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!

 

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!

 

 

 

"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.”

Cash Flow Positive Forever – A Paparelli Presentation to IEI

 

I gave a presentation to entrepreneurs on February12^th at IEI in Atlanta. The presentation was the result of a significant research investment in the economy and markets. I combined this research with my experience and came to some conclusions. I am not positive that my conclusions are correct in forecasting the economy but I am confident in my conclusions and suggestions on market positioning, pricing and corporate restructuring.

I believe we are entering into a new era of thrift and this will have a significant impact on your early stage company, if you have one. If you are thinking about starting a company I believe this video may highlight some significant market positioning opportunities.

Thanks in advance for taking the time to view the presentation and I would really appreciate your feedback which you can leave on this blog.

To view the video, click here. The video is entitled "Positive Cash Flow Forever."

Enjoy!

Come Support Me at IEI on February 12th - I'll Be Speaking

I will be sharing some new marketing insights that I have been thinking about and researching over the last few months. It all started in November 2008 when I realized that consumers stopped spending money. My experience in past recessions showed a gradual slowing in consumer spending. I think you'll agree this is a different "bird" then we dealt with in the past.

This got me thinking, but more importantly observing. I began to observe a shift in consumer thinking. I see this change taking place in the baby boomer generation but also in the X and Y's. Then I saw how this mindset shift affected public companies and what they were doing about it. Finally, I started discussing this with my market of smaller start-up and early-stage growth companies.

The net of all this analysis and discussion is that there are some terrific opportunities available to smaller companies that just did not exist before this mess happened. The bigger guys, well some not all, are stuck but the smaller guys are nimble enough to bust into their selected market and establish a long-term presence. I may not be right but I'll be speaking with conviction and with some data behind my conclusions. I guarentee you'll leave thinking differently about your business.

So come join me by registering for the IEI conference at: IEI Registration

Here is a picture of the marketing invite:

Entrepreneurs: Survival Tactics in Tough Times

I just ran across this today and thought it would be helpful to pass this article on to our Atlanta entrepreneurs in startup mode. Good advice from some very experienced Silicon Valley investors and entrepreneurs.  

My advice is don't just read it, do it!  

charliep

 

 

John Doerr: 10 ways for companies to stay afloat in rough times

MG Siegler | October 29th, 2008

At VentureBeat's Downturn Roundtable event this morning, Kleiner Perkins' John Doerr came prepared with a list of the top things that start-up CEOs should do. He surveyed 18 of Kleiner's companies, and here's what they suggest:

1. Act now. Act with speed. Raise money. Get a loan, secure financing. Focus, cut or sell.
2. Protect the vital core of the business. But use a scalpel not an ax. Be surgical. Protect the vital core of the company. Cut once, deeper than you think.
3. Make sure you have at least 18 months of cash. Or more — on a conservative revenue forecast.
4. Defer facility expansions. Don't spend money on tech infrastructure, such as new software or computers. Doerr noted that Andy Bechtolsheim's new startup, Arista uses Google Docs (free web office software).
5. Reevaluate your R&D priorities.
6. Renegotiate any contracts that you can. Everything is negotiable.
7. Remember, everyone in the organization should be selling, from the receptionist to the engineers.
8. Offer people equity instead of cash e.g. in place of bonuses. (You can do this with outside vendors as well).
9. Secure your cash. Treasuries, or treasury backed securities, are more secure than money market funds.
10. For your revenue plan, develop and obsess on leading indicators — e.g. bookings, unique visitors, conversions.
11. Over-communicate with everyone – employees, investors, partners and particularly customers. Don't sugar coat things, communicate your resolve.

Angel investor Ron Conway added a key twelfth point: Be open-minded to mergers and acquisitions. Always a good tip.

Entrepreneurs: How will the financial crisis affect fundraising from Atlanta angels?

We conducted a soft survey at last week's Atlanta Angel Lounge meeting. As you review the results, you should keep in mind that this crisis is new and unsettled. In fact, since our last meeting the Dow Jones Industrial average dropped over 1,400 points. So this data, although only a week old, may be outdated.

   

Here is what we learned from a gathering of 25 Atlanta angel investors:

   

• The professional angels with a sizable wealth base said, 'it will be business as usual.'
• There was agreement that with AAA rated companies like GE paying 10% with warrants for long-term money, valuations for early stage companies will be lower. The risk/return ratio is shifting with the market.
• Many angels are sitting on the sidelines waiting to see what their liquidity will be when the markets get back to some rhythm, good or bad.
• Deals will be more closely scrutinized and therefore more time will be needed to raise money.

 

Getting to the Second Investor Meeting

I will be speaking at the ATDC this Thursday. I will be sharing lots of stories, experiences and HOT TIPS for entrepreneurs raising money.

When: August 7th, 2008 7:30am - 9:00am

Where: Advanced Technology Development Center - 3rd Floor Community Room (Directions)

Who should attend: Entrepreneurs, Angel Investors, VC's and anyone interesting in learning more about early stage investing.

Here is the write-up from the Technology Association of Georgia Announcement.

Charlie Paparelli invested in close to 20 companies in the last 15 years. Each week is met with entrepreneurs seeking meetings with him and presenting their opportunities. Very few get to the second meeting. There is no funding unless there is a second meeting. So, the first meeting has to bring the Angel or VC back to the table. In this session we will focus on the first meeting - how to get it and how to make it the meeting of your dreams. Charlie will share what he has observed as an angel investor in the Atlanta technology community. He will reveal his seven steps to a guaranteed second investor meeting. These steps include everything from preparation, qualifying the investor, presenting yourself and presenting your opportunity. This session is based on experience and will be both informative and entertaining. Hope to see you there. charliep

It is Lonely at the Top

(Depending on Who You Believe is at the Top)

Last week I met with an entrepreneur who has created a thriving business. Like all entrepreneurs he is captured by the business emotionally, intellectually, physically and financially. He is all in all the time.

He called me for help. He needed to discuss problems he was dealing with that were hindering his attainment of the next stage of growth. After understanding the issues, I gave him my best advice and I thought we were done.

He had one more topic to discuss. He said he has been going to an ashram and was finding a sense of peace there that he had not had before. He finds it to be a place that takes him out of the daily grind and gives him the ability to meditate, clear his mind and relax. His question was "How do I take this into my business?"