I was visiting a friend whose company teaches executives how to communicate effectively. He had just filmed the second of a series of videos called, Speaking to the Big Dogs: How mid-level managers can communicate effectively with C-level executives  (CEO, VP’s, General Managers, etc.)  As we were plotting marketing strategy, I mentioned that the phrase “Speaking to the Big Dogs” might end up as his corporate brand.  And that he might want to think about aligning all his video and Internet products under that name.

We were happily brainstorming when one of his managers spoke up and said, “Well, the phrase ‘Big Dogs’ might not work because it might not translate well in our Mexican and Spanish markets.”  Hmm, that’s a fair comment, I thought, surprised they even had international locations. “How big are your Mexican and Spanish markets,” I asked? “Well, we’re not in those markets today… but we might be some day.”  I took a deep breath and asked, “Ok, if you were, what percentage of your sales do you think these markets would be in 5 years?”   “I guess less than 5 percent,” was the answer.

Now I mention this conversation not because the objection was dumb, but because objections like these happen all the time when you’re brainstorming.  And when you are brainstorming you really do want to hear all ideas and all possible pitfalls.  But entrepreneurial leaders sometimes forget that in startups, you can’t allow a “corner case” to derail fearless decision-making.

A corner case is an objection that may be technically reasonable and may have a probability of occurring, but its probability of occurring is lower than your probability of running out of money.

I’ve noticed that corner case comments are directly proportional to the intelligence of the people in the room.  The smarter the team the more objections you’ll have – and they’ll all be technically and theoretically possible.

Carefully considering each and every possible outcome before you proceed with a decision is something large companies with large revenues, shareholders and employees need to do.

Achieving consensus about every corner case from each stakeholder in the room is something large companies with large revenues, shareholders and employees need to do.

Unlike large corporations, startup meetings are not about achieving consensus for every objection raised.  They are about forward motion, momentum and feedback loops (i.e. Customer Development.)

The heuristic I suggest is: hear the corner case objections, make the objector calculate the odds, if the potential damage estimate is low (probability of the event occurring multiplied by its ability to put you out of business) keep the meeting focused and move on.  If you do this consistently your team will catch on.

You’ll be spending your time on what matters, rather what’s theoretically possible. For a startup “No Corner Cases” needs to be an integral part of your corporate DNA.

Any startup that’s striving for consensus on corner cases instead of speed and tempo will be out of business.

Photo by Diorama Sky via Flickr

The Internet is full of good advice about how to lead a healthy, balanced work/home life.

If you don’t have your health and your family, it generally says, nothing else matters. On your deathbed, will you wish you had worked longer hours or been a better parent? Will you wish you had spent more time Twittering or more time exercising, extending your life by five years?

Compelling thoughts. And yet, in my experience this attitude is not the path to success in small business.

Maximizing your chance for success means sacrificing health and family.

This sounds controversial, but it’s not just me:

• Jeremiah Owyang of Web Strategist: “How do I Keep Up?” This is one of the most common questions I get from folks, or a variant: “Do you sleep?” or “Do you have a family?” I can answer succinctly: “I don’t, in shifts, and yes… I think.” … I’m lucky I fell into my passion. It comes with costs however, I’m out of shape, stressed, I don’t sleep well, and my blood pressure is up.
• Mark Cuban, self-made millionaire and owner of the Dallas Mavericks on how he acheived success: “I slept on the couch or floor … Because I was living on happy hour food, and the 2 beer cover charge, I was gaining weight like a pig. But I was having fun. … Every night I would read [software manuals], no matter how late. … I remember sitting in that little office till 10pm … I would get so involved with learning that I would forget to eat …
• More from Mark in an interview with YoungMoney Magazine: Question: “Did you have to sacrifice your personal life in order to become a business success?”  Answer: “Sure, ask about five of my former girlfriends that question. I went seven years without a vacation. I didn’t even read a fiction book in that time. I was focused.”

“So what,” you could argue, “just because many successful entrepreneurs are workaholics doesn’t mean that’s the only path to success.”

Indeed, study after study has shown that “working more hours” doesn’t translate into “accomplishing more shit.” If you’re not getting enough sleep, for instance, working extra hours doesn’t make up for your foggy brain.

Also, optimizing how you spend your time can increase productivity several times over — an increase you couldn’t possibly match by working more hours.

Yeah, but here’s the problem.

The “Rule of Closets” is that the amount of crap you own will expand to fill all available closet space. You can create more space by adding shelves and organizers, but then you’ll soon discover you have more stuff.

Well I have a “Rule of Time in Startups”: How much time does a bootstrapped company take? All of it.

Even ten people could hardly keep up with everything you do in small business — creating, consulting, designing, fixing, self-promotion, blogging, networking, bookkeeping, taxes, customer support and cultivation and all those little crappy things like losing an afternoon troubleshooting your fancy outsourced IP phone system that was supposed to let you “work from anywhere.”

One, two, or even three people can’t do everything, so of course it takes all your time. If you’re working a day job while starting something on the side, of course you don’t have time to exercise or play with your kids before bed.

It takes obsession to make a little company go. Forget “passion” — everyone’s favorite word — it’s “obsession.” It’s not just that you love working, it’s that you can’t stop working. You’re putting your entire self on the line — your finances, your career, your ideas.

The obsession is there even when you’re away from the office, having lunch with a friend or reading to your kids. As my wife would frequently point out in the early years of Smart Bear, my “mental and emotional bandwidth” was entirely consumed. You’re physically there, but you’re not really there.

Read those quotes above again and you’ll see not just passion but self-destructive devotion. You don’t put yourself through this meat grinder just because you “like something a lot.”

“If you love it so much, why don’t you marry it?”

Exactly.

Of course those life-coaches are still correct: This isn’t a great way to live your entire life. You need to accept that this is going to happen and ask whether it’s OK to incur this penalty right now. For me, I did all this in my 20’s when I had no kids, I had enough savings to risk everything for a while, and I had a wife who had her own business and who therefore understood how much work it took and why I was spacing out over dinner.

Bottom line: Every successful bootstrapper I know puts work before self. (Until financial freedom is achieved.) I did too.

(Curious what Jason’s wife thought about this? Check out her rebuttal.)

Photo by a.drian via Flickr

Entrepreneurs tend to look for one of two types of buyers when they decide to sell their business. Some search for the perfect match as defined by their personal exit goals. Others simply go after the highest sales price.

Obviously the dream is to find both – someone who will protect the employees, product or vision and still pay a boatload of money. As you might have guessed, it rarely works out that way.

Managing your own expectations is critical, as well as making it clear to potential buyers early on what you want out of the transaction.  It’s all too common for a deal to fall through because the seller starts the selling process with one goal in mind and then changes the rules along the way.  Recognize that every potential buyer will require some sort of choice between your goals and their offer. Most business owners I work with say they don’t care who the buyer is as long as they get the money, but the buyer can make a difficult process much easier or harder.

There are a few methods for finding a buyer for your company.  You can either pay a business broker to professionally represent you and take care of the marketing and transactional work, or you can do it yourself.  One of the advantages of an advisor is they have clearly organized websites that list the businesses they are representing. If you choose the do-it-yourself option, there are multiple online listings sites to use, but there’s no standard Multi Listing Service for businesses as there is for residential listings.

That makes your company harder to find. On bizbuysell.com, there are 47,000 businesses for sale right now. Standing out from that crowd is nearly impossible.

That doesn’t mean it’s not worth trying. Listing online typically isn’t that expensive. It’s also, believe it or not, worth trying local listing services like Craig’s List or even the local community print newspaper. I can personally vouch there’s success to be found there.

Admittedly, though, none of these are the ideal option.

The best way to find a buyer is to go looking for them.  It’s a proactive effort that requires time and effort.  Start by looking at your major customer base, your largest supplier/vendor or competitor. They may not be actively looking, but if there’s a reasonable business reason to do consider the purchase, they might take a more serious look.

In the end, recognize that you’re swimming against the current when you decide to sell. It’s always a buyer’s market in the business world – and the potential buyer that’s interested in your company may not meet your definition of ideal. But through vigilant listing, networking and effort, you just might get lucky.

Dana Callow is the Managing Partner of Boston Millennia Partners.  Prior to founding Boston Millennia Partners, Dana co-founded Boston Capital Ventures.  In addition to working with Fortune 100 companies in strategic planning and implementing M&A strategies, Dana is, or has served as, a director of a number of other public and private companies.

Some have recently argued that the venture capital industry is undergoing a substantial reduction in size, in large part due to institutional capital reallocating funds to more conservative investments.  Some have even argued that this is a necessary contraction in the industry.  Will you share your thoughts on this subject?

Most institutional investors have reassessed their overall tolerance for risk. The poor performance of most asset classes last year and a loss in confidence of traditional correlation effects of multiple asset classes has changed investors’ thinking.

The venture industry has been inconsistent at best in its recent investment performance and therefore it is a casualty of the recent downturn. However, we believe there will be a reversion to the norm, and we will see the venture asset class outperform relatively significantly over the longer ten year term. Combined with a broader reduction in risk tolerance on the part of many investors, the result is a slow consolidation of our industry.

This trend will reverse as returns and increased liquidity and exits show up through M&A, limited IPOs and secondary restructuring. Many industry observers suggest that there has been too much money chasing too few good deals, but we believe that the weaker return issues are more centered around a limited pool of great CEOs and inadequate thinking on how and when to exit an investment.

It has always been easier to buy than to sell. What results is a healthy realignment of efforts toward the strategic sale on the part of the GPs. The industry consolidation is a necessary condition based on smaller or substantially reduced allocations to alternative assets coupled with liquidity problems in many of the larger institutional investors.

Nonetheless, there is still substantial capital available to those venture firms with a clear strategy, strong investment teams and a proven track record.  A contraction in the number of firms is beneficial to both investors and entrepreneurs as it is a form of natural selection creating a more efficient marketplace.

While the economic conditions over the past year have created cause for concern for the venture capital industry, what are you seeing on the positive side in terms of innovation and advancements from companies in various sectors that excite you from an investor’s standpoint?

There remain substantial ongoing opportunities in many sectors for innovative companies [that] genuinely reduce costs and improve productivity for their customers. In difficult economic times, it is important for innovation to create economic growth and new opportunities.

In particular, the healthcare information and services sectors continue to offer many interesting investment opportunities due to (1) large dollars flowing through the segment and continued above average growth; (2) the need for immediate and substantial cost reduction; and (3) the critical need for better information to improve the productivity of healthcare providers, better accountability and improved quality of care.

In addition, because capital is very difficult to come by for most small companies, the ones receiving the capital are being subject to a higher level of scrutiny than when capital was easy to obtain, and hence the chance for these current companies to be successful may actually increase as a result.

Truly differentiated intellectual property is essential as there are so many underfunded opportunities at present that the corporate buyer has a multitude of companies to review and seeks only the best strategic combinations for their long-term growth.

You are to be commended for your prediction two years ago that the IPO market for most venture-based companies was all but over.  What is your current outlook for the IPO market?

Challenging those that suggested the IPO market would become very active and a source of liquidity was not actually that difficult. Based on long term statistics, IPOs have had a relatively limited percentage of all exit values. High profile IPOs get attention, but by far the M&A route has been more robust.

Multiples on investors’ capital have proven more important than pure IRR numbers. Legislation such as Sarbanes-Oxley and new valuation rules – as well as the potentially damaging tax changes that may be forthcoming from Washington – do not alter our thinking and therefore future IPOs may be limited to larger buyout and private equity type companies restructuring their balance sheets.

An IPO market is needed at some minimum activity level to provide a “second buyer” and keep the M&A market from becoming a distress exit scenario. The exit is more than ever a process not an event that can require a year or more from first sale conversations to cash proceeds.

While the market may have opened a little bit with the A123 offering (of which we were a small part) and a handful of other IPOs, for the most part it remains closed to most venture backed companies, as there is little appetite on the part of institutional portfolio managers to buy and hold large positions in smaller companies.

What advice can you give to entrepreneurs seeking capital in this environment?

Come to any potential capital source with a well thought out business plan addressing key “got to have” features in the product or service offering, seeking a reasonable amount of capital for a highly capital-efficient model and participating in a sector characterized not only by high growth but most importantly by the prospect of a real and profitable exit within a reasonable period of time, perhaps 5 or 6 years.

We expect our entrepreneurs to be investors in their businesses, so align yourself with the investor with a capital gain focus, not operate as a current income centered employee.

Be prepared for a realistic valuation to be placed on the business and demonstrate a willingness and experience of working with professional investors.  Further, put as much time into understanding your investor candidates as you do preparing your business plan as they will be your partner for several years and much of the success or failure of your company will be due to that partnering relationship.

Your firm seeks to make investments in the healthcare/life sciences industry.  Although the healthcare/life science industry has been affected by the downturn in the economy, has it not seen as many negative effects as other industries?

The US healthcare sector, which arguably can be measured as large as the entire Chinese economy and growing equally fast, is comprised of many sub-sectors and each sub-sector has its own characteristics and requirements for success. We believe that there will be huge rewards offered to companies [that] can reduce costs while maintaining or increasing the quality of care.

Any time a company can improve interaction of the payer, patient and provider triangle there will be rewards. The lack of simple information technology at many of the nation’s healthcare providers is astounding to us, and we are aggressively pursuing improving information flow for many hospitals and physician groups around the country at our portfolio companies.

Areas where we are quite cautious include drug discovery and development, a sector [that] requires a large amount of capital, time and more detailed expertise than ever before. Our firm would rather service those research-intensive sectors than directly fund early stage molecules. Our company, Parexel, now public, is a case in point that  ”providing picks and shovels” can be as lucrative as doing the actual “mining.”

Innovation has been a hallmark of the healthcare device industry. New ideas that reduce costs directly or reduce the need for in-hospital care or provide better information for more timely decision making and thereby improve productivity and the quality of care can be the basis for a successful business.

Finally, large players in this sector have traditionally made many acquisitions of smaller companies thereby creating an exit for the venture backed company, and we expect that M&A activity to increase in the future.

(To read the entire interview, head to VCExperts.com)

I joined the board of Cafepress.com when it was a startup. It was amazing to see the two founders, Fred Durham and Maheesh Jain, build a $100 million company from coffee cups and T-shirts.

But Cafepress’s most memorable moment was when the founders used a “Lessons Learned” VC pitch to raise their second round of funding and got an 8-digit term sheet that same afternoon.

Here’s how they did it:

Fred and Maheesh had started 9 previous companies in 6 years.  Their motto was: “Fail fast and cheap. And learn from it.” Cafepress literally started in their garage and was another set of experiments only this time it caught fire.  They couldn’t keep up with the orders.

The company got to a point where additional capital was needed to expand just to keep up with the business (a warehouse/shipping center collocated with UPS, etc.) Rather than a traditional VC pitch I suggested that they do something unconventional and tell the story of their journey in Customer Discovery and Validation. The heart of the Cafepress presentation is the “Lessons Learned from our Customers” section.

Their presentation looked like this:

• Market/Opportunity
• Lessons Learned Slide 1
• Lessons Learned Slide 2
• Lessons Learned Slide 3
• Why We’re Here

Telling the Cafepress Customer Discovery and Customer Validation story allowed Fred and Maheesh to take the VC’s on their journey year by year.

After these slides, these VC’s recognized that this company had dramatically reduced risk and built a startup that was agile, resilient and customer-centric.

The presentation didn’t have a single word about Lean Startups or Customer Development. There was no proselytizing about any particular methodology, yet the results are compelling.

The VC firm delivered a term sheet for an 8-digit second round that afternoon.

Your results may vary.

Over the past 20 years, I have worked with countless VC firms to promote their portfolio companies. However, it never fails to amaze me how ignorant those VC firms are about what marketing actually does.

Very few VCs invest either the time or resources to create basic credibility or market visibility for themselves. However, there are five easy ways VC firms can accomplish this. These methods will help them be perceived as credible thought leaders, reach their target audiences and build a better pipeline of higher-quality prospective portfolio companies.

Promote successes: There is nothing more powerful than a proven success story to demonstrate a firm’s abilities.  VCs urge their portfolio companies to get case studies up on their Web sites and incorporated into marketing materials, so why do so many fail to do so themselves?  Create documented case studies on wins, highlighting fellow investment partners, management strategies and exit options.  And some ROI would be a good idea, too.

Maintain a healthy pipeline of things to talk about: Silence is not golden when it comes to business.  A healthy, burgeoning enterprise communicates with its core constituencies through social media forums, news releases, e-newsletters, media alerts and white papers.  Not only are these strategies smart ways to let portfolio companies and investors know that a VC’s business is thriving, but they are also excellent marketing tools to drive Web-site traffic and help people (and potential customers) find those firms – which is a lot easier than having to find the customers.

Build a community around the firm: Think of social media as a very important and useful tool, not a marketing strategy.  It’s the “how” to communicate, not “what” to communicate.  At its core, social media is an outbound manifestation of a face-to-face meeting.  It allows companies to be quicker and more nimble to respond. It’s also more likely to more quickly build a relationship.

Get out of the office: Yes, conferences and networking events can be painful, especially if you’re not comfortable speaking in public or a particularly extroverted person.  But speaking engagements for a VC firm’s executives  - or having high-profile portfolio companies at VC, technology and business events – can promote thought leadership and open doorways to new business opportunities.

Be useful: In my profession, I’ve built close, long-standing relationships with journalists, analysts and key industry bloggers.  One of their biggest complaints is not having dependable and credible VC contacts to rely on as sources or subject-matter experts.  Build and grow relationships across traditional and new-media outlets so that when they’re working on something, they view you as a trusted source and help spread the word about you and your firm.

There is a lot of competition to find the right companies and management teams to invest in.  “Stealth” venture professionals who do limited marketing will be late to the party, and with the economic recovery ahead, can you afford to take that risk?

Serial entrepreneur Steve Blank, in this entrepreneurial though leadership lecture at Stanford University, points out the folly of this path and explains why segregating your company early on can be disastrous.

One of the central themes of the discussion was that a simple sales approach doesn’t work with developing technology and online media. Startups need to develop partnerships with large corporations, building a relationship with key personal within each company. “You work on one guy behind the firewall who spreads the gospel,” said Gutman. “Then you need patience, because big companies don’t work as quickly. Don’t sell at the first meeting, cause you’ll just tick them off.”

Meetup.com’s VP of sponsorship Mary Telesco stressed that these relationships should not only be channels to close deals, but also a crucial tool in product development. “Especially when you don’t know exactly what the end product is going to look like, that champion helps you get through the door and develop a viable product.”

The sentiment seemed to be that CEO’s and other C-level executives were not the best “champions.” Instead, key influencers tend to come from lower levels. Dan Herman, head of digital media at ad agency Media Kitchen said, “It often times isn’t the CEO who is your champion. I never found a C-level person as effective because you might get 2% of their mind. The day-to-day people, the analyst and employee two years out of college will become your champion.”

While making that key partnership to lend your brand credibility, many entrepreneurs in the group stressed not to under-price your offering. First Round’s O’Donnell said. “It’s a lot easier to come down in price than come up. If you can’t go and sell a deal for $50,000 or $100,000, how are you gonna make a deal for $10.” Timothy Ehrlich, an IP partner who is working with startups Boxee and Etsy, stressed that price cannot be the only consideration. “On the one hand you’re building value for another company, but on the other hand you want to use it elsewhere. Who owns the intellectual property can be just as important as price, so you need to think ahead before signing exclusives.”

When you’re a startup with a new product, you will often times be met with skepticism from major brands. When making your pitch, make sure to tailor it to each potential partner, even the personnel in the room. Colin McCabe of American Express Interactive Group said, “A lot of times a presentation just doesn’t match anything we’re doing. If it’s not relevant for what the person you’re pitching is working on, it will fall on deaf ears.

Foursquare’s Crowley said, “We have conversations with brands, and with each one we’re giving a different pitch.” Crowley continued, “When we’re talking with a big company or a VC, it’s not about millions of users right away. It’s about having the right users and them coming back at the right time.” The tireless pace of deal making at his mobile startup has led Crowley to hang up his programming hat to focus on business development and strategy full time. “We’re not doing any outbound business development, only inbound. There’s programmers, a contract guy, and a business development director/intern. They won’t let me touch the code anymore.”

I had an incredible experience this week.  My friend Phil Weiser, who is now the Deputy Assistant Attorney General at the US Department of Justice, Antitrust Division (I prefer to call him America’s Top Cop on Agriculture) invited me, my partner Jason Mendelson, and my wife Amy Batchelor to attend the Supreme Court Oral Arguments for re Bilski.

For those that know about my fervent anti-patent bias with regards to software, Bilski is an important case.  Depending on how the Supreme Court rules, it could open the door for both the invalidation of business method patents as well as begin a serious discussion about the validity of software patents.  One can hope.  So, this wasn’t a random Supreme Court visit, but rather one that is highly relevant to something I’ve spent a lot of time thinking, talking and writing about.

At exactly 1pm, the Justices entered, sat and immediately called the Petitioner (J. Michael Jakes).  Jakes got about thirty seconds into his oral argument when Justice Scalia jumped in with a question.  A short answer by Jakes was followed by a question by Breyer.  Another short answer and then a question by Ginsburg.  Then Breyer. Then Sotomayor.

Within five minutes I was stunned at the high level of understanding the Justices had in this particular case, the insightfulness of their questions, and their level of participation.

Breyer, Roberts, Scalia, and Sotomayor continued to question the petitioner for the next five minutes.  Their tone was aggressive – bordering on hostile – but never quite crossing the line.

The Petitioner abruptly finished (reserving the balance of his time) and the Respondent (Malcolm L. Stewart) began.  It was a similar drill and it continued for about 30 minutes – followed by a four-minute rebuttal from the Petitioner.

The experience continued to bounce around in the back of my mind the next day.  I was at a board meeting for a company that I’ve been on the board of for almost a decade – and it turned out to be the most productive meeting we’ve had in a long time.

I’ve written about The Best Board Meetings in the past.  One element of those is a prepared mind. This is the powerful lesson I learned from the Supreme Court.

I saw 11 very smart people at the Court participate in a very complex discussion that they were extremely prepared for.  In one hour they covered an amazing amount of ground, due to the work they did in advance of the meeting.

In many board meetings, the material shows up at the meeting. Sometimes, it arrives in advance, but the board members haven’t read it. And all too often the board material is either not detailed enough or is too detailed.  Basically, either the board members don’t have sufficient material to have a prepared mind in advance of the meeting, or they don’t take the time to do the work to be prepared.

So unlike the Supreme Court session, where you can dive into substance immediately, the board members and management spend a long portion of the meeting “getting up to speed”.  It’s a total waste of time for everyone in the room.

In my meeting, everyone was prepared.  The material was comprehensive, but not overly so.  It came in advance of the meeting (only 24 hours, but still enough time for everyone to read it).  And, rather than go through the material page by page, we picked a handful of key themes and discussed them… for several hours… in detail, but at a level that resulted in clarity for the board members and management.

The other key lesson I learned at the Supreme Court is the value of paying attention. I’ve written about this also in VC Behavior in Board Meetings. I continue to fall victim to the blackberry-checking syndrome.  Phones, computers, and PDAs aren’t allowed in the Supreme Court – so I paid attention.  And, as a result, I really followed what was going on and processed almost all of the information.

In the board meeting, I found myself drifting a little and pulling out my iPhone.  It detracted from the meeting, but most importantly it caused me to likely miss a few things I shouldn’t have missed.

Concentration is a hard thing to achieve – but it’s the best way to make an informed, rational decision. You never know what detail will matter.

As someone who has both sought venture capital and distributed it, I’m lucky to have a pretty unique perspective on what works and doesn’t work.

As I mentioned in the first part of this list, the mistakes don’t seem to change over time. And people who make them often walk away not only empty handed, but clueless about what killed their chances of getting funding.

What follows are four additional problems I see all the time:

Have a big monthly burn.

This depends on the type of business, but most software companies nowadays can be built with almost no expenses except wages – and even then, the founders should be taking a nominal salary until there’s revenue.

Huge expenses at the beginning are scary because expenses only go up. An angel-funded business lives and dies on how fast you can get to profitability, so big expenses means you’re already behind.

This is especially true of founders’ salaries. An angel wants to fund a company, not put money directly in founders’ pockets. If the founders aren’t willing to put in money now (in exchange for far more money later of course!), that’s already a bad sign that either they’re not committed to the venture or that they’re not in a good place in their personal lives to be taking a chance on a startup.

So how do you address expenses?

• Break out: wages, overhead, COGS at least. I don’t want to see every line-item, but wages show founder’s draw, overhead is the biggest barrier to profitability, and COGS helps me understand how many customers you need before you’re not burning cash. If any one of those is out of whack, then we can dig in.
• Explicitly talk about how founders will be deferring cash for themselves. The more committed you are, the happier I am. Once the company is profitable, I don’t care if the founders make good money.
• If you do need to spend big money, justify. For example, is this one-time R&D that gives you an unfair market advantage? Good. I this for inventory? Good. Is this for in-house servers because you don’t trust Amazon? Bad. Is this for A+ office space because you think it will impress customers? Bad.

Pretend this isn’t risky.

You’re at the earliest, riskiest stage of a business. Every choice is suspect, every plan is really a guess – and there’s a great chance the angel is going to lose all her money.

Pretending otherwise comes off as naive (at best) or ignorant (at worst).

There’s a difference between being confident in your ideas and in the clarity of the market opportunity, and coming off like this is going to be easy.

Remember, angels know this is a crap-shoot, and we’re here anyway! So of course it’s OK that it’s risky. The thing I want to hear from you is what you’re doing to address risk. The worst thing you can do is ignore that it exists, because then I think you don’t know the risk exists – and that means you won’t attack it. And there’s no way I invest in that.

Here’s how you can address risk while still giving the investor confidence:

• Here’s your mindset. Angels are gambling, yes, but there are different kinds of gambling. Money on the roulette table is a pure, random guess, and the house wins more often than not — that’s not the kind of bet we want to make. Instead, I want you to be a card-counting shark playing at a blackjack table with a single deck. Sure, you can still lose, sure there’s plenty of luck, but you have an unfair advantage, and I’ll bet on that. So when you’re addressing risks, think “unfair advantage” and “luck, but with a bias,” not “it’s out of my hands.”
• List the known risks so I can evaluate them. In my experience, no matter how massive the risks are, if you’re honest about them I’m very likely to believe they’re a good risk, just because I can see you’re honest and you have both eyes open.
• Show me how you’re addressing risk and reducing risk, rather than how there isn’t risk. Show me how you intend to deal with the unknown or uncontrollable, not “how in control” or “in the know” you are.
• Show me you’re open to new ideas. When we talk about risk I’ll probably have ideas too. Some of them will be stupid, but some will be useful. If we can brainstorm and categorize those, I’m comfortable.

Don’t interview me.

Most pitches come off as begging. You need money and you’ll do or say anything to get it.

But answer me this: If you don’t act like you’re valuable and that I should be thrilled for the privilege of giving you money, then why should I believe you’re valuable and that I should be thrilled for the privilege of giving you money?

This is a two-sided interview. And if you can’t walk away from this arrangement, you’re not in a negotiating position, and I can tell.

Here’s how to do it:

• There’s a difference between confidence and arrogance. The latter is a turn-off, the former is a turn-on.
• Tell me which other investors you’re talking to. Make it at least appear you’re in demand. But remember angels often know each other or can find each other, especially in the same city, so you can’t lie about anything. So don’t lie – talk to lots of angels at once.
• Interview the angel investor. Ask things like:
  • What else have you invested in? (Then follow up later; are those are good companies?)
  • Tell me your philosophy on startups. (Make sure this matches your own)
  • What companies have you founded and run? (If “none,” this person probably won’t be of much use.)
  • What will you bring to my company besides money? (Usually this answer will feel unsatisfactory to you; that’s because usually angels don’t have much to offer. If you just want money only, that’s fine of course, but if you’re expecting more — like direction or advice — grill them here. If they say “I have connections,” that’s crap. You don’t need introductions, you need action!)

Don’t have an exit strategy.

It’s too early, of course, to say exactly how this company is going to make us both rich, but I want to know the ways we can get out of this deal.

Remember, the angel is here to make money. Changing the world, thrilling customers, getting an ego-boost – that’s for founders. Investors need money, only. So you have to address how that’s going to happen.

Some founders want to be “king” instead of “rich;” no exit strategy means you might be one of those. That’s fine for you – nothing wrong with that! – but it’s not good for the angel.

Here’s what I want to see in your exit strategy:

• Explain the type of company who would purchase you, why they would and list some names.
• Give me various ways to get out, not just one.
• Tell me that if you get profitable and for whatever reason stock isn’t liquefying, that the investor has an option of just getting a good return on her money. This is usually in the form of a balloon loan or convertible warrants — in your pitch I don’t care what the mechanism is, just tell me that you’re up for that option too. After all, not all companies should or will be sold, and if you can give the investor a good return and you get to remain “king,” that’s wonderful for all parties.
• Don’t tell me about valuations or multiples. Angels already know about these things, and they probably know more than you do, which means you’re walking into a mine field. If you’re too low, your company looks worthless. If you’re too high, it makes you look silly and naive. The truth is that valuation is highly variable, and that’s OK! That’s what the angel is getting himself into, so don’t worry. Stick to the paths to success rather than absolute dollars.

Photo by SD Dirk via Flickr

It’s easy to feel left out if you’re a startup that’s not based in Silicon Valley.

We’ll admit to feeling the occasional sting of envy when we hear about the exciting events and opportunities taking place there from our headquarters in Vancouver, Canada. But we’ve also learned that there are some real advantages to being headquartered beyond the bubble – and that having a day-to-day presence there isn’t as important as it might seem.

Here are a few of the upsides we’ve discovered, as well as tactics for staying connected to the tech entrepreneur ‘mother ship’ while enjoying the benefits of your home base:

Avoid the “Valley premium” – Startups that set up shop in the Valley fork over a premium for the exclusive location. As one of the most expensive urban areas to live in nationwide (according to ACCRA), the Valley drives up basic costs, ranging from salary and benefits to rent and utilities. This means the $5 million in funding your Valley-based competitor receives may barely keep the lights on, while a smaller round of funding could mean major growth for your firm. Leverage this fact with investors that are interested in hearing about how you can do more with less.

Be the local rock star, instead of a dime a dozen - The Valley is like a modern day Gold Rush: the possibility of striking it rich draws the masses and every tech company wants a piece of the action. As a result, it’s easy to get lost in the crowd. (And, to add insult to injury, there are no economic incentives or tax breaks for your business.) In contrast, local governments outside the Valley bubble often give entrepreneurs the star treatment and big cost-savings— such as tax breaks or subsidized health care—to stimulate growth.

Recruit Valley ambassadors - An industry influencer or PR agency based in the Valley can serve as an advisor, champion your technology and help you penetrate the exclusive bubble – giving you a “physical” presence despite being geographically removed from the Valley. They can also teach you the lay of the land, arrange networking meetings, alert you to local events and help fine-tune your Valley strategy.

Don’t be a stranger - Travel to the Valley at least once a quarter, timing your visits around major conferences/events to maximize in-person meetings and networking opportunities. Regular face time ties a personality to a name, which ultimately may be all people remember about your company. It’s also a key ingredient for maintaining relationships.

Be a joiner - Participate in local industry and entrepreneur groups – not only will they help you build a stronger presence where you’re based, but they can connect you with sister organizations or other entrepreneurs in your industry that are based in the Valley.

Give your startup space to stretch its wings - The Valley offers a high concentration of opportunities, but niche industries often struggle to get even a sliver of that pie. Consider opting for an area with a concentration of companies in your space that can help nurture your startup with good talent and resources. Colorado, for example, has a strong portfolio of UI and design startups and Canada is known for its video gaming industry.

Take advantage of the talent - When you are a company of 10, your talent is your business. Without resource-wealthy giants creating silos for incoming talent, startups outside of the Valley have a fighting chance to recruit and retain great employees without having to resort to alternatives such as outsourcing – an option that has become less cost-effective in highly-skilled industries. Target areas with academic institutions that groom the type of talent you seek or governments that allow you to import talent without heavy regulation.

Take advantage of the upcoming economic turn - Historically, investors have had a primary focus on the Valley, but with Bay Area deals falling by a much faster rate than the rest of the country last year (57 percent according to Dow Jones) investors are now more willing to look outside the bubble for innovation.

Photo by christian.rondeau via Flickr

Founder Collective, the New York City-based fund started by Hunch co-founder Chris Dixon, along with Eric Paley and Dave Frankel has rounded up a number of high-profile serial entrepreneurs including Flickr co-founder Caterina Fake, Vimeo co-founder Zach Klein and LiveOps co-founder Bill Trenchard. The $40 million fund will also include Mark Gerson, who started Gerson Lehrman Group and Micah Rosenbloom, who started Brontes.

Dixon wrote:

“We think of ourselves as part of a new wave venture firms … that have adapted to a world where venture capital is abundant but authentic seed capital and, more importantly, mentorship from experienced entrepreneurs, is scarce.”

The fund will focus on seed investments, and won’t take options on future financing rounds. Partners in the fund are generally entrepreneurs as well and Founder Collective will focus on companies in New York and Boston. Dixon said the new fund was not just a group of angel investors — the partners share in the profits and take leads in investments.

Customers have a natural affinity to stay with their current vendors. It is, after all, far less trouble. Most of the time, when someone moves their business, it isn’t because the competitor has that much better of a product or service, it’s because their existing vendor ticked them off in some way that a competitor doesn’t.

So why do so many otherwise good companies find a way to alienate their customers?

Bank of America recently crossed my threshold of irritation, and made me consider alternatives, by simply botching the regular process of making a deposit. I went to the BofA drive-through teller to make a deposit with check in hand and checking account number available. Seems simple enough: I didn’t want money back; I just wanted to make a deposit in my personal account, which was the same name as payee on the check.

• Irritation #1: When I drove up to the window, the teller asked me, “Are you making a deposit? If so, you need a deposit slip.” Why make is seem like I made a mistake instead of offering to be of service? How about just, “Do you need a deposit slip?”
• Irritation #2: After passing me the deposit slip she informed me that I needed to leave the window, fill out the deposit slip and circle back. This would have bugged me a bit less if there were a line, but there wasn’t anyone behind me.
• Irritation #3: After circling back, and giving my freshly filled out deposit slip she told me that I filled out the wrong deposit slip – because I have a Texas bank account, rather than one based in Oregon account. This time, she decided to help me out by filling out the form, but gave me a brief lecture about how I should keep a stack of these deposit forms for future use.

This is a seemingly small annoyance, and I’m not averse to following procedures, but what makes this particularly irksome is that I have a separate account for another entity with Key Bank. Their process for deposits? No deposit slip required, just hand them the checks. They make Bank of America seem downright antiquated.

This isn’t meant to be a rant against BofA, but rather an example of how a company can quickly become more difficult to do business with  – enough so to make a customer question their future business with them.

It also underscores how the seemingly smallest thing can drive your customers into the arms of a competitor.

Think of your own industry and the kinds of opportunities or problems this presents. Want to hold on to your clientele? Find out what’s annoying them and fix it – fast.

Want to steal your competition’s customers? Identify areas where they may be irritating their customers and ensure your company handles those smoother.

For example, Does the competition charge to pilot their product or service? Find a way not to. Does your competition have complicated, line item pricing? Find a way to simplify your own pricing. (This is an ongoing effort in the telecommunications industry.) For customer support, does your competition subject customers to a maze of automated phone tree responses? Get a person on the line with a command of the English language.

A good real-world example of this philosophy in action is Southwest Airlines, which is taking one of the major annoyances of the airline industry and working it to their advantage with their “Bags Fly Free service”. Book a flight on most other airlines and unless you’ve achieved frequent flyer status you’ll shell out $15-$25 per bag.

Existing market problems can be your best opportunities. The trick is to not only identify them in your competitors, but to take note of them within your own business before you see your customer base start to suffer.