assets you don’t need, etc. and please do so now. Get your security deposit back from your landlord with Otso (https://otso.io/otso-for-tenants/). Companies that weather storms are those that have adequate reserves to keep employees and suppliers paid so that your business can keep selling through the worst of times.
    So, take a deep breath, you’ve got this. Remember, the best businesses in history were started in recessions/depressions. This is the time that heroes are made.

Good luck out there, and please post any suggestions you have on becoming coranable in our comment section.

What Entrepreneurs Really Need (and It Isn’t Funding)

Avoid the trap of “I believe, therefore I am right”

I recently saw data from Y Combinator comparing what founders consider their biggest obstacle, then contrasting that with a list of the things proven to grow companies fast (what you really need). To be clear, high growth is all that matters when it comes to proving product market fit. Nothing says “people need our stuff” like hoards falling all over themselves to obtain your product/service.

What you think holds you back:
1. Funding (from investors)
2. Bug fix  (make it work better)
3. Design (make it easier to use and pretty)

What actually holds you back:
1. Launch (get product to market)
2. Design (make it easy use and pretty)
3. Pricing (create consumer surplus)

Remember, high growth covers a multitude of sins. 

Short on cash? Sell more.
Product buggy? Get code fixes to market now.

Alternatively, Failory did a study  that patterned start up data  to identify why some fail and some succeed. The 4 reasons for failure generally fell into four categories:

  1. Incompetence – lack of planning
  2. Inexperience – lack of product know-how
  3. Inexperience – lack of managerial skills 
  4. Personal problems – you’re a hot mess.

The worst thing you can do, is say to yourself, “I believe, therefore I am right.”

Note, three of these categories are, by definition, items that founders may lack and fall into the false premise, “I believe, therefore I am right.”

We see many founders who fail to identify that they are in one of these categories. Successful founders know that they are always one or more of these, and fill their gaps by building a diverse team that is united and motivated around common goals and vision. It takes humility to assume you know nothing, and build a team with the skills to succeed. And humility is what you really need.

Humility will help you get MVP to market faster because you know it will never be perfect. Humility will make the product better because you will not assume you know what the customer wants and will listen to them. Humility will help you to identify who you need to execute your vision, and inspire them to follow you, especially when times are tough.

In short, develop your company with humility, so you can grow with confidence.

Beware of the Startup Industrial Complex

Three rules to avoid getting scammed by advisors.

As an early stage VC, one of the saddest things I observe from meetings with founders is the toxic and pervasive influence of what I call the start-up industrial complex (the SIC).

The SIC is a universe of charlatans and blissfully unaware “advisors” who masquerade as help for early stage companies and, in fact, set them back or bleed them dry for the personal gain of the advisor. There is an almost infinite number of people desperate to take money out of the entrepreneur’s pockets, so I thought I’d write a post about how you can identify and protect yourself from the posers and in the process learn how to identify real help that is there for you.

SIC members usually ask for cash upfront to perform tasks for start-up companies. It may be they offer a so-called, proven method to develop fundraising decks (laughable, when you can get the best advice free from YC), or perhaps an introduction to a prospective investor or customer. Regardless, the first warning sign that you’re among the SIC is when they ask for cash upfront to “help” you.

Rule Number One: the best help for start-ups comes from proven leaders who don’t need cash from your seed capital and genuinely want to help ideas they believe in. 

Another red flag is when a SIC member asks for equity in your company upfront, without any performance vesting standards. For example, “give me 5% equity in your company and I’ll give you advice and allow you to use my face on your slide deck to raise money.” This is a bad deal for you, if you take it.

Rule Number Two: when giving equity, it should always vest over time for performance tied to measurable goals such as sales or results that move your KPIs.

Most SIC members are either burned-out, serial founders who never got an exit, or someone who had a senior management position in a large, mature company. Both types of these people have experience, but they don’t have the experience you need. Failure can be a good teacher, but founders who have not gone through the full process of start-up to exit may just repeat the same failure lessons, and share their mistakes with you. Similarly, big companies may be good at what they do, but the people who work in them are not familiar with the effort and methods to create and grow something from scratch on a small team with a limited budget. Many of these people have good intentions, but they just don’t speak start-up, and are more dangerous when they think they do.

Rule Number Three: Seek advice from people who are either successful founders or VCs, better yet, someone who has done both.

Founders, we love you and want to see you succeed. So beware of those who come looking for cash, free equity, or have nothing to contribute to your future success. The SIC is real, spread the word and beware!

Is Your Start-Up Struggling for Sales?

The more non-price barriers disappear, the more customers will say yes.

Struggling for sales? One of the things entrepreneurs often don’t consider is the price customers actually pay when purchasing. While price is obvious, there are several less obvious costs to your customer when they acquire a new, shiny thing. Economists call these non-price expenses switching costs and categorize them into three buckets:

  1. Time cost
  2. Effort cost
  3. Psychological cost

Here are a few examples of these costs you need to consider:

  • Training costs required in order to fully use a new product or service, for both individuals and companies
  • Disposal costs related to their current product or service, and perhaps even the future cost of disposing of your product or service
  • Mental cost of a purchase, time to complete a transaction, like when you have to click ten times and fill-in redundant or unnecessary information to make an online purchase
  • Integration costs with current business systems or consumer lifestyle, such as legacy database usage or accessing personal libraries online in other applications
  • Emotional costs related to any change, such as losing a friendship with a rival sales person, or parting with another product where there exists sentimental value to the customer
  • Finding cost if your product is hidden in the back of a store, or on a shelf top

If you want someone to purchase new product or service, you need to help the customer reduce or eliminate as many of these costs as possible. For example, Amazon.com introduced one click purchasing precisely because it lowers the time, effort, and psychological cost of an online purchase decision. They made it easy to say yes.

You can make it easy to say yes too. Get together with your team, your family, and friends and brainstorm ways you can automate training, disposal, integration, and add features to the purchasing process to eliminate any form of stress to the person making the purchase decision.

For example, if you’re replacing a legacy product that is bulky, providing a free disposal service for the old unit can make saying yes easier. For B2B SaaS, perhaps making the integration free or one-click automated to the customer. You get the idea?

The more these non-price barriers disappear, the more customers will say yes.

Do you have any pro-tips for entrepreneurs on lowering switching costs? Feel free to share your ideas and creative tips in the comment section.

What’s the Deal With Sputnik ATX?

Author’s Note: Updated for New Program Information on Nov 13, 2019.

The number one question on most people’s minds when they meet either Oksana or myself is, “what’s the deal with Sputnik ATX?” So here it is.

Sputnik ATX is named after the first thing man put into space, and the town that we love. Combining visionary insight and engineering excellence, sputnik-1 changed the course of human history and inspired billions of people to continue to look up. Like sputnik-1, we believe that maker/engineer humans should continue to launch transformative ventures. We want to back those founders with investment dollars, resources, and advice.

In short, we want to get you from the hockey stick heel to the toe faster. Here’s how we do it.

The Sputnik ATX program couples $100k in investment with a 13 week, resident, “heck-on-earth” rigorous experience to immerse you in the process and learning required to grow your company, increase your network, expand your vision, and deliver product-market fit faster. We are laser-focused on helping companies to:

  • Find product-market fit
  • Master the sales process
  • Become scalable

We require all applicants to have minimum viable product (MVP) and at least one customer. We don’t care if that is a paying customer, you just need someone who isn’t your cousin Larry, and prefer disinterested, third party users. This is because it is impossible for someone without MVP to fully benefit from our program.

We provide all cohort members with

  • Six months office space for the founders, and limited space as the team grows
  • $100,000 in cash funding via our SAFE note
    • funding on our friendly SAFE note with a $3mm cap and 30% discount
    • Option to invest additional $250,000 during the program (you may need it)
  • Curriculum, advice and mentoring, two things we work very hard to improve and our alumni rave about
  • Tons of freebee credits from AWS, Microsoft, and the usual suspects
  • Fully stocked kitchen, yeah, you’ll be working late eating frozen burritos, a potpourri of yogurt and “gourmet” ramen as far as the eye can see
  • Mentor and investor introductions (our network rocks)
  • The fridge of joy (you have to see it to believe it)
  • The opportunity to win the #tractionhorse (check Twitter on this one)

For every dollar you get in cash from us, we have more than a dollar of overhead to support you, so we think our deal is pretty good.

We’re not for everyone. Indeed, there are many good accelerator/incubator options in Austin and depending on the stage of your startup and what you need the most, we may not be a good fit. So please understand what we do, and if we’re a fit, apply. I hope to see you in an interview soon.