John Greathouse Hands-on startup advice for emerging entrepreneurs Wed, 20 May 2015 18:52:09 +0000 en-US hourly 1 What The Heck Are My Startup Options Worth? Mon, 18 May 2015 12:00:09 +0000 A version of this article previously appeared in Forbes. When joining a startup, there are seven important questions you should ask in order to answer […]

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A version of this article previously appeared in Forbes.

When joining a startup, there are seven important questions you should ask in order to answer the question: “What the heck are my stock options worth?”

You just received a job offer from a startup which includes 50,000 stock options. That is wonderful…or is it?

I reviewed and approved hundreds of employment offer letters at my various startups, all of which included stock option grants. The number of otherwise intelligent prospective employees who never ask relevant questions about their stock options was frankly shocking.

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Questions To Answers

I am sorry to disappoint the MBA crowd, but estimating the value of your startup stock options is not something you can do using the Black-Sholes option pricing model. In contrast, estimating the potential ultimate value of your startup options requires you to intimately understand the venture’s business model, the execution capabilities of the core team and the veracity of the company’s financial projections.

To this end, politely and persistently ask the following questions until you obtain enough information to estimate each of the variables in the formulas shown below. Answering these questions will allow you to reasonably estimate what your options may ultimately be worth.

1.     How many shares will I be granted?

The size of your initial option grant should be articulated in your Offer Letter, as well as in a separate Stock Option Agreement. In most cases, your shares will vest over a four-year period, with a one-year cliff. Under such an arrangement, if you leave your company within the first twelve months, for any reason, you will not vest any shares. Once you have completed your first anniversary of employment, vesting usually occurs on a monthly basis. Any vesting terms that do not conform to these standards should be challenged.

2.     What is the company’s total capitalization?

To help the CFO understand your request, indicate that you are seeking a “fully diluted” view of the company’s capitalization. Also, be sure that all “authorized” options are included, which will ensure that the capitalization figure includes granted and ungranted options.

3.     How many additional options will be authorized?

Authorized options include those which have not yet been granted. In order to calculate your potential future dilution, estimate the number of additional options that will be authorized and added to the option pool.

The size of a startup’s option pool will vary, depending on its maturation. However, the pool’s size, as a percentage of a company’s Total Capitalization, is generally between 15% and 20% at a company’s maturity. If an option pool is significantly below this range, it may be an indication of either; (i) a company that is stingy with its options, or (ii) significant future dilution may occur, once the option pool is increased to accommodate future option grants.

It is very common for companies to increase their option pool over time and a well-run company will manage a capital budget as a means of estimating its future option grants. As such, it is very reasonable to ask for an estimate of additional options to be authorized before the company’s exit.

4.     How many additional shares will be issued to investors?

As is the case with future options, a well-managed company can reasonably estimate the amount of investor capital it intends to raise in the future, along with an estimation of the valuation(s) at which such investment(s) will be made.

Future capital requirements are based on a variety of unknowable factors. However, it is imperative to understand the company’s underlying assumptions with respect to its future capital needs. A response of, “We have no idea,” is indicative of a company that is either: (i) poorly managed, or (ii) does not respect its prospective employees enough to provide them with a thoughtful response. Do not settle for a non-answer to this important question.

5.     How many options will I be granted in the future?

Clearly, the number of any additional options you will receive will be dependent on your tenure and performance. Some companies provide their employees with small options grants annually, usually in conjunction with either year-end or the employee’s anniversary hire date, while others seldom make such “refresh” grants.

6.     What is Management’s best estimate of the Company’s valuation upon an exit?

This variable is obviously an educated guess, at best. Even so, your prospective employer should be able to provide you with a valuation range that would be acceptable to the management team.

7.     What is the Exercise Price of my initial options?

This should also appear in your Offer Letter and Stock Option Agreement. Do not be satisfied with a response such as, “The exercise price will be defined by the Board of Directors, based on the Company’s Fair Market Value.” Ensure that your exercise price is defined in writing before you accept the position, even if it is subject to subsequent Board approval. Also, be sure you know the company’s latest 409A valuation.

Options Are Just That

Once you obtain the answers to the above question, you will have enough information solve the following four equations. At first glance, these formulas may appear complicated, however; the math is actually simple. To minimize potential confusion, the variables used multiple times are color-coded.


I have been fortunate to work with great teams who were able to create enough value that our options were worth a significant amount of money. However, the reality is that many startups’ options are never worth anything. As such, consider any compensation derived from your options as an unexpected windfall. Working with kind, motivated and smart people who you will learn a great deal from is a far more important consideration than the potential value of your option grant.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about killer burritos or pettable puppies.

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Why Selling To The Government Can Destroy Your Startup Mon, 11 May 2015 12:00:11 +0000 A version of this article previously appeared on Forbes. The US Postal Service pulled off another debacle with the Maya Angelou stamp. Their task was […]

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Maya Angelou Forever Stamp Dedication

A version of this article previously appeared on Forbes.

The US Postal Service pulled off another debacle with the Maya Angelou stamp. Their task was simple. Combine a photo of Ms. Angelou with one of her more memorable verses. Instead, the coupled her image with text written by Joan Walsh Anglund.

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Twice Isn’t Charming

Hey, everyone makes a mistake. Surely this is an anomaly for the always-on-the-brink-of-insolvency US Postal Service (USPS). Sadly, this is not the case.

In 2010, as part of its “Forever” series, the USPS issued a stamp of the statue of liberty. However, rather than using the statue which has greeted immigrants to the US for nearly 135-years, the USPS erroneously used a photo of the cheesy replica which sits outside of the New York, New York hotel in Las Vegas.

After first denying it had made a mistake, the USPS was sued by the sculpture of the Vegas replica for copyright infringement. Oops.

Note: As a public service, I will happily offer the USPS a 15-minute course in “How To Use Google” at my special government rate of $150,000.

The Downside Of Government Contracting

The abundance of incompetence and the utter lack of accountability are just two reasons why startups should avoid selling to the government. Even in the USPS’s response, they took little ownership for their obvious error, stating “Had we known about this issue beforehand, we would have used one of [Ms. Angelous’] many other works.” In other words, “if we had known it was a mistake, we wouldn’t have done it.” Wow. This childish response in the private sector would almost certainly precede an employee’s brisk walk to the door with their belongings in a box.

An entrepreneur’s two most valuable assets are time and money. Government prospects abundantly waste both, by negatively impacting a startup’s cash flows while causing it to spend unnecessary time participating in laborious approval processes and elongated sales cycles. Note: I use the term government herein as a matter of convenience to apply to all forms of municipal organizations; city, county, state and federal.

Other reasons startups should avoid engaging selling to the government include:

Vendor Approval Process – In many instances, governments require companies to abide by arduous vetting processes in order to become an "approved" vendor. In the case of the US Federal Government, the requirements of the Government Services Administration can take years and a small fortune to fulfill – time and money most startups simply cannot afford.

Slooooooow Mover – Given the typical government worker’s lack of accountability, the typical government procurement embodies no sense of urgency. Rather, the purchasing process is generally lengthy and requires vendors to commit significant time and resources, with no certainty that they will derive a single dollar for their efforts. Approved vendors are then required to complete cumbersome Requests For Proposals. These voluminous documents should generally be avoided by startups, as most young companies do not have the internal resources or the luxury of time required to succeed in a multi-vendor bakeoff.

Successful startup selling is largely predicated on velocity. Thus, startups should Go For The No; quickly determine which prospects are most likely to purchase in the near term and focus your venture’s energy on delivering near-term prospects an awesome experience. Unfortunately, governments seldom do anything quickly, including telling a startup, “No.”

Slooooooow Payer – The government is a notoriously slow payer. Officially, the Prompt Payment Act requires the US government to pay its vendors in 30-days “after receipt and acceptance of material and/or services.” In actuality, payments routinely extend beyond this threshold, with 120-days outstanding not uncommon.

When the US government announced the 2009 Cash For Clunkers stimulus plan, it promised dealers they would receive payment “within 10-days.” Unfortunately, the majority of the government’s payments were not submitted until months after the dealers had paid for the used cars they purchased on the government’s behalf. Even when the government has good intentions, it is difficult for it to act in a timely manner. Good intentions will not pay your light bill.

Capricious – Non-government customers sometimes make irrational decisions that are difficult to predict; government customers do so on a routine basis. As the decision makers come and go with the latest election cycle, a startup can lose a government account for no reason other than the newly elected officials want to give a hearty "thank you" to a company that greased the skids for them during the election. In addition, government budgets are prone to draconian, across-the-board cuts which often have no correlation to the efficacy of specific programs or vendors’ solutions. It is frustrating to lose an account to a formidable competitor. It is downright criminal to lose a hard-fought sale because of crony capitalism.

Set Asides – Despite the controls bureaucrats create to ensure a fair procurement process, it is any but. Most startups do not have the financial wherewithal to make adequate campaign contributions to purchase government set-asides or win no-bid contracts. In most cases, startups are “set aside” to make room for big companies, when it comes to obtaining lucrative government contracts.

Bro Factor – An inherent advantage startups enjoy is the Bro Factor, as it is difficult to create intimate, personal relationships with dispassionate, detached workers.

Mitigating Downside – Unlike the private sector, in which many buyers are focused on gaining a competitive advantage, the fear of loss is often the primary criteria motivating politicians and their appointees. As such, optimizing your company’s value proposition to satisfy the government’s low-risk threshold might result in a sub-optimal solution in the commercial arena.

High Volume / Low Margin – The combination of the low profitability of competitive bid contracts, the large size of many government procurements, and extended payment terms can be deadly for a fledging startup.

The Tyranny Of Low Expectations – Post sale, governments are typically undemanding customers, due to their “lack of accountability” culture. In contrast, aggressive private sector customers help a startup improve its value proposition with frank criticism, product roadmap suggestions and new use cases.

A Middle Ground

Some startups avoid some of the pitfalls of selling to the government by partnering with larger companies which have pre-established relationships with government customers. In the parlance of government contracting, this approach is termed a “prime and sub-prime relationship.”

Although this approach mitigates the negative impact on a startup’s time and money, it requires the sub-prime startup to surrender a significant portion of their margin. In addition, prime contractors often jealously guard their relationship with the government buyer, which confounds the startup’s efforts to graduate from sub-prime to prime status.

Lethargy Can Be Your Friend

Many of the factors which make governments disadvantageous startup customers also act as competitive barriers, once a relationship is established. As your company grows, it might make sense to seek government contacts, for the following reasons:

Barrier To Entry – Once you are in with a government entity, the same inertia which made it difficult for you to secure the sale will make it similarly challenging for your competitors to displace you. All too often, government programs continue in perpetuity, as do many of the procurement contracts which underlie these never-ending initiatives. An existing relationship also facilitates selling additional goods and services by simply amending your previously approved government contract.

Low Default Risk – Unless you are selling to Greece, Mozambique or California, the risk that you will never get paid is relatively low. The relatively slight default rate risk facilitates factoring such receivables, thereby accelerating a startup’s cash inflows.

Budget Drain – Government workers are trained to drain their budgets annually, to avoid being granted a smaller budget in the following year. Approved vendors who enjoy an existing relationship with the government can leverage this inclination to waste money at the end of each fiscal year by pre-selling additional products and services. If the government cannot take delivery of such items by the end of their fiscal year, you can negotiate an upfront payment, which allows the bureaucrats to fully expend their budget while providing you with guaranteed future revenue and interest-free financing.

Although government customers are not without their merits, startups should only target such bureaucracies when they can obtain a market price and avoid an extended and costly sales process. By focusing on commercial enterprises that share your venture’s sense of urgency and profit motive, your startup can maintain its solvency and avoid getting caught up in the government’s next outrageous mistake.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet you about politics or that killer burrito I just ate.

Image: Leigh Vogel / WireImage

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Every Entrepreneur Has A Bob Dylan Moment – What’s Yours? Mon, 04 May 2015 12:00:34 +0000 A version of this article previously appeared in Forbes. Young Al Kooper did not miss his Bob Dylan moment. When Al was invited by Producer […]

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Opening  Of The Rock And Roll Hall Of Fame And Museum

A version of this article previously appeared in Forbes.

Young Al Kooper did not miss his Bob Dylan moment. When Al was invited by Producer Tom Wilson to sit in on Dylan’s Highway 61 Revisited, Mr. Wilson made it clear to Al that he was a backup guitarist. He told him to sit quietly in the control booth and be ready to play if Dylan wanted to explore an arrangement that required two guitars.

According to Al, “Me being twenty one years of age and very ambitious… I decided I was going to play on that session.” However, it was quickly evident to Al that his services wouldn’t be needed, as Dylan’s primary guitarist was Mike Bloomfield, a more experienced and proficient musician.

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You Don’t Have To Beg Forgiveness, If You Get It Right

After several hours of waiting patiently, Al saw his chance. In his words, “They moved the organ player over to piano. So I said to Tom Wilson, ‘Why don’t you let me play the organ? I have a great part for this,’ which was total bull$hit. Tom Wilson said, ‘Ah man, you don’t play the organ.’ And just then, someone came in and got him to take a phone call. So he didn’t say, ‘No.’”

When Mr. Wilson left to take his call, Al rushed into the studio and sat down at the organ. The rest of the band assumed he was sent in by Wilson and that he actually knew the song they were about to record, which he did not.

Mr. Kooper picks up the story once Wilson returned to the control room, not realizing that he was at the organ. “Tom Wilson, (said) ‘This is take 7. Hey! What are you doing in there?’ Then you hear me laughing…” Before Wilson could say anything else, the “snare shot heard round the world” sounded and Kooper laid down one of the most iconic organ solos of the 1960’s. Per Kooper, “And that was it. That was the beginning of my career. Right then and there.”

The track was Like A Rolling Stone, which became Bob Dylan’s biggest selling song as was voted by Rolling Stone Magazine in 2011 as the Best Song Of All Time.

The fact that Al did not know the song resulted in one of the most distinctive elements of his performance. His playing is an eighth of a beat behind the rest of the band, because he was watching the chords Bloomfield was about to play. Kooper knew that he was taking a huge chance and that his margin for error was zero, given the aggressive way in which he had interjected himself into the session.

Despite having little experience on the organ, the song’s success caused Kooper to become one of the most sought after keyboardist during the next decade. He played on hundreds of albums, including those by: The Rolling Stones, B. B. King, The Who, The Jimi Hendrix Experience and Cream.

My Dylan Moment

Sadly, I have never sat in on a Dylan session. However, like all entrepreneurs, I’ve had multiple versions of my own Dylan Moments.

For instance, when I joined Computer Motion (NASDAQ: RBOT, merged with Intuitive Surgical), their immediate need was for a CFO. Even though I had passed the CPA exam, I had no desire to be an accountant, just as Al Kooper did not aspire to be an organ player. However, my career objectives aside, Computer Motion needed a CFO to help them raise money, so I took the role without hesitation.

Admittedly, I was not an all-star CFO. However, I was fortunate to recruit a fantastic finance team, which included people I worked with for over a decade, at multiple companies. With strong support, I was good enough to do the job.

My excellent financial team freed me to excel in the areas of my core strength: generating revenue. Although the title was not widely used at the time, I was essentially a CRO, traveling the world selling medical robots while we awaited FDA clearance. I was also instrumental in taking the company public, which provided me with a solid experiential foundation upon which I built the remainder of my startup career.

Luck Well Executed 

"The best wrestler is not he who has learned thoroughly all the tricks and twists of the art, which are seldom met with in actual wrestling, but he who has well and carefully trained himself in one or two of them, and watches keenly for an opportunity of practicing them." --- Seneca, Roman Philosopher

Luck, in part, entails preparation meeting opportunity. However, luck never arises absent the courage to execute flawlessly in the face of potential failure. If you do not seize your Dylan moments, you risk living a life of untested preparation and missed opportunities.

Many people allow their luck to unwittingly pass them by because they are driven by fear of loss, which paralyzes their ability to seize the moment. In contrast, successful entrepreneurs are driven by fear of losing out. They weigh an opportunity’s risks and rewards and when the chance for gain appears to be greater than the potential pain, they go for it.

I shudder to think where my career would have ended up if I had said, “No” to my Dylan Moment. Don’t say “No” to yours.

This article was inspired by a conversation with my friend and mentor.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never Tweet about that killer burrito I just ate - just startup stuff.

Image Credit: Kevin Mazur/WireImage

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How Tony Hawk And The Bones Brigade Broke The Rules & Owned The Market Wed, 29 Apr 2015 12:00:24 +0000 A version of this article previously appeared in Forbes. In this second installment of my conversation with George Powell, Founder and President of Skate One, […]

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A version of this article previously appeared in Forbes.

In this second installment of my conversation with George Powell, Founder and President of Skate One, he describes how Tony Hawk and the other members of the Bones Brigade revolutionized skateboarding and made it cool again, after its near death in the late-1980’s. He also shares his frank thoughts regarding his long-standing relationship with Stacy Peralta.

Skate One is now the world’s largest skateboard company, with best-selling brands such as Powell•Peralta Skateboards, BONES Wheels and Mini•Logo Skateboards.

You can read part one of our discussion here, which covers a number of insightful topics, including the origin of Skate One and George’s multi-decade partnership with Stacy Peralta.

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In the late 1970’s, George partnered with Stacy Peralta, who at the time was a 20-year old world champion skateboarder. Together they created The Bones Brigade skateboard team which launched the careers of not only Tony Hawk, but many of skateboarding’s other stars, including: Alan Gelfand, Mike McGill, Steve Caballero, Rodney Mullen, Lance Mountain, Tommy Guerrero and Kevin Harris.

John Greathouse: How did the Bones Brigade come together?

George Powell: This is Stacy’s (Peralta) fault entirely! He handpicked all the skaters, determining who was going to be the best of the young, just emerging amateurs, and bonded them together into a team we called the Bones Brigade. The key for him was to NOT steal well known skaters from other companies, but to start over completely with a new crew of unknown skaters, to make it fresh and inspiring. Using unknown skaters in his unique ads made them even more interesting.

You and Stacy parted ways in the early 1990’s and then re-united almost 20-years later. What led to this hiatus?

By the early 1990’s, our successful partnership was being used against us. WE were successful, and BIG, one of what the smaller companies called, the BIG 5 (PP, Tracker, NHS, Thrasher, Vision). They felt we were so big and so successful that they could not compete with us, so a skater named Steve Rocco, formed a coalition of skaters to start their own company or join his, and wrest the industry away from what we had built, for themselves.

This turned out to coincide with the switch from Vert (vertical) skating to Street skating, a change we had orchestrated ourselves, to expand the industry, and those top skaters like Tony Hawk, Lance Mountain, Tommy Guerrero, Mike McGill, Mike Vallely and Rodney Mullen, all saw opportunities to leave our team, and start their own brands, in order to stay relevant, and run their own company, which they did.

Stacy and I disagreed on how to handle this. He wanted us to create a brand for each guy and let them go on their own, just manufacturing decks and wheels for them.  I did not think that the economic model Stacy wanted us to use would work, and we would just use up all our resources launching a brand for each of these guys, and loose the margin that paid for the marketing to keep us at the top.  I was for fighting to keep our leadership roll, and as much of our team intact as possible.

Stacy was broken hearted, because he loved his team, and wanted them to have what he had achieved. My refusal to do this caused him to give up on our partnership and the industry entirely. He picked up his skate film-making career and took it to Hollywood. This estranged us for more than a decade.

Over time, I think we both saw that it was silly to be ignoring each other and I reached out to Stacy to at least reestablish communication and attempt to resolve the hurt feelings we both had. Over a period of a few years, we gradually spent more and more time together again, and his interest in the skate industry and our legacy partnership, which had by this time evolved into Legend status, began to draw us back together again. His films Dogtown & The Bones Brigade: a documentary have both reforged relationships within the industry, and partially healed old disagreements that time has clarified, between the Bones Brigade team, he and me.

Doing the BB doc was a real ice breaker for all of us, and I think it was the real beginning of our reforming of a partnership to promote skateboarding again. Today, Stacy works with us between his commercial projects to create films that showcase our skaters, brands, and skateboarding. As time continues, I think the impression that we were both probably better when we worked together than when we worked alone, will keep us doing fun projects together going forward.

Greathouse: That’s cool that you and Stacy are working together again. How has your history together impacted your relative roles at Skate One?

Powell: Stacy and I are both creative people that function best when allowed to focus on what we do best. At this time, I have the luxury of an incredible staff, who are better than me at handling our company’s day to day responsibilities, allowing me to focus on product development and graphics, my strong points.

When we initially worked together, I had to abandon my R&D roll, in order to run our madly growing company. Stacy was more or less free to focus on marketing and team promotion, but this dual roll used up a lot of time that kept him from focusing on his filming and marketing. Now, we are both more experienced in our rolls, and freed up to do what we do best, with a great group of friends at Skate One to support our efforts. I expect this more mature level of focus and separation to enable our new partnership to proceed forward even more forcefully than it did 30 years ago.

Greathouse: You started working with Tony Hawk when he was 14. Was it clear at that young age that he would become the most recognizable face of the sport? If so, what made him standout?

Powell: When he first came on the team, he was exceptional, and very driven, so we recognized that he was going to be successful, but neither of us would guess that he and Rodney would become the trick creators and innovators that they both became. They are both so creative, driven, and sensitive. It was a pleasure to work with them both, even though they both went through some very rough times as they matured and became skate stars. These issues are examined in much more intimate detail in the BB Documentary, and provide fascinating insight into the stress of adolescence and growing up as sensitive, driven, young star athletes, in a world that discounted their skill and incredible creativity as childish folly and a waste of time.

Greathouse: Is it true you once issued Tony a royalty check for .85 cents?

Powell: Yes, that’s how bad things got in the 1980-1983 dark ages period, when we were hanging on like the picture of the cat clinging to the bar by its claws.

Greathouse: There was tension among your executives that these ‘kids’ were making so much money. How did you deal with this and keep the company rowing in the same direction?

Powell: It was hard for us to see a 12 year old kid join the team and a few years later, after we had given them tons of equipment, clothing, love, travel expenses, and guidance, suddenly make more money than any of the people who were supporting them at the time, and without whom they could not have risen to the level they did.

Nonetheless, it was equitable, necessary and appropriate in the light of what professional athletes make, or movie stars make, but is it fair? Who is to say.  I did have trouble rationalizing it with our management team, for sure it was a tough sell, but we made it. Who is to say what’s fair. Why should the union longshoremen on the west coast make more than twice as much as police, or teachers?

Greathouse: It seems that Lance Mountain had an attitude that my students could learn from – he consistently showed up ready to do whatever was required. Even though he might not have been the most talented skater, he made himself a valuable member of the team.

Powell: I think that point is best covered by what Lance says himself in Stacy’s BB doc. He did what no one else wanted to do, look like a dork, and not always just show himself making great tricks. He provided the comic relief, and in return, he got the extra publicity that endeared him to millions of young skaters who were inspired to play around like Lance did in the films, and feel good about themselves. He was an enabler supreme. In retrospect, he brought in more customers than Tony did. Tony impressed, but Lance provided an on ramp into skateboarding for everyone else. This was an example of Stacy’s genius.

Greathouse: If you had a do-over with your entrepreneurial career, what is/are one or more mistakes you would like to avoid?

Powell: What! Who me make mistakes? <pauses> Let me count the ways.

1. Do not listen to what your competitors say about you or your company. Create your vision and hold to your plan to achieve it. Understand that in today’s global business environment, those who would like to have what you are perceived to have will lie, cheat, and steal anything they can from you, and rationalize it as just business. As I was finishing college, my father use to say, business is a jungle son, and I laughed at him, smugly knowing he was being over dramatic and out of date…sadly, I was wrong. Human nature has not changed at all, and there are now even more ways for others to steal from you and/or assassinate your character or company.

2. Do not allow yourself to be put on the defensive, or rerouted from your plan in order to address a perceived insult, lie or problem. Just like the Islamic State terrorists try to provoke us by doing thing’s so outrageous that we are manipulated into reacting to them, instead of working our long term plan to defeat them on our own schedule and way. The way you win is to get to the finish line first and/or with the best product and marketing. If you allow yourself to get distracted, you will fall behind.

3. Be continuously vigilant in guarding against the natural arrogance, conceit and infallibility that comes with the smallest success. Be constantly cautious and wary of your ego.

4. Never assume that tomorrow will be like today or yesterday. When things are going really well, and you are succeeding beyond your initial expectation, it is easy and convenient to think that this will go on forever, and your growth curve is unstoppable. BEWARE! Life is not a constant up or down curve, but goes in cycles. Look for them and use them like a hill or a wave.

5. Be VERY cautious of over reaching financially, when you can, based on the above foibles. Consider “what if” scenarios to account for the normal business and economic cycles that will surely affect your future.

6. Follow the advice in Zero to One, by Peter Thiel as best you can. I found this book embodies much of the lessons I’ve learned over the past 50 years in one little book. It is a nice distillation of smart strategies and tactics. 

7. Persevere! There are cycles, up and down. When things go south in the economy or your company or your industry, don’t quit and look for greener pastures. Here is where your love of what you do, and belief in its integrity come in to reward you, for only your love of what you are doing will motivate you to keep going, endure the pain and loss that will happen at these times. So just put your head down, go into survival mode if you have to, so you will be there, plugging away at what you love and believe in, when the tide turns and it is your time again. You will be in place, ready to go, with a head start. I suppose I should temper this advice with the caveat not to believe in the typewriter, when computer word processors arrive, but I’m sure you get my meaning and will not become ostriches with your head stuck in the sand.

Greathouse: What advice do you have for students who are looking to combine their passions with a startup career?

Powell: Do so! Do not plan a career in a field you are not passionate about. Do not just think of making money. Think about making insanely great products, services, or whatever your passion is. Never settle for being a “me too” company. Strive to be the leader, the innovator, the best. Follow your heart. Life goes by pretty fast (warp 9.0 at my age), so don’t settle for less than being the best you can be at what you do. Word.

Greathouse: How do you think the future of skating will differ from the past decade?

Powell: Skateboarding has undergone a number of cycles; decade long economic cycles, sociological cycles, cultural cycles, and maturity cycles. While this is not the place for a long treaty on the essential nature of skateboarding and its evolution, I believe we are embarking on a brand new cycle, the likes of which we have not seen since 1975. A forty year cycle.

Each of skating’s major cycles have involved a new generation coming into the realm, in order to experience it and reinvent it for themselves, after the previous generation has taken it as far as their vision permitted, and stalled. We are at the most dramatic “reset” I have seen in 40 years! It is very exciting to me because we have transitioned in just a couple of years from a mono focus activity to a multi focus culture that is embracing diversity of age, style, and intensity. It is very healthy right now, and this is giving us the opportunity to address each of these new centers of interest and activity with new insanely great products!

Greathouse: I know your passion is product development. Can you give us a hint as to what you are currently working on?

Powell: Ha! Well, as you can probably tell, I’m a big fan of Steve Jobs, and he learned the lessons I’ve mentioned to you earlier than I did, but I’ve learned them. I will give you this general information, though.

Our future products will employ new materials not found in today’s skateboards, and will be designed for all the facets of skate culture and terrain. We will be redeveloping each skate component to optimize it for each intended use. The skateboard is a very efficient transportation tool, and recognizing this, we will be making it even easier and more fun to ride, carry, and use. Our R&D budget is as big as we can possibly make it. Everything we make goes back into new products. We are the current leader in polyurethane wheels, and quality bearings, and aim to be the best in trucks and decks too. We are very excited about this opportunity to reinvent ourselves as the sport reinvents itself.

You can read part one of my interview with Mr. Powell here.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet you about politics or that killer burrito I just ate.

Image: Courtesy of George Powell

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PR Is A Passion Play That Cannot Be Outsourced Mon, 20 Apr 2015 12:00:53 +0000 A version of this article previously appeared in the Wall Street Journal. You have been planning to ask your long-time partner to marry you for […]

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France Frozen Proposal

A version of this article previously appeared in the Wall Street Journal.

You have been planning to ask your long-time partner to marry you for months and the big day has finally arrived. In order to reduce your risk of failure, you ask your roommate, who has proposed to several times previously, to pop the question on your behalf.

Sound crazy? This is the approach many startups take when they communicate their story to the market. Rather than directly explaining their value proposition with all the passion and heartfelt stridency that only an entrepreneur can deliver, they outsource this communication to a Public Relations (PR) firm. PR agencies are expensive versions of Cyrano de Bergerac. Their best attempts to woo the media will never equal your ability to sing your own praises.

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Keep the Passion In-House

In addition to passion, any function at your startup that involves iterative learning and/or close proximity to your customers should be performed in house. Beyond PR, such roles include: Sales, Product Development, Strategic Planning and Fund Raising.

There are a number of reasons why it makes sense for a startup to not outsource PR in its early days, including:

PR Is Sales - Have you ever met a successful, yet dispassionate, salesperson? Thought not. PR is not order-taking. It involves persuading jaded media gatekeepers that your venture’s story is compelling enough to warrant their audience’s valuable mindshare.

Most journalists have been burned by wantrapreneurs who did not let the facts get in the way of a good PR story. Thus, without trust, the media gatekeepers will not risk their hard-won reputations promoting your venture. People buy from people they like and trust. Journalists are no exception.

Morphing Message - During the early stages of your venture, your value proposition, and thus your messaging, will be fluid, as you assess the market’s reaction to your evolving story. This reality makes it especially difficult for a dispassionate, third party to promote your story. It also causes an inefficient relationship, as you spend much of your time with your PR firm simply updating them on the latest tweak of your story.

You Are Not Really The Client - A PR agency’s true allegiance is not to you. Rather, it lies with the journalists with whom they work with on a daily basis. If a journalist rejects a particular client’s story, an agency will not risk its relationship with the writer by aggressively countering the rejection. An in-house PR person is not hampered by such media allegiances and will thus launch an aggressive campaign to ensure that your story is heard.

As depicted in the following schematic, a PR agency will readily sacrifice a relationship with a client before it will risk damaging a valued gatekeeper relationship. New clients are much easier to obtain than industry connections, which can take years to cultivate.


Your initial in-house PR personnel should be a relatively junior person who will execute your straightforward strategy – to economically gain as much market validation as possible. The best person to carry out this mission is a “doer” who will roll up their shirtsleeves and hit the phones. This person should have many of the same characteristics of a good salesperson: be verbally engaging, charming and doggedly persistent. They will sell your story to a variety of media outlets, so they must be able to craft a compelling yet believable story to fit the various journalists’ biases and interests.

The Shill Game - Another reason in-house personnel can be more effective than hired guns is that PR agencies are often viewed by journalists with a jaundiced eye. Given that they are paid to get their clients media coverage, their credibility may be specious. Even when they are genuinely excited about a particular client’s solution, it may be difficult for them to convince journalists of the sincerity of their excitement.

This phenomenon is aptly described by Christopher Locke, one of the authors of The Cluetrain Manifesto. Christopher came to PR from the engineering world and thus was not tainted by the industry’s rampant hucksterism. Working for a small software company, he discovered that something interesting occurred when he abandoned the company’s talking points. According to Christopher:

“Something amazing happened. As soon as I stopped strategizing how to ‘get ink’… as soon as I stopped seeing journalists as a source of free advertising … I started having genuine conversations with genuine people.”

“Then something even more amazing happened. The company started ‘getting ink.’ Lots of it … in places like The New York Times, The Wall Street Journal and Business Week.”

What Christopher discovered is that real conversations in the PR world are rare. Thus, his genuine enthusiasm and willingness to engage journalists in non-agenda-driven dialogs was infectious. He effectively bro’ed up with the otherwise jaded journalists, just by being genuine and real in a world in which such behavior is rare.

Right Time, Right Place

Clearly, as your company matures and your story stabilizes, it can be appropriate to work with a third-party PR firm. Your messaging might lose some of its inherent passion, but the trade-off will be corporate communications that are more strategic and methodical.

However, in the early stages of your venture’s journey, it is unwise outsource your promotional pleas, just as it would be foolish to ask a friend to propose to your significant other on your behalf.

Ultimately, at a startup, PR does not stand for “Public Relations.” Rather, it translates into “Passionate Relationships” and passion can never be outsourced.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about killer burritos or cuddly kittens.

Image: AP Photo/Francois Mori

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Real Startups Never, Ever Discount Their Prices Mon, 13 Apr 2015 12:00:56 +0000 A version of this article previously appeared in the Wall Street Journal. Avoid a simple pricing mistake which could sink your startup. The “D” word - […]

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Retail Sales Drop For Third Consecutive Month

A version of this article previously appeared in the Wall Street Journal.

Avoid a simple pricing mistake which could sink your startup. The “D” word - Discounts.

I buy my cars in December. Why? Because I am cheap and I know that car dealers are incentivized by the manufacturer to hit quarterly and annual sales goals. The rewards are in the form of co-marketing dollars and commission spiffs. Thus, the value of a sale at the end of a quarter can be significant, if the sale contributes to obtaining a manufacturer's incentive.

Individual salespeople are commissioned in a similar manner, based on attaining monthly and quarterly goals. If selling one more car at the end of a quarter will earn a sales rep a trip to Hawaii, they may be willing to forgo most or all of their commission to get the sale.

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Avoid The End-Of-The-Quarter Trou Drop

Technology buyers long ago learned this game and routinely stall their purchases until the end of the quarter. Vendors often respond by discounting their prices at the 11th hour, in the hopes a lower price will spur a purchase. End-of-quarter discounting is a rational tactic for public companies that are slavishly bound to quarterly financial objectives. However, habitual discounting at a startup is self-defeating, as it reinforces your customers' proclivity to delay their purchases, patiently waiting for you to reduce your prices.

Discounting is a slippery slope. However, if you never offer price discounts to anyone, you can resist all such requests by deferring to your company “policy.” You can also mitigate end-of-quarter price erosion by firmly communicating, early in the sales process, that your company is not subject to quarterly sales pressures.

Eliminating price reductions also denies mediocre salespeople their favorite crutch, while encouraging creative salespeople team to craft non-price incentives to spur purchases. Some of these tactics include:

Total Cost Of Ownership – Price is only one element that determines the total cost incurred by customers to deploy your solution. In many cases, you can stand firm on price by demonstrating that your overall cost is lower than the competition.

This point is nicely illustrated by Albert Oaten, VP Market Development at SecureDocs. "When I was at Citrix, we pitched a Fortune 100 company as our first multimillion dollar deal. I was aware that they had a relationship with a major competitor and worried that the client would try to create a bidding war.

Instead of guessing what the competitor's discounted price might be, I looked at our client's total cost of ownership for each service. Typical cost for call center reps was around 40 cents per minute at that time. I determined that our competitor's huge download would take one to two minutes longer per customer session, versus GoToAssist. I multiplied the per minute agent cost that our client was likely paying by the number of estimated GoToAssist calls they would handle a year.

Back of the envelope, it looked like our competitor could offer the service to our client for FREE, and our solution would still be a much better economic value, even if we charged $750,000 a year when you considered the total cost of using the two services. This deal reinforced to me the importance of identifying, and communicating the full differentiated value to customers, rather than reflexively focusing on just price.  The question isn't which price is more or less, it's which option provides the greatest economic value to the client and price is just one component of that conversation."

Support – If you provide various tiers of support, offer an enhanced level at no additional charge. For instance, offer phone support to a demanding customer, rather than lower-touch and less-timely email or chat.

Volume – It may make sense to deviate from the "never discount" rule when a per unit price reduction is offset by a large purchase commitment. For instance, if you are selling ten seats of a SaaS solution, consider reducing the price per user if the customer purchases enough seats to generate a substantially larger sale than would otherwise have been possible without the per-seat discount. This strategy obviously is most effective when distribution of your product entails low variable costs.

Cash – If you offer a SaaS product or a similar solution that is paid for over time, require customers requesting a discount to pre-pay a substantial portion of the fees upfront.

Duration – Offset a discount with an extension of the duration of the agreement's term, such that the overall revenue generated exceeds that of a shorter, undiscounted sale. For instance, require a customer to agree to a longer-term commitment in exchange for a lower per-year or per-month price.

Protection – Consider offering “pricing protection” to users who are particularly price-conscious. Rather than reducing your price upfront, contractually limit future price increases in exchange for an extended contract term. Caution must be deployed when utilizing this tactic, especially if your costs could unexpectedly increase during the term of the agreement.

Transparency – Some prospects will value the ability to influence your product roadmap, in lieu of a discount. Invite such prospective customers to join your Product Advisory Council.

Professional Services – Compensate your Professional Services team to drive incremental revenue by solving customers' problems beyond the scope of the initial deployment. Generously discount implementation and training services, rather than reducing your core offering's price, in order to embed your solution more deeply into your customers’ organizations.

Valuable Chits

Never discounting is an ideal strategy. However, if for strategic reasons you decide to grant price allowances, tie them to one or more non-price deal points, such as:

  • PR Goodies – Secure the use of key customer’s logo, testimonials, and a quote for inclusion in a joint press release.
  • Referenceable – Obtain your customers' consent to field a reasonable number of reference calls from future, prospective customers. Note: As a buyer, I usually agreed to this provision, as it ensured that the seller would do everything in its power to make and keep me happy.
  • White Paper – Secure your customers' participation in the drafting of a white paper detailing the successful deployment of your solution, highlighting the cost savings and productivity enhancements which generate a quantifiable return on your customers' investments.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about that killer burrito I just ate.

Photo: Spencer Platt/Getty Images

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George Powell – Doing Well By Having Fun Mon, 06 Apr 2015 20:30:18 +0000 A version of this article previously appeared on Forbes. George Powell is proof that you can do well by having fun. Rare and fortunate is […]

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A version of this article previously appeared on Forbes.

George Powell is proof that you can do well by having fun. Rare and fortunate is the person who successfully converts their passions into a lucrative vocation. Mr. Powell, Founder and President of Skate One is such a man. The world’s largest skateboard company, Skate One produces many of industry’s best-selling brands, including Powell•Peralta Skateboards, BONES Wheels and Mini•Logo Skateboards.

I am always on the lookout for inspiring entrepreneurs who have leveraged their passions into healthy livelihoods as they serve as instructive role models for my UC Santa Barbara entrepreneurial students. After speaking with Mr. Powell, it was clear he fit the bill.

This is the first of a two part, extensive interview I recently conducted with Mr. Powell.

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George spent the first ten years of his career, gaining experience in the aerospace industry, before founding his skateboard company in 1976 at the age of 33. During that time, his tenure as a young engineer at HP caused him to vow that when he started a company, he would create a culture that treated all employees with respect and humility. He clearly met this goal, as the average tenure of Skate One’s 150 employees is nearly 10-years, with a number of folks who have been with the company for two and three decades.

In 1978, George teamed up with 20-year old Stacy Peralta, a world champion skateboarder. Together they created The Bones Brigade skateboard team which launched the careers of many of skateboarding’s biggest celebrities, including: Alan Gelfand, Mike McGill, Steve Caballero, Tony Hawk, Rodney Mullen, Lance Mountain, Tommy Guerrero and Kevin Harris.

John Greathouse: You pulled out your old college skateboard in the early 1970’s when your son wanted one. How did that lead you to experimenting with wheels and eventually become an industry icon?

George Powell: Within a month of starting to skate with my son Abe, he came home to tell me his friends had yellow wheels and they were WAY better than our clay wheels. After trying to tell him color made no difference, I went to the Palisades Hobby store to humor him, and discovered yellow polyurethane roller skate wheels being sold for skateboards. It excited immediately, because I instantly knew that I was looking at the future! This was the missing link in the skateboard’s three main parts, the deck, truck and wheel. It’s failing was inadequate traction in the wheels, and PU was the perfect solution to this need.

After riding the new PU wheels for a while, I began to dream of better shapes for the wheels for skateboarding, and developed the double radial skateboard wheel. This gave me a little improvement, but not as much as I wanted, so I began to look for PU compounds that would roll faster.

My first wheels were poured in my kitchen and baked in my oven, using premixed, frozen compounds. As I began to want to experiment with the chemistry, I had to find commercial PU processors, and moved my experiments out of my kitchen, never to return.

Greathouse: What was the turning point, from making a wheels by hand in your kitchen to creating a business?

Powell: To experiment, I needed about 10 molds. To go into production, I needed to build hundreds of molds and invest in a cost effective quantity of wheels. This is the scary time, when you sign that check for 10 or 20,000. In order to try your ideas in the real market place.

Greathouse: I know that your son’s interest is what drove you back to the sport, but I am curious as to what extent you were a skateboarder growing up.

Powell: I never had any desire to do anything with my skateboards other than use them to have fun. I was, however, very competitive when I was young, and had played football in high school well enough to get scholarship offers from what would be called division 1 schools in today’s world.

I had grown up with team sports, but the sports that I gravitated to just for myself, were skateboarding and surfing. These were sports that you taught yourself by watching others, and just pushed yourself to progress for fun, with no coach or parent influencing you. This was an inspiration to me.

I grew to love many things about skating as I got into the industry I helped to create. I love that there are no coaches, and kids learn how to learn by teaching themselves. I like its anti-establishment bent, and its DIY nature. It teaches kids skills that can help them to succeed in life, gives them a sub-culture of their own to support them, if they want one, and provides them with endless hours of self-challenging, self-expression and fun. There is no other sport like it. I fell in love with skating, and never wanted to do anything else but try to help it grow and progress, while trying to keep scoundrels and those who merely wish to exploit it for money, out of it. In today’s world of multi-national public companies, this is getting harder and harder.

Greathouse: What was it like to watch the Lords of Dogtown movie, given that you witnessed the true events and knew all the main characters?

Powell: Stacy did a great job introducing the world to Dog Town, in his wonderful documentary of the same name. I believe DT is largely responsible for the wide spread interest in legacy and old school things today, for sure in skateboarding, but perhaps more broadly too. Stacy told it like it was, and it rang true. The Hollywood version, sadly fell short of his documentary, in my mind, but many people enjoyed it, even if it was a little distorted.

Greathouse: How did your relationship with Stacy Peralta develop? You were dealing with a lot of young talented skaters at that time, what was different about your relationship with Stacy?

Powell: I seem to have been fated to be in this industry, from my first 2x4 with steel roller skate wheels, to using Blue Chip Stamps to buy Hobie skateboards at Stanford, to living in the Pacific Palisades, near where many skaters lived and skated. Skateboards just came into my life, when no one around me I knew skated, or even had a skateboard. These strange, outlier, foreshadowing events were activated by my son Abe’s desire to skateboard, and then by meeting Stacy Peralta and Tom Sims at the Pali High parking lot, called the horse shoe.

Some people just resonate on your frequency and some don’t. Stacy did. We just hit it off, and when both of us needed to improve our situations, we came together in a sort of magnetic way… our chemistry was really good. Stacy was only about 20 when he decided to leave Gorden & Smith, where he had become the top star in our little industry. In addition, Stacy was 20 going on 30. He was head and shoulders more mature and thoughtful than any of the other young “pro” skaters I knew. In a class by himself.

Greathouse: Although you were both young when you met, you were a bit older than Stacy. I assume you become his mentor?

Powell: This is funny, because in the beginning I thought I was mentoring Stacy. I was 32, had a college degree and a decade of experience in the aerospace industry and business. And in some ways, I’m sure he learned many things from me about the business side of our company, but at 20, Stacy was more savvy about how to market skateboards than I was to become (even) 20 years later.

Stacy is an amazing human being, and I soon found myself learning many things from him, and I think he quietly mentored me along, while I thought I was mentoring him! As this relationship developed, it caused some tensions as we learned how to be equals, instead of employer and employee, but it turned out to be a great partnership and friendship that is still rich and rewarding to this day.

Greathouse: Prior to entering the skateboard industry, your background didn’t involve a lot of marketing, yet Skate One has proven to be world-class marketer. How involved did you get in marketing the products you were creating?

Powell: I will give any credit for world class marketing to Stacy. I have learned how to persevere, and to build products skaters need and appreciate, even if they don’t know they do at first.

In our industry, the marketing companies usually sell most of the skateboard decks and clothing. After Stacy and the main members of the bones brigade left to do their own things, I was left holding the bag, and it has taken me over 20 years to recover, and to rebuild my business to be a major player again. I focused on those niche components that were not “in your face” like bearings and wheels, and worked really hard to be way better than my competitors were. Eventually, I found ways to get the top riders to promote our products because they wanted to ride them, even if they were not getting paid to do so, because they were the best. This is not marketing genius, it is just desperation serving as the mother of invention.

Greathouse: Like most successful entrepreneurs, it sounds like you did a heck of a lot of on-the-job learning.

Powell: I have learned so much working to just stay alive! I don’t think any amount of college classes can really prepare one to succeed as an entrepreneur, starting a company. I sort of had that gene in my DNA, having started a couple of businesses earlier in my career, one in college to sell my lighting designs and sculptures, and one as a young product designer to sell myself as a consultant to Silicon Valley startups.

You learn the most from your mistakes, and I was really good at making mistakes, so I had ample opportunity to learn there. I also learned from working with Stacy and my fellow employees to watch what they did and add their successes to my quiver of tricks and skills.  One of the best skills I learned was to delegate to those who knew more than I did about any particular part of my business.  I can micromanage with the best of them, but once I get confidence in someone, I back off and become a supporter and mentor.

Greathouse: Tell about the ad in which you burned a car in front of your parent’s house.

Powell: That was pretty edgy for me at the time. Stacy said, “Craig (Stecyk, Stacy’s marketing mentor) wants to burn a Cadillac with Ray Bones standing in front of it, do you think we can do it in your parent’s driveway?” And not wanting to seem uncool, I said, “Sure, I think we can get away with it if we don’t hurt anything.”

So Craig trailered half a Cadillac he had cut up for an art project over to the concrete cul de sac my parents lived on in Brentwood, late in the afternoon. We waited until it got dark, then coated it with a combination of acetone and rubber cement, a concoction Craig learned was used in the movies to provide a big flame and then self-extinguish itself in about 10-15 sec. I think we had to coat the car with this volatile mixture about 5 times before we felt we had the “shot” for sure. All the neighbors on the cul de sac came out and went WTF are you doing here? But we were able to convince them it was just an art project and perfectly safe. <laughs>

Greathouse: Your ads generally did not contain product shots, which was very different from the other companies. When did you realize that going a different direction was the right approach?

Powell: That was a BIG hurdle for me. Stacy and I argued about it for some months, before I said OK, let’s try it. I was using a Brooks (Institute) graduate, Tom Doty, to create beautiful studio images of my products, and they looked insane in the magazine ads we did first. Stacy and Craig said we had to focus on the skaters themselves, and let the product be incidental or an accessory to the skater, which was a new concept for me. I saw quite soon that he was right, and his new ads made me laugh, smile, and come away happy. Skaters resonated with them and remembered them. Our competitors struggled to understand them or copy them. Even today, thirty years later, I occasionally see a competitor “borrow” one of our old PP ads and try to pass it off as original… These ads deserved the kind of acclaim that the old VW ads, and Apple Ads got. They were way above the herd and progressive for the time. 

We were also one of the first to develop skateboard graphics for our decks, and our “bones” inspired graphics have also proven to be very enduing.  Our well known VCJ “Ripper” graphic of a skull ripping out of a surface has been sampled, stolen, copied, and inspiring to many artists, designers, and companies in a number of different industries around the world.  Many of our customers have tattooed their favorite Powell Peralta graphic onto their bodies, which shows how our customers feel about our products and skaters.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet you about politics or that killer burrito I just ate. 

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Don’t Let Your Startup O.D. On Cash Mon, 30 Mar 2015 12:00:08 +0000 A version of this article previously appeared on Forbes. Raising too much cash, too early, can kill your startup. It can provoke spending on unproven […]

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A version of this article previously appeared on Forbes.

Raising too much cash, too early, can kill your startup. It can provoke spending on unproven business models, hiring employees before their talents can be fully tapped and entering into long-term, unsustainable relationships with partners, landlords and other third parties.

To avoid these death knell mistakes, create a culture in which you and your employees (your CFO excepted) spend your precious cash with zero regard for how much money you have in the bank.

Sound counterintuitive? Hardly. Startups should only spend their money on initiatives that deliver a discernible, measurable return on investment.

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"Instead of buying airplanes and playing around like some of our competitors, we've rolled almost everything back into the company."
Bill Gates, Founder Microsoft [Tweet this quote]

For many years after Microsoft became highly successful, its executives (yes, including Mr. Gates) flew coach. Clearly they could have afforded more luxurious accommodations. However, Gates and company realized that there were far more productive uses of Microsoft’s cash than to expend it to ensure the temporal comfort of a handful of traveling Executives.

Remind your team that every dollar spent in a non-productive fashion direct impacts each employee.  In a venture’s early stages, it equates to an additional dollar that must be raised in a future funding round, thereby diluting every shareholder. In a company’s latter stages, a wasted dollar directly impacts the company’s valuation because it reduces the company’s cash flow.


The most prevalent cause of private aviation accidents is running out of fuel. In most instances, the pilot miscalculates the amount of gas required to reach his destination. A number of issues can impact aviation fuel usage, including: headwind, speed, average altitude flown, cargo weight, number of passengers, etc. A mistaken assumption can result in a crash landing, and the pilot’s grieving family on the 11:00 news.

Cash is the fuel in your startup’s tank. You won’t reach your destination without enough of it. Yet your company can only comfortably make use of a finite amount at any given time. Thus, it’s prudent to consider your venture’s journey as is akin to a trip across the desert with no gas stations en route.

You cannot afford to speed, gun the engine, take detours, or spend your precious cash on a killer stereo to entertain you during your trek. If there happens to be a gas station along the way where you can fill up for a reasonable price, great. However, do not count on it. Ideally, future funding should be discretionary to propel prospective growth, not a matter of survival.

At Expertcity (creator of GoToMeeting, acquired by Citrix), we raised $30 million at an $80 million pre-money valuation – for a startup with absolutely zero revenue. After we closed this funding round, I vividly recall a conversation with a senior engineer who was aghast that I was not willing to commit millions of dollars to a billboard campaign in Times Square.

His argument was, “What’s the risk? If it doesn’t work, we can just raise some more money.” This is not an apocryphal story. These words were actually uttered by an otherwise intelligent human being. This absurd statement caused me to realize that I had done a poor job of instilling a sense of frugality into our organization.

Thrive Below Your Means

The following simple (and admittedly obvious) tactics will result in real savings and will help to ensure that your employees spend the company’s money as if it were their own.

Praise Frugality - Instill a sense of pride in your employees to never pay full price. Encourage your team to ask, “Is that your best price?” when they rent a car, check into a hotel or buy anything material. In addition, create a forum to acknowledge and reward employees who put into practice this important aspect of your startup’s culture. These simple steps will result in real savings and will help to ensure that your employees spend the company’s money as if it were their own.

Deputize A Negotiator - Assign someone on your Finance team the responsibility of negotiating all of your company’s large purchases. At Expertcity, I shared the cost savings with our financial analyst. For every dollar he saved the company, he earned twenty cents toward his quarterly bonus. Once he proved his negotiating skills, people from across the company brought him significant purchases to negotiate.

Embrace Previously Owned - Despite the fact that we had over $30 million in cash in the bank at Expertcity, I dubbed one of our salespeople “Liquidator Larry”, due to his talent for purchasing used office equipment and furniture from failing companies. Our venture was located in an incubator, and as each of our neighbors went up in flames, we purchased their office equipment (and sometimes even their office supplies) in conjunction with taking over their office space.

In some cases, we were able to acquire a sizable amount of office equipment and furniture for free, in exchange for relieving the failed companies of their lease obligation. It was more than a fair exchange, as we relieved several people of multi-year lease obligations that would have been disastrous to their personal finances.

Go Utilitarian - Avoid pricey office space and expensive furniture. In a few select instances, such spending might be warranted, especially in the public aspects of your business (e.g., your lobby, customer training rooms, etc.). However, when outfitting your offices, keep your ego in check – only purchase expensive accouterments if they directly lead to incremental sales.

Darwinian Reality

The bigger the better, in everything.”
Freddie Mercury, UK Rockstar

Freddie may be right when it comes to the hedonist life of a rocker, but he couldn’t be more wrong with respect to startups.

Companies do not run out of money. They run out of investors willing to give them money. You can avoid running out of friendly investors by ensuring that every dollar spent at your startup is associated with a clear and measurable return, no matter how much money you have in the bank.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about killer burritos or mesmerizing waterfalls.

Image: Pixabay

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Startups Should Focus On Their Net Profit Score Not Potential Promoters Mon, 23 Mar 2015 12:00:18 +0000 A version of this article previously appeared in the Wall Street Journal. “You miss 100% of the shots you never take.” Wayne Gretzky Imagine how difficult it would be […]

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A version of this article previously appeared in the Wall Street Journal.

“You miss 100% of the shots you never take.” Wayne Gretzky

Imagine how difficult it would be to score in hockey if you were required to rely on someone who is not your teammate to convince another third-party, whom you have not met, to take a shot on your behalf.

As crazy as this scenario sounds, it is very similar to the “scoring process” companies engage in when they track Net Promoter Scores.

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A company's Net Promoter Score (NPS) is a beloved metric slavishly tracked and reported by product marketing and customer support executives of both established and nascent enterprises. The concept was first introduced by Fred Reichheld in a 2003 Harvard Business Review article entitled "One Number You Need to Grow."

Such scores attempt to quantify a company’s overall customer satisfaction by asking customers, "How likely is it that you would recommend our company to a friend or colleague?" The higher a company’s NPS, allegedly the higher its customer satisfaction.

There is no doubt that customer satisfaction is an important component to a company's success. However, rather than obsessing on a single metric, entrepreneurs should focus on improving their Net Profit Score. Large companies can afford to fixate on such esoteric measures, while startups must generate tangible financial results to survive. A Net Promoter Score of 100 is small consolation if your bank account score is 0.

Turning Promoters Into Profits

Shockingly, following the tactics pitched by NPS gurus could actually decrease a company's sales. As noted in Cialdini’s book, Influence – The Psychology of Persuasion, the Consistency Principle is a powerful predictor of a consumer’s future behavior. When a consumer verbalizes a future action (or inaction), it is likely that their future behavior will be consistent with their words.

Commitment is firmly established when a consumer verbally responds to an inquiry. Despite the psychology of the Consistency Principle, NPS consultants advocate assessing a company’s NPS following contentious situations, such as after a customer lodges a complaint or at the end of a technical service call.

If you ask a consumer "will you recommend us?" and they reply, “No, I will never recommend you,” you increase the chances that the user will never make a future recommendation, even if you subsequently rectify their initial complaint or concern.

Thus, startups should not ask customers their propensity for future promotions when such inquiries might result in a negative response.

Wrong Question

The indirect and passive nature of NPS questioning is problematic in the results-driven environment of the typical startup. Nascent ventures must accelerate their sales cycles. A quick “No” is far more valuable to a busy entrepreneur than a nebulous NPS response of “maybe.” Thus, rather than asking, “how likely are you…?” consider a more actionable inquiry, such as, “Will you refer a colleague to us?”

Once a customer commits to providing a referral, proactively make it happen. Ask them for the colleague's contact information. If the customer is reticent to share it, provide them with an email template they can readily forward.

Net Promoter Scores are cherished by big company executives who live in a world of death by PowerPoint. The data is easy to track and makes for great charts. However, entrepreneurs are better served by driving referrals, rather than scoring the propensity of someone making a customer reference at some nebulous future date.

Shots On Goal

Hockey fans and entrepreneurs understand the importance of a high number of shots on goal. The hockey teams and startups that take the most shots often emerge the winner. When a startup focuses on assessing the propensity of someone to make a customer reference, they are hoping strangers will score on their behalf. Successful entrepreneurs hope less and shoot more.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about that killer burrito I just ate.

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Trade Show Magic – How Invoca Owned Dreamforce, Without Breaking The Bank Mon, 16 Mar 2015 12:00:08 +0000 A version of this article previously appeared in Forbes. Trade show veterans know that the louder you scream at an industry event, the less your […]

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A version of this article previously appeared in Forbes.

Trade show veterans know that the louder you scream at an industry event, the less your voice is heard. Instead, you have to push the envelope of propriety to cut through the noise.

Even at a show the size of Dreamforce, you can cut through the noise, but you have to push the envelope to do it.  

Dreamforce is the conference for sales and marketing professionals. Hosted by SAAS giant Salesforce, it is more akin to a circus than a professional event.

The 2014 show hosted 135,000 attendees and boasted A-list guest speakers and performers like Hillary Rodham Clinton, Neil Young, Anthony Robbins, and Bruno Mars. There were 1,450 sessions and over 400 exhibitors, all vying for attention.

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Why am I writing an article about a trade show that occurred nearly four months ago? Good question.

I am a trade show skeptic. In general, I think startups typically overspend at such events, in a vain attempt to gain attention and avoid appearing to be small. They also typically do a poor job of linking their expenditures with definitive results. Thus, I waited to share Invoca’s creative strategies so I could couple them with the concrete results that they generated.

Invoca is no longer a startup, but frugality from its early days is firmly implanted within its DNA. Thus, the company had a difficult challenge. How can a relatively small company make itself heard, while ensuring a clear return on its trade show budget? (Note: I’m an investor in Invoca via Rincon Venture Partners.)

Dreamforce was particularly important to Invoca because it has invested its precious development resources to build and support an app for the Salesforce App Exchange, which enables marketers and sales professionals to track and measure the value of their inbound calls.

Knowing the stakes were high, Invoca looked for opportunities to push the envelope and stand out from the crowd.  As a result, they got into a little trouble, but they also crushed their goals and generated a positive return on their show spend.

  • 753% increase in leads from the previous year
  • 280% increase in booth visitors from the previous year, and 112% percent over their target goal
  • 130% of qualified opportunities created over target
  • 131% of team’s goal for demos – proving that booth traffic wasn’t comprised solely of swag bandits
  • 50% increase in web traffic which generated twice as many qualified leads to the vs. the average month in 2014
  • $1M in qualified pipeline opportunities, approximately a 5x pipeline to spend ratio

Here’s how they did it.

Invoca Goes Big (Literally) With The Hulk

Dreamforce goers couldn’t miss Invoca’s giant nine foot Hulk. He was everywhere: at Invoca’s booth, walking around the expo floors and on the streets of San Francisco near the conference halls during peak traffic hours.

The idea behind the Hulk campaign was simple - get noticed and drive booth traffic. With a bright green hulk towering above people and booths, getting attention was inevitable. To top it off, Invoca gave away several new iPhones. To enter, attendees simply had to take a selfie with the Hulk and tweet their photo.

Sexy Slogan + Interactive Demo

OK – so what. Costumed characters at trade shows are nothing new.

Correct, but Invoca didn’t stop with the Hulk. They covered the blocks around the Moscone Center with billboards, cocktail napkins, stickers, and even huge projections on the side of buildings with slogans that read, “For a good time call,” “Call me maybe,”... you get the idea. And that was it. A slogan, a phone number, Invoca’s logo and the hashtag #makethecall.

The campaign was racy and somewhat controversial, but it accomplished its goal – to motivate potential customers to interact with Invoca’s product. People who called the Invoca number were given the quick rundown on why calls matter to businesses, and then they were invited to come to Invoca’s booth for a demo and a look at all the information. The phone call with prospects underscored the company’s core value proposition (i.e., that calls still matter) and it made the campaign personal, interactive, and bold.


Invoca’s stunts garnered a disproportionate amount of attention at the massive event, and created buzz on Twitter - followers spiked a 145% from an average week.

Invoca’s campaign was noticed by everyone, including the Dreamforce “police.” Dreamforce’s rules state that exhibitors cannot market outside of their booth area, but the Hulk’s massive size and penchant for parading around the exhibit hall made that impossible. As a result, Invoca paid a small fine in the form a donation to the Children’s Hospital. Invoca didn’t deliberately break the rules, but having the chance to standout at Dreamforce was well worth the cost of the donation.


If your startup is not willing to push the boundaries at a trade show, stay home. Nobody knows this better than Marc Benioff, Salesforce’s CEO, who is aptly known as the bad boy of marketing for his fearless guerrilla tactics. Invoca knew that ultimately, Salesforce wouldn’t be offended that Invoca followed Mr. Benioff’s creative and provocative footsteps.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about killer burritos or majestic rainbows.

Images: courtesy of Invoca

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