Scalable People

Angel Investor, Business Development, CEO Succession, early stage, founder, Launch, Revenue Growth, Scalability, startup, startup CEO, Uncategorized

One of the things I tend to obsess about these days is startups that have little or even no real lifespan. Almost every day I uncover another one, some even with significant funding. In greater Los Angeles, now being called Silicon Beach, this problem seems to be more prevalent than in most areas. So many people make their goals to just b a startup, get it started and look for funding, without much thought about multi-year growth and sustainability, i.e. Scalability.

A common area of neglect in this early stage is people – Scalable People. Startup founders tend to add people that are close to them – friends, coworkers, spouses, family, neighbors, roommates, similar age, etc. These folks are very accessible and trustworthy, not much interviewing required, and often will start working with little or no compensation. It’s good to have some of these. The biggest downside is that eventually you will have to extract or diminish the roles of most (not all) of these people.

I once had an early employee at a startup I took over who was sales, marketing, receptionist and payroll. Early on we were lucky to have her doing all those things, and she received great stock options for being an early employee. But as we grew there was no doubt that we needed to replace her in most areas with a professional team that could scale with the job. Every change we made pissed her off and she fought for her position, which was counter-productive to our growth. She eventually left with some bitterness, but that went away once we went public and she could pay off her mortgage entirely.

You also have to mix it up as early as possible with real professionals that can scale when the company grows- people who “think differently”, have different experiences, drive initiative that none of you have even thought of, and want the company to be much bigger. These days a popular add in Los Angeles is someone from Silicon Valley; it adds a realness to the group and gets investors excited.

I’ve been on all sides of this situation – I’ve been the founder trying to attract the best people, and just as often I’ve come in as the “suit” to a small group of founders and early employees. It’s more work and trickier to splice the 2 groups together than to just use your inner circle, but it’s the only way to grow now and later. Please contact me if you want to discuss your startup.  @tomnora

The “Pre” Startup is adding air to the bubble

Angel Investor, early stage, founder, Launch, Scalability, startup, startup CEO, venture

There seems to be a lot of this going around these days – the “I’m just about to start a startup” category of entrepreneurs, or “I just started a startup” when they haven’t. It’s also become the new euphemism for unemployed.

Here are the justifications and logic process for so many claiming they have a startup before they really do, and in many cases actually getting some funding:

  • people feel like they might as well start their own business since nobody is hiring
  • funding is more prevalent than ever for early early  (read “ideas”) stage companies
  • the barriers are now very low for actually forming a business, as is the cost
  • micro funding ($25K)
  • no formal certification or education required
  • many new angels spawning from Google, Facebook, etc. millionaires
  • angel investors are supporting these early unqualified launches; many are F&F/parents who believe in the dream
  • amazing shining examples of success and IPOs, even though they a 1 in a thousand
  • it sounds cool, or used to before everyone started doing it
  • many people never before involved in startups want in

There will be significant fallout from this no doubt, but no one knows when.

Not that there’s anything wrong with many new businesses per say – here are some good results of such a rush

  • some of these will be the next homeruns (and base hits) in the startup world
  • lots of jobs being created, even if short term
  • first time startupers will get invaluable experience, whether they succeed or fail
  • many more people are learning software development

However, the fallout from all this will set us back a few years again …

  • many misled, unsophisticated angels will get burned and sour to good investments (not sophisticated angels, they know the risk)
  • whenever investors jump in late (now) many bad things happen
  • innovation is heavily suffering right now – almost anything is a business model
  • when many vaporware and vapor-businesses crash or fade away they leave damage, possibly fueling the recession (remember 1999-2000? 2008?)
…but will take us back to a more solid footing.

The American Dream of entrepreneurship is one I hold dear, but to apply it to a technology based startup requires a few basic principles – a real business model, hard work, technical excellence, outside expertise, sustainability, market focus, strategy, and more hard work. Eventually it also needs revenue growth and profits.

Hang on tight the roller coaster is taking a dip soon, I predict by mid 2012. It will shake out many people into the streets wondering what the hell happened.  @tomnora