Charlie Paparelli

Does Your Business Make Sense?

 

Greg Smith sold his business in 2008 to Xerox for 5.5 times revenue. It is part of every entrepreneur's dream to start, build and ultimately realize a successful exit. Greg did it and he shared his story at the Technology Association of Georgia's (TAG) Rock Star breakfast series.

 

Advectis, now Xerox, is in the document management and processing market specifically for mortgage and loan origination. Part of what makes Greg a success is his market focus and market touch. Even though he researched the mortgage market and its need for document processing, he still went and talked to the buyers in the market before he wrote any code.  He wanted to make sure his business proposition made sense and they would buy it. This behavior is something I have seen over the years from other successful entrepreneurs.

 

He did not know it but I recorded his talk. It is presented here for you to enjoy and learn from Greg's experience. I know you will enjoy this presentation as it feels like he is sitting across from you over a cup of coffee. (This is a 58 minute recording) I recommend you have pen in hand because there are many life lessons shared that will help every entrepreneur and angel investor.

Greg-Smith_Entrepreneur Audio

Here are 14 points I picked out of my notes from his talk. They are presented in the order of his presentation.

1. When being hired as the first key person in a startup it is OK to say NO but not OK to say YES and then NO.
2. Talk to multiple players in your intended market prior to burning cash by investing in a product no one wants. Make sure your business makes sense to the market.
3. Find adult supervision. It is what you don't know that will kill you.
4. If you happen to hit your market during an expansion cycle, it makes almost everything else right for the startup. Greg introduced his product when the mortgage market began to expand rapidly.
5. Experience is what you get when you do not get what you want. 
6. Management should be an open book about the company. It builds a relationship of trust among all the employees within the company. This increased retention and commitment. All good for the enterprise.
7. Entrepreneuring is a God-led event and career.
8. Their product was delivered using a SaaS, recurring revenue/per use, economic model. The market grew into early acceptance of this model which rocketed Advectis in the early years. It could just as easily stopped it cold.
9. In any deal there is good fortune and bad fortune that comes your way. Nothing goes right all the time. Be ready to respond. This is where the adult supervision can help a lot.
10. We were the first client for Arketi Group led by Sami Jajeh. They did a fantastic job in making us market credible by presenting us as bigger than we actually were in our formative years. This led to market acceptance with big buyers which leveraged our growth.
11. There are always some near-death experiences in any new company. It is harrowing to go through together but it is the foundation for the lore of the company in the future.
12. The business has to be bigger to be bought by a bigger company.
13. Greg wanted everyone in the company to think like an owner so he petitioned his investors to set aside stock options for all employees. (He tells a story in this talk that shows the impact of this decision.)
14. The journey is much better than the ultimate destination. Enjoy the journey.

And enjoy Greg's talk.

 

Entrepreneur Confessions and Startup Tips

The MIT Enterepreneural Forum asked me to facilitate their Entrepreneurs Uncensored luncheon. I was honored to have as my guests two successful entrepreneurs in Andy Ibbotson and Sanjay Bhatia.

Andy is the co-founder of Synthis, which enjoyed a successful exit last year, and he is the founder of a hot new startup called Digital Assent. Sanjay is the founder and CEO of Izenda a leader in the Business Intelligence marketplace. Andy grew his businesses with the help of outside funding and Sanjay bootstrapped.

There is lots to learn from these two entrepreneurs. The have gained lots of experience through their decade of company building and selling. Most importantly they have a heart to encourage others to do the same. These two guys are special because of their transparency, clarity and wisdom. 

Take some time to listen to their stories and the Q & A that follows.

 

MIT Forum - Entrepreneurs Uncensored

 

 

Here are my 7 take-aways from this panel discussion:

 1. You find your focus, you market niche, by staying in the game. Neither one of these entrepreneurs ended up with the market they initially targeted. In fact it took Andy seven years and Sanjay four years to hit on the right market with the right product. The lesson here: the longer you are in business the better your chances of seeing the right opportunity. So get started today and keep at it.

 2. Commitment to your business over a long period of times proves to the market and investors you are trustworthy and committed. Two of the key attributes buyers and investors look for in a company.

 3. Fear can be a positive motivator but it can also crush your spirit if you succumb to it. In both cases, the greatest fear was letting their employees down by missing a payroll. Knowing that payroll was coming up in a week, somehow caused the right thinking, driving right priorities to make the cash appear. Use fear to motivate not to cripple.

 4. Seek mentors that you admire and who admire you. Mentoring relationships are very personal and not just informational. Find someone who truly cares about you and your success. But be sure they also understand your business and the stage of your business' growth. 

 5. Keep it fun by doing what you love. You were called by God to start this business. When you saw the vision for what it could be, you got excited. Stay excited by remembering that vision and sticking to the things you do well as you chase the vision.

 6. Test your idea in the marketplace first. Then test it with investors. There are many entrepreneurs that build in the garage but never share the design/vision with potential customers. Talk to customers. This will focus your development on what people will buy which keeps you in the game. Later, when you talk to investors, you can speak about the potential customer, or now real customers, and their interest and acceptance. If you go to investors first, you may find yourself facing questions you can't answer with credibility.

 7. Hire the right people. How do you know they are the right people? The right people offer little compromise and bring a whole lot to the party. You'll know one when you see one.

 Thanks again to Andy and Sanjay on sharing with our entrepreneur community!

 

Always Being Right Is Wrong

 

I just ran into an old friend who told me she gave up "being right" for Lent. I asked her how that changed her behavior. In other words, how do you give up being right? She said she just listened to people and did not give them advice. When I asked what she learned over that 40 days, she said she learned she is not always right.

I meet with entrepreneurs who are pitching their business on a weekly basis. I am also very involved in my current portfolio. And lastly, I have over 30 years of experience in building businesses in information technology product and service businesses. 

So when it comes to playing the part of potential investor it is easy for me to fall into the role of wise old sage. I realized from my friend's Lenten experience that I must protect myself from always giving advice.

Angel investing is fun. You are always surrounded by smart, motivated and totally idealistic people. People who know their idea will be the seed that grows the mighty oak of a company. People who mostly lack in experience but make it up with energy. If they knew what was ahead of them, they would never start. But start they do.

As an experienced angel, I feel it is my mission to encourage and to advise these early stage industrialists. Often times, however, I spend too much time on the advice and not enough time on the encouragement. 

You advise the entrepreneur by talking and you encourage the entrepreneur by listening. It is this balance that makes for an angel who is wise, respected and sought after. This is an angel who is focused on the entrepreneur and his mission rather than an angel who needs to be right.

In reflecting on this topic, I came to realize how many times I was wrong. Times in my angel investing career when I knew I was right but later was proved wrong by the entrepreneur who did not follow my advise. Then there were the times when they followed my advice only to have it be the death of their dream. 

Angel investors can add great value to the new enterprise. They can also snuff out all that is good in an entrepreneur and fresh opportunity. It is all a balance of talking and listening. What kind of angel investor are you? Are you serving you or the entrepreneur?

I was inspired to share these thoughts today because of a conversation with another friend of mine. He said he talked to a close friend who decided to practice "I don't know." I said 'What's that?" He said his friend, when asked what he thought about a particular topic, just started saying "I don't know. What do you think?" The results of practicing "I don't know" proved to be a steep learning curve.

Remember the words of Solomon.

"Even fools are thought wise when they keep silent; with their mouths shut, they seem intelligent."  Proverbs 17:28 (NLT)

 

The Angel Investing Drought in Atlanta Is Over!

There, I said it.

 

It appears to me that the Angel Investing drought it over. Angel personal investment accounts are restored. There is confidence in the economy's return and the stock market's floor. Angels are now investing or at least intending to invest. Corporations are acquiring. New money is entering the market.

Local Evidence 

At the Angel Lounge this month, I asked each of the attendees to give me the amount they have set aside for startup companies and private equity. The amounts ranged from $25k all the way up to $2mm. So there are a couple of elephants in the market but the average angel investor was seriously looking at $100 to $200k.

When I added all this up, including the elephants, I came to somewhere close to $20 million. Let's say this is wrong by a factor of 50%. That means there was probably somewhere north of $10 million in potential angel investment sitting in the room. That's $10 million that our little group of angel investors are saying they intend to invest in the Atlanta technology startup and early stage private equity market in 2011. That is impressive.

So why did I hold off writing this for almost a month?

First of all, I wanted to be sure this was not about how I feel, how my fellow angel investors feel and what we think we may, kind of-sort of, invest in 2011. So I waited. I waited because I was about to ask a couple of angels to look at a deal I was invested in and see if they had some interest. I think I have a great opportunity to invest in but these two guys committed to $100k each on the spot. They met the team, heard the pitch, saw the product, understood the risks and then said "Send me the paper work. I'll close by the end of next week." And they did it!

And there is more

I also heard from an attendee of the most recent Atlanta Technology Angel (ATA) meeting. He is not an ATA member. He understands angel investing. Invested in deals over the last decade. Now he is telling me, under Mike Eckert's leadership and the general mood of the meeting that he is going to join the ATA and do deals with them. I really respect this guy and this to me is compelling evidence of the thaw being over.

More personal evidence

I also have one of my angel partners (a good friend that I did deals with in the past) chasing me all over with a deal he wants us to invest in. I did not see this guy invest in a deal in the last five years and now he is all-in. 

I asked a potential, new, angel investor who is experienced in this industry and business we are evaluating, if he would like to invest along with me and my partner. He said "Yes." You may be saying "He said 'Yes' because you and your partner are leading the deal." I say he said 'yes' because he is feeling positive about the direction of his business and his income. He now recognizes there is some stability in the financial floor he is standing on. Further on this example, I personally am interested in investing and this was not the case as recently as six months ago.

New Money is Hitting the Streets

Lastly, there have been a couple of exits in Atlanta of late. The most recent is Secure Works being acquired by Dell Computer. This deal alone will probably make a few dozen people millionaires for the first time in their lives. These people all live right here in Atlanta and are a part of the Atlanta technology community. In addition, there are local VC's that did real good on this deal. This money will also come back into the community. 

My conclusion

Angel investors' personal investment portfolios are back to or beyond 2008 levels. They believe the downside on there net worth is somewhat predictable. They like to invest in entrepreneurs and new companies. As one of my fellow angels told me when he was about to put a second round into one of my companies; "When I tell my wife I am putting this much money into this deal, she will just have to understand this is what I do." In other words, investing is what angel investors do because they are purposed to do it.

We should see more exits in Atlanta. We went through a dry spell as corporations stayed flush with cash waiting to see where the market was headed. These companies also reduced their R&D spending as they pursued increased earnings in a tough economy. We all know, you can't cut your way to growth so now these cash-rich companies need new innovation to push through their distribution channel. They will buy young companies with innovative products. It is all of our jobs to build them.

Angels, VC's and corporations...the cash to invest is there. 

It is going to be a great 2011!

 

 

 

Steve Jobs is a Coward

This high minded technology leader is out to protect the masses from inferior and clumsy technology (Steve Job's post on Flash). Baloney. He is looking to control our computing world which is exactly what he fought against in the early days of Apple. "A Computer for the Rest of Us." Crap. Allow me to explain.

Today I was playing with my new iPad and kept running into videos that don't play. I am also invested in a Business Intelligence company that makes extensive use of Java.  As the world already knows Flash and Java applications are not supported on the iPhone and the iPad. Here are two technology innovations that currently have no competition. Interesting that Steve, who is clearly trying to protect us, has not pulled support for these technologies from Apple's line of computers.

You know why Apple still supports these inferior technologies on their computer platforms? Because there is competition. If he pulls them from Apple's computers than we might be upset enough to start voting with our wallets. We, I, would actually abandon Apple computer products and move back to the "PC" platform. Horrible you say. I bet you are aghast at this computer infidel for speaking such heresy. (FYI. I have been an Apple user for over 30 years. I actually owned a piece of junk called the Apple III and everything since then.)

Somebody has to tell this friend (Steve Jobs) turned nutcase that he needs to respect that there are standards in place and he does not and will not own them all. He needs to return to his roots and respect the software products that have "won" the tech war to-date and not take a stand at my expense. I didn't vote him into this position he is using his bully pulpit at my expense. I think he should now be called a "Dictator." Apple has become the object of its own infamous 1984 ad. (Compare this ad to Steve's last set of announcements. Look at the audience. Seems eerily familiar to the audience in the 1984 ad.)

But in the end he is a wimp. Steve Jobs is a coward. If he is going to take a stand to protect us from these inferior technologies then stop supporting them on Apple's computer line where there is competition. Go ahead Steve. I dare you. You won't do it because you have no grit. You have no balls. You have no principles. For you it has become all about money and power. You sold out. 

Apple has great products and Steve Jobs is the inspiration behind all of them. But now he wants world domination though software control. Is Apple now the "computer for the rest of us" or the "computer Steve believes is best for us."

Come on Google Android. Come on Microsoft Windows 7. Put this nutcase in his place.

"The more stuff you own the harder you have to work to maintain it."

We are finally acting on this truth!

This recession is doing some great things to our society. Peggy Noonan’s editorial this Saturday, April 18th, in the Wall Street Journal captures the transition of Americans’ hearts, minds and wallets brilliantly.

You can read the article by clicking here.

My presentation of “Cash Flow Positive Forever” (also found in this blog site) presents the business changes necessary to be successful. This is not a business as usual recession. There are changes taking place at a fundamental level in our society that cannot be ignored by business.

You can be early to the party or late to the party but you must be at the party. Making changes now to your business in structure, pricing and market positioning will provide great rewards short-term and long-term. Making these changes now is easier than waiting, assuming you have the cash to hold on until the necessity of the changes becomes clear.

I am a Peggy Noonan fan. She was a speech writer for Ronald Reagan and has the unique gift of seeing Americans for who we are and communicating it in a way that has you saying, “She gets it. That is exactly what I am thinking.”