Articles on this Page
- 12/17/13--10:32: _This Prison Program...
- 12/17/13--13:06: _What These 7 Billio...
- 12/31/13--10:53: _8 Young Leaders To ...
- 01/06/14--15:13: _Intuit Founder Scot...
- 01/07/14--07:23: _The 9 Most Common M...
- 01/09/14--08:13: _Why You Should Star...
- 01/27/14--12:06: _The 5 Most Importan...
- 02/01/14--06:24: _America, The Startu...
- 02/02/14--13:00: _5 Questions To Ask ...
- 02/11/14--07:41: _15 Inventions From ...
- 02/20/14--11:23: _These Charts Show T...
- 02/22/14--03:10: _A Group Of Investor...
- 02/27/14--07:29: _Chris Dixon: If You...
- 02/27/14--09:08: _Ben Horowitz, The N...
- 03/06/14--12:23: _How One Entrepreneu...
- 03/11/14--10:41: _9 Things Entreprene...
- 03/12/14--09:22: _Former 'Shark Tank'...
- 03/13/14--11:56: _This Brilliant Entr...
- 03/19/14--07:25: _How A High-Growth S...
- 03/19/14--07:54: _Why You Must Be Con...
- 12/17/13--10:32: This Prison Program Turns Inmates Into Entrepreneurs
- 12/17/13--13:06: What These 7 Billionaires Did In Their First Jobs
- 12/31/13--10:53: 8 Young Leaders To Watch In 2014
- 01/07/14--07:23: The 9 Most Common Mistakes Of First-Time Entrepreneurs
- 01/09/14--08:13: Why You Should Start A Company In 2014
He asked for business through his personal Twitter and Facebook networks,
He asked his friends for referrals via Facebook and email, and
He leveraged Facebook’s graph search to search for friends who liked beef jerky.
- 01/27/14--12:06: The 5 Most Important Numbers For Growing A Business
- 02/02/14--13:00: 5 Questions To Ask Yourself Before Starting A Business
- 02/11/14--07:41: 15 Inventions From Thomas Edison That Changed The World
- 02/20/14--11:23: These Charts Show The Danger Of Starting A Business With Your Spouse
- 03/06/14--12:23: How One Entrepreneur Realized She Was Charging Way Too Little
- 03/11/14--10:41: 9 Things Entrepreneurs Can Learn From 'Shark Tank'
- 03/19/14--07:54: Why You Must Be Constantly Changing In Order To Succeed
- Raytheon started as a consumer appliance company that made radio tubes. Today, it’s one of the largest defense contractors in the world, and makes microwave communications systems and cruise missiles.
- AT&T started out as a telephone network operator, but through evolving markets and regulatory mandates transformed itself into a global provider of Internet carrier services.
- Sony began as a recording equipment company; today it’s one of the largest media companies in the world.
- General Electric was founded as an electricity generator and producer of lighting components to create the power industry. But over its 132-year history, it has continually challenged itself to innovate and has produced everything from light bulbs to jet engines.
On Sept. 25, 1995, Kenyatta Leal was a 26-year-old convicted felon who had just been told by a judge that he would be spending the rest of his life in prison.
Leal had been arrested for possession of a firearm after two armed robbery convictions. His third arrest made him an offender of California's three strikes law, which mandates that state courts give harsher sentences to those who have been convicted of three or more serious offenses.
When the steel doors closed behind him for the first time at San Diego County Jail, it was "by far the worst moment of the worst day of my entire life,"Leal wrote in a post on Quora.
Little did Leal know then, it would take 18 years for a law to change his sentence, and luckily, an entrepreneurship program for prisoners would prepare him to re-enter the real world.
Leal spent more than a decade in prison, like most inmates, angry at his circumstances and devoting no time to developing his skills. He blamed the judge, legal system, and society for his fate. After years of unsuccessfully filing appeals, Leal met fellow prisoner David Lewis, a former gang leader and drug addict, who spent 17 years in prison, turned his life around, and became a "mentor, advocate, and model for change." After Lewis' release, he often returned to prison to help facilitate rehabilitation programs for other inmates and served as a powerful mentor for Leal.
It was men like Lewis who helped Leal change his way of thinking. "I started thinking about how I was going to live my life, how I would get up in the morning, how I would treat people," Leal tells Business Insider. "[If I got released], I knew that I would have to work extremely hard and dig a lot further than most people actually have to."
Leal started taking classes at Patten University through the Prison University Project, a nonprofit that supports college programs at San Quentin State Prison, where he had been transferred to serve his long-term sentence. In 2010, he graduated as class valedictorian with an Associate of Arts degree.
It was also around this time that Leal was accepted into an entrepreneurship prison program called The Last Mile, which trains select participants in technological skills to increase their chances of employment upon release. The program was started by husband-and-wife team Chris Redlitz and Beverly Parenti, who are both investors based in Silicon Valley.
When Redlitz and Parenti launched The Last Mile, they had no idea what kind of impact the program would have on rehabilitation. They just knew that the current rehabilitation programs for inmates weren't effective. The idea came after Redlitz's trip to San Quentin where he gave a talk about business and entrepreneurship to prisoners. He was surprised by how engaging and smart the inmates were and realized most of them would have serious issues integrating back into the job market simply because they have no idea how much technology has changed the world.
Leal was one of the first candidates to get accepted into the entrepreneurship program, which involves twice weekly sessions over a six-month period. It trains participants on social media skills, which include understanding Twitter, blogging, and Quora. To get into the program, candidates must apply, be recommended by their peers, and are reviewed by administrators. The program accepts 15 applicants in a given period. As of December 2013, there have been 13 graduates and there are 30 currently enrolled in The Last Mile.
Since launching in 2011, six alumni of the program have been released from prison, and Redlitz tells us they are all working. Besides Leal, other success stories include Tulio Cardozo, who was released in October 2011 and interned as a business analyst for venture capital firm KickLabs. Afterward, Cardozo started his own consulting platform, Collaborative Benefit, which works like a LinkedIn for prisoners and those who were formerly incarcerated.
Another graduate, Heracio "Ray" Harts, who spent more than eight years in prison and was released in March 2013, became employed by crowdfunding site Rally.org in San Francisco. A few months later, Harts was at the offices of Quora pitching his first entrepreneurial project for Rally called "Paving the Road to Success," which sought $5,000 to provide basic necessities for his fellow parolees.
"Before The Last Mile, I was going to be an electrician [if I was ever paroled]," Leal tells us. "But when the program came along, I realized there's a whole world out there I wasn't aware of. When I was incarcerated, the Internet was just starting to take off, so I didn't really get too much of an understanding for it. Once I started taking classes through The Last Mile sessions, all of those questions were answered."
In the first two months of the program, volunteers explain to inmates how technology has transformed in recent years. Some inmates have been locked up for decades and have no idea the impact technology now has on everything we encounter. While in class, the inmates are encouraged to tweet and participant in Quora threads in order to introduce themselves to the world.
In 2012, Leal was recognized as giving the best Quora Answer of the Year when he answered a question about what it's like to serve a long prison sentence.
Redlitz says participating in these forums can become a "living resume" for inmates because it allows them to tell their stories and allows potential employers a chance to get to know them. He's witnessed firsthand how storytelling has helped inmates. One example is a man named Tommy Winfrey who responded to a Quora thread that asked "How does it feel to murder someone?" In his deeply personal response, Winfrey reveals how necessary he felt as a former drug dealer to take someone's life to uphold his reputation. Since then, Winfrey feels "immense sorrow" and says that he never wants "anyone else to feel the way I do."
"[Winfrey] was a very introverted guy with very low confidence," says Redlitz. "Now he's a class leader. He's so animated and so articulate." Winfrey has also been approached by the creators of TEDTalks about potentially sharing his story to the world from inside San Quentin.
The last four months of the program focus on developing business plans and pitching skills.
"We do 'Shark Tank'-style sessions," says Redlitz, referring to the ABC pitch show featuring investors Mark Cuban and Barbara Corcoran. "It builds [the participants'] confidence. They are pitching in front of everyone else. They learn to collaborate. A lot of them have never worked with other people."
One of the entrepreneurs that Redlitz invited as a spectator was Duncan Logan, founder and CEO of co-working space company RocketSpace. Logan didn't know what to expect, but like Redlitz, was positively surprised by the inmates he met. "I was blown away very, very quickly by the individuals there," Logan tells Business Insider. "There were seven men in that group and all seven of them were impressive."
"The [inmates] were so serious about their businesses pitches. The dedication that they had in their businesses and pitches — it was one of those moving moments," he says. "There's a huge amount of talent in [prison], and it's all just wasted."
Logan met Leal during his first trip in 2011, and the two quickly formed a bond. Leal, now in his 40s, was pitching his idea for a fantasy football-like app that would also serve as a social community for football fans. Logan was impressed by the inmate's drive. When he left, Leal said to him, "If I ever get out of here, I just want that chance." But the two never thought Leal would be released from prison — at least not any time soon.
"Kenyatta is a really unique individual," says Logan. "If you put 100 entrepreneurs or CEOs into a room with [Kenyatta], I think 99% of them would say they want to hire him."
Despite everyone's expectations, California adopted Proposition 36 in November 2012, which revised the three strikes law and authorized re-sentencing for those who were sentenced to life in prison over a non-violent crime.
Leal received a release date for early 2013. When Logan found out, he decided to give Leal a chance as a full-time intern for RocketSpace.
On July 17, the newly released man started his internship at RocketSpace. Four months later, he was hired as the company's full-time operations associate.
"When you interview people for a job or whatever, the really great people always jump out at you," says Logan. "It's different for every person. There was an absolute genuineness about Kenyatta that said he would do whatever it takes to get things done."
Since its beginning, The Last Mile program has now expanded to L.A. County jails and plans to head next to the state of Michigan.
As for Leal, he tells Business Insider that he hopes to one day lead The Last Mile program in prisons all over the country. "I would not be sitting here today if it weren't for the opportunities," he says. "I want to create opportunities for the people who really need them."
Your first job usually won't be your dream job. Nonetheless, you never forget it. It introduces you to the working world, teaches you how to work hard for your money, and often gives you an idea of what you do and don't want from your career.
From washing dishes at a Chinese restaurant to flipping hamburgers at McDonald's, here's what seven billionaires did in their first jobs:
Jeff Bezos worked behind the grill at McDonald's.
As a teenager, Bezos started working at McDonald's during the summer. His dad, Mike, had also worked at McDonald's in the past.
Author Cody Teets interviewed Bezos in her book, "Golden Opportunity: Remarkable Careers That Began at McDonald's," about his experience. He said: "I was a grill man and never worked the cash registers. The most challenging thing was keeping everything going at the right pace during a rush. The manager at my McDonald's was excellent. He had a lot of teenagers working for him, and he kept us focused even while we had fun."
Michael Dell washed dishes at a Chinese restaurant.
The tech billionaire got his start in the restaurant business. At the age of 12, Dell worked at a Chinese restaurant washing dishes. He would later be a water boy and assistant maitre d’ at the same place. After he left the Chinese restaurant, Dell worked at a Mexican restaurant.
Oprah Winfrey was a grocery clerk.
While on a full scholarship at Tennessee University, the media mogul worked at a grocery store next to her father's barber shop.
Michael Bloomberg was a parking attendant.
Bloomberg worked as a parking lot attendant at Harvard and Johns Hopkins universities while getting his college degree.
Financier Charles Schwab picked and sold walnuts.
Schwab took the walnuts he found in the woods and sold them in the market. He priced them at $5 for a 100-pound sack. He would later raise chickens and sell eggs at the market. At the age of 14, Schwab got a job as a caddie at a golf course.
Warren Buffett delivered newspapers.
Buffett started delivering newspapers on his bicycle at the age of 13. During high school, he moved on to his pinball machine business.
T. Boone Pickens also had a paper route.
Pickens worked his first paper route at the age of 12 and was paid a penny a paper per day. Within five years, his route grew from 28 to 156 papers and Pickens had saved $200.
They are driven, innovative, intelligent and young. These leaders are wise beyond their years, have risen up in their industries and on their missions to become voices of their generation. From entrepreneurs to actresses and activists, below are the eight young leaders every business owner should watch and learn from in 2014.
Malala Yousafzai, education activist, 16
At the age of 11, Yousafzai was writing under a pseudonym for the BBC, detailing what it's like to live under Taliban rule. In 2009, The New York Times filmed a documentary about her life. Today, as a 16 year old, Yousafzai is an influential communicator and education activist. In October 2012, she was shot in the back of the head by Taliban gunmen, but survived the assassination attempt.
Yousafzai was the recipient of the UN 2013 Human Rights Prize and is the youngest person to have ever been a Nobel Prize nominee.
Rachel Haot, technologist and innovator, 30
Born in Manhattan and raised in Park Slope, Brooklyn, it makes sense that Haot would end up working for the city of New York, which is exactly what happened. In 2011, Mayor Michael Bloomberg named Haot as the city's first chief digital officer. Her job? To think of big-picture ways to improve the lives of New Yorkers by implementing digital and high-tech initiatives.
This includes overseeing the city's official website (nyc.gov) and nearly 300 social media channels that reach approximately 6 million visitors monthly.
In December, Governor Andrew Cuomo's administration announced that Haot would be joining the team as deputy secretary for technology. "Rachel brings a proven track record of success from her work in both the public and private sectors, and I am confident that she will help take New York state’s digital presence to the next level," Cuomo says.
Before working for the city, Haot launched journalism platform GroundReport, digital consulting group Upward, and worked as a business developer for file-sharing site LimeWire.
Jennifer Lawrence, actress, 23
Just watch Lawrence on screen and you'll understand why she's one of the most sought-after actors of her generation. Despite her young age, her roles in films like The Burning Plain (2008), Winter's Bone (2010), and Silver Linings Playbook(2012) make her appear ageless. They've also earned her nominations for the Academy Award, Golden Globe Award, Satellite Award, Independent Spirit Award and Screen Actors Guild Award for Best Actress.
In 2013, Lawrence was named one of TIME's 100 most influential people in the world.
Jennifer Fleiss and Jennifer Hyman, entrepreneurs, 29 and 33
As the co-founders of glamorous e-commerce venture Rent the Runway, Fleiss and Hyman have been everywhere. Their company, which has been compared to a "Netflix for fashion," is reportedly backed by approximately $55 million in venture capital funding.
Both Fleiss and Hyman, who met at Harvard Business School, have been recognized on Inc.'s list of "Top 30 Entrepreneurs Under 30" and Fast Company's "Most Influential Women" list in 2011.
Lena Dunham, writer, director and actor, 27
Dunham's a triple threat whose hit HBO show Girls has received nominations for Emmy Awards and won two Golden Globe Awards as of 2013. The show is set to return in 2014. Dunham, a feminist and voice of her generation, whether she wants to be or not, has recently received $3.5 million in advance for a collection of book essays.
Magnus Carlsen, chess champion, 22
In November, Carlsen won the World Chess Championship and currently has the highest peak rating in history. Carlsen started playing chess from a young age. He's often been called the "Prince of Chess" for his young age and aggressive style during competition.
Evan Spiegel, entrepreneur, 23
Snapchat was just a neat photo app that young people used until it stirred headlines by reportedly turning down a $3 billion all-cash buyout from Facebook in 2013.
Spiegel's company handles more than 400 million photo messages on a daily basis, and the Pew Research Center reports that 9 percent of all Americans who own cellphones use it.
Snapchat's upcoming investment will reportedly value the company at $3.6 billion.
Not bad for a 23 year old.
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To get the most valuable information out of reference checks, Intuit co-founder Scott Cook asks a very specific question.
Cook knows that most people try to be nice, so they will give the candidate a good reference. However, this doesn't help employers in finding the right person. Cook says in First Round Review that he completely ignores any opening feedback about the abilities of the potential hire. Once the reference finishes talking, Cook will ask:
"Among all of the people you’ve seen in this position, on a zero to 10 scale, where would this person rank?"
If the answer is "seven," Cook will then ask why the person isn't a nine or a 10. "Then you’ll finally start learning about what this person really thinks," he says.
At the end of the conversation, Cook will ask for suggestions on other people who can give a reference on the candidate. He then repeats his process.
Building a company from the ground up is no easy task. That's why most entrepreneurs make mistakes along the way, and first-time entrepreneurs make the most.
Unfortunately for many, the failure rate is extremely high — generally 50% to 70% of small businesses fail within the first 18 months. To learn from those who've been in the trenches, we combed through a recent Quora thread that asks: "What are the most common mistakes first-time entrepreneurs make?"
Below are the most helpful pieces of advice for first-time entrepreneurs:
1. Picking the wrong co-founder.
Choosing someone as a partner is a big responsibility, and it's one of the first choices you'll face when starting a new business. This decision is certainly impactful in terms of equity and satisfaction, so you want someone you can work with, says David Lawee, c. Be aware of your own skills and wisely choose someone who will be able to complement those skills.
2. Not understanding the skills needed to be CEO.
The skills that are needed to start a company are very different from the skills needed to grow it, says serial entrepreneur Gary Whitehill. As a founder, you need to be "unwavering, articulating, and executing" and have "passion and a clear and concise vision." On the other hand, CEOs need to understand "processes and protocols, human resource policies, and international partnerships."
3. Trying to make a product for everyone.
"He who tries to please everybody, pleases nobody," says entreprenuer Michal Ugor. Focus on your product, make it specific, and don't try to be like everything else out there.
4. Obsessing over the competition.
Don't try to build a product that already exists, advises Evan Reas, c
Reas quotes a famous saying: "If you spend all your time looking at your competition, your product will end up looking like your competition's ass." Don't watch what your competitors are doing too carefully, since this will divert your attention from the prize.
5. Not learning every side of the business.
Peter Baskerville, a vocation lecturer, says that the best entrepreneurs are the ones who understand that they need to be "very good at everything," meaning they can't only be good at leadership and ideas, but need to also understand the tech, sales, product, and marketing areas of their company.
6. Running out of cash.
"First-time entrepreneurs often fail to realize that every second of every day costs money," says George Kellerman, entrepreneur and angel investor. "Whether it is rent, salaries, overhead, utilities, or whatever, cash is constantly going out the door, and if you cannot bring cash in (through sales or financing), then you will eventually run out of cash and the game is over."
"Guard your cash like your life depended on it, create budgets, keep receipts, track expenses, know where your cash is going, and you'll be much better off," he says. In the beginning, focus spending on customer acquisition, hiring, and employee productivity.
7. Getting too emotionally attached.
Yes, you put your blood, sweat, and tears into this company, but don't get too emotionally attached to an idea — especially if all the signs are telling you it won't work.
"Once you get emotionally attached to an idea, you lose objectivity," says Rajesh Setty, "After that, you are in a bubble of your own looking at the world through colored glasses. You might even think others are 'not getting it' as it is obvious to you that you are right (and others are wrong)."
8. Not hiring the right fit.
At some point — usually around Series B — many CEOs will want to hire talent from big companies, says Kristen Koh Goldstein,
"Too many CEOs make the mistake of putting smart people in leadership positions by assuming intelligence [equals] leadership," she says.
9. Not getting feedback from your customers.
Instead of asking your friends, VCs, and other entrepreneurs about your company, you should turn to your customers for validation, says serial entrepreneur turned investor Nabeel Hyatt.
Quora user Greg Tapper agrees: "Treat your customers better than your spouse. Take your customers for granted, pay the price. Without customers, your company is a high school science project."
If you’re waiting for the perfect time to start your own business, you could be waiting for a long time. But if you have an idea and the drive to take control of your own future, 2014 is your year to launch.
The way we do business has changed. Our personal networks are global, and so are our resources. The number of tools available to any small business owner is staggering, and each one is more accessible, affordable and targeted to your needs than ever.
The benefit of this shift is that you can use these solutions as the building blocks for your business and focus more of your time and energy on what you’re building instead of the back-office administration.
Networking on your own or with a crowd
Entrepreneur and AppSumo founder Noah Kagan recently challenged himself to start a business and make $1,000 profit on a crowd-sourced business idea—independent of his significant AppSumo and OKdork networks, within a 24-hour time limit. The results the day after launching his SumoJerky beef jerky club? $3,030 in revenue, $1,135 in profit.
To get the word out, Kagan tapped into his personal networks:
Kagan ultimately found that real-time communication—Skype, Google Talk, texting and phone calls—brought more sales than social media or email. But it’s the ability to leverage your network that will help you grow your business and reach new people.
Networking also helps you bring experience into your circle of advisors, both as mentors, potential partners and fellow business owners to swap tales and advice with. Established communities like the Young Entrepreneurs Council and Freelancers Union are a great place to start, and there are many niche groups on platforms like Twitter, Facebook and LinkedIn.
Pros from near and far
When it comes to finding people with the right skills to support your business, the global workforce has a lot to offer. Platforms like oDesk, Elance (which recently merged) and Guru can connect you with web developers, designers, writers, programmers, engineers, accountants and other professionals when you need them. Often hired on a project basis, working with a freelancer can be a time and cost-effective way to get things done.
Even just around the corner, there are other ventures that might fit exactly what your business needs.
Good Eggs is just one example. Started in the San Francisco Bay Area but now available in Brooklyn, Los Angeles and New Orleans, Good Eggs aims to make local food more easily available to the masses. They source food from local farmers and food producers, allow people to shop online, then deliver orders directly or make them available for pick-up. For a local pie business like Three Babes Bakeshop, run by two friends in San Francisco, Good Eggs is a great distribution partner.
Tools that do the heavy lifting
Traditionally, small businesses have taken enterprise-level software and adapted it as best as they could to meet their needs. But a newer generation of vendors have launched with those small business owners in mind; they’re creating solutions designed to fit their specific needs, without unnecessary features.
While eBay owned the e-commerce space for a decade, online retailers now have numerous storefront options like Shopify and Etsy. Kagan used PayPal to collect online payments for SumoJerky, and both Shopify and PayPal are moving more service offline to compete with point of sale (POS) services like Square. People want to be able to do business wherever they are.
LegalZoom has become a go-to resource for many business owners when they need legal work done; from forming your business to filing patents or trademarks, LegalZoom offers template forms at a reasonable price.
Administering payroll and dealing with government compliance can also suck up a lot of time. Online payroll services can automate the whole process for you, from making direct deposits to employees to calculating and paying state and federal payroll taxes and submitting your filings.
Entrepreneurship at its heart is about solving problems, not performing maintenance. By turning to solutions created by other entrepreneurs, you can free your time to focus on the work you do best.
This post originally appeared on the ZenPayroll blog.
If you’re using accounting software, it’s easy to run financial reports. But what then? There are so many numbers to look at; it can be overwhelming. Which ones are the most important to monitor the health of your business? Which numbers should you track to ensure that your business grows?
Most of my clients started their business because they’re amazing at what they do, but they’re not business people by training. So while they know exactly how to make their clients happy, they’re winging it on the business side of things. Unfortunately, this is a risky practice. A massage therapist I know recently had to close up shop and go back to working for a big spa. She is incredibly talented, and her clients loved her. But she was so focused on serving her clients that she never looked at the big picture of her business. Suddenly she didn’t have enough cash to pay the bills, and she didn’t know how to salvage the situation.
I believe that she could have avoided this worst-case scenario if she had paid attention to the financial side of her business. In fact, to show you how she might have avoided the outcome, we’ll look at how others businesses stay profitable and growing by tracking five key business numbers. A quick disclaimer — every business is different. Here I’ll focus on a typical service business, but feel free to consult your business advisor or accountant for more customized suggestions.
1. The bottom line is profit
Okay, so there’s tons of numbers you could look at. “What’s the bottom line?” Well, that expression comes from the fact that profit is the line at the bottom of the most important financial report — the Profit & Loss Statement. Profit (also called “net income”) tells you how much money you have earned after expenses are paid out. This is a great place to start to see how your business is doing.
I recommend that you look back at your profit over each of the past 12 months. Is it a big number? A negative number?
The next step is to look at the trend. Is profit trending upward over the past year? Is it flat? Or is it trending downward? This trend helps you predict your future profit.
One of my clients, a boutique law firm, noticed that their profits for the current year were half what they were the year before. This didn’t make sense, since they were as busy as ever. Upon closer examination, we found that their case load had shifted towards a type of work that paid less but still required a lot of time. The lawyers enjoyed this new work, and they didn’t want to return to the old work. So in order to restore profitability, they renegotiated their fees for the new projects.
Ultimately, if your business isn’t profitable, or isn’t profitable enough for you to pay yourself what you want, it’s not sustainable. As a business owner, stay focused on this “bottom line” to make sure you’re earning the money you want.
2. Trend in expenses
A marketing consultant hired me recently with a very confusing problem. His business was growing rapidly, but he was taking home less and less money. I’ve seen this pattern in a lot of businesses, so I guessed correctly what was happening: expenses were growing faster than revenue. The consultant was landing more and bigger clients, and he was flush with cash. So he started spending more money on the business. What he didn’t realize was that his expenses were increasing faster than his revenue was growing. So he ended up with less and less to take home.
To avoid this common trap, keep an eye on the trend in your expenses. “Total Expenses” is a line in the Profit & Loss Statement. Look at this total and its trend over the last 12 months. Compare the expenses trend to the trend in “Total Revenue.”
Make sure your expenses are not growing faster than your revenue. The exception would be if you are making an intentional long-term investment, such as a new employee or new equipment.
3. Accounts receivable
Ever wish you could shake the trees and have money come out? Well your accounts receivable is as close as you’ll ever get to this opportunity.
Accounts receivable (sometimes abbreviated “A/R”) is the fancy way to say “money I’m owed.” This is the sum of your unpaid invoices, and it appears as a line in your Balance Sheet (another basic financial report). If A/R is a big number, you have a lot of money in the treetops.
One of my clients, a corporate trainer, had over $50,000 in accounts receivable. These were past clients who had been tough to collect from, and for the most part she had given up trying. It’s not a fun job, and she was busy with her current clients. When she realized how much money was at stake, we came up with a new strategy. She hired a part-time virtual assistant to follow up on her unpaid invoices. After a month, she had collected over $20,000 and spent only hundreds on the virtual assistant! If your accounts receivable is high, go shake the trees.
4. Profit per customer
Not all clients are created equal. Financially speaking, some are much more lucrative than others. However, don’t make the common mistake of thinking that the best clients are the ones who pay the biggest fees. The best clients are the ones who generate the most profit.
A client of mine is a celebrity stylist, and he was really excited because he was booking bigger and bigger gigs. But he was confused because he didn’t seem to be making much more money. When we dug into his numbers, it turned out that he was making less profit on the big gigs than he was on the smaller ones. The big gigs carried a lot of extra expenses for things he didn’t need in the smaller gigs. So even though he was charging more money, he wasn’t taking home as much at the end of the day. Knowing this, he increased his rates for future big projects, so they would be more profitable. And he also started enjoying the smaller gigs more, because he knew they were actually very lucrative.
It’s extremely important that you look at your profit per customer (or per project). This number is typically not in your accounting software, so you have to do a quick calculation at the end of the project. Take the total fees you received, and subtract out all of the expenses. That’s you gross profit for the project. Next, divide that profit by the approximate number of hours you spent on the project. That’s your “hourly wage” for this project.
$10,000 fee – $3,500 in subcontractor expenses = $6,500 gross profit
$6,500 gross profit / 60 hours = $108 hourly wage
Compare this wage between projects to see which are most lucrative for you. Focus your marketing on getting more of the most lucrative projects, even if they are not the “biggest” projects. This way you’ll earn the most money with the least time spent.
5. Number of client prospects
Ever feel like your business goes through a boom and bust cycle? It’s very common. One of my clients, a web design agency, would have huge months where they billed big fees, and then months they called “cricket months.”
The reason this happens is that we get so focused on our client work that we slow down on our marketing efforts. To avoid this trap, always keep an eye on the number of prospects you have in your client pipeline.
How many people are you talking to about potential projects? Make a list, and count them. Is it a small number? Better get out there and do some marketing! Don’t let a “cricket month” sneak up on you.
Keep your prospect list current, and post it on a whiteboard near your desk. This will help you stay focused on marketing, even when things get busy, so you can create the growth you want.
Set a Schedule to Track Your Numbers
In order to stay on top of your business, so it will grow as fast as possible, I suggest looking at your key numbers on a monthly basis. Many of my clients check theirs on the first day of every month, and adjust their business strategy appropriately.
Starting a new business is hard.
Building a new industry is even harder. Especially when it’s on the other side of the world.
For nearly a century, exploration of the Americas had been carried out under royal patronage. Whatever spoils were brought back belonged to the crown.
That began to change toward the end of the 16th century, when a group of profit-seekers became convinced of the promise of untold riches waiting to be discovered in what came to be called the new world. They were called “adventurers.” The term referred not only to those willing to risk their personal safety by setting sail for America, but to those willing to finance such undertakings, investing in fledgling colonies designed to exploit the vast resources available overseas. Today, we would call them venture capitalists.
The European settlement of North America, then, was accomplished by a series of start-ups.
But as with any wave of firms entering a radically new sector, it took some flameouts and consolidation for what might be called America Inc. to really get off the ground.
As in many new industries, the pioneering players weren't the ones who we necessarily remember today. The first two English adventurers to try to make it in America were Sir Walter Raleigh and his half-brother Sir Humphrey Gilbert. Raleigh is now recalled more for his infamous personal and political life — he was a favorite of Queen Elizabeth, became England’s first chain smoker, and was eventually beheaded.
Nor did Gilbert even really care much about America itself. In 1576, a document called “A Discourse of a Discouerie for a New Passage to Cataia” built up evidence that the continent contained a northwest passage to China. The work found its way up to Queen Elizabeth, on whom it made a large impression. In an early example of what we might now call a “request for proposal” or RFP, she put out the word that she was entertaining pitches for expeditions. Two years later, Gilbert applied for and received a license to establish a colony in America.
Storms forced back Gilbert's initial attempt to reach the Americas, and it would take another five years before he took another shot at it. His crew eventually made it to Newfoundland in August of 1583, though no attempt was made to form a colony. But against the advice of his crew, Gilbert took a smaller ship home back to England, and was lost at sea.
Undeterred, Raleigh lobbied for and received a 1584 charter from Queen Elizabeth to settle the territory England claimed in America, basically the entire East Coast north of modern-day Florida. He was given license to exploit whatever economic opportunities he could find there, and reading the charter one can detect early echoes of the precise, legalistic language often encountered in modern contacts. Raleigh had the go-ahead to “discover, search, find out, and view such remote heathen and barbarous Lands, Countries, and territories … to have, hold, occupy, and enjoy commodities, jurisdictions, royalties, privileges, franchises, and preheminences, thereto or thereabouts.”
Raleigh himself never made the journey, but an exploratory expedition sent back strong initial reports: “fish the best of the world…fruites very excellent good…and soile…the most plentiful, sweete and fruitful and wholesome of all the world.” So in 1585, Raleigh, who had by now gotten himself elected to parliament and knighted by Queen Elizabeth, self-funded an expedition to set up a beachhead settlement on Roanoake Island, on the Outer Banks of what is now North Carolina.
Despite those glowing early reports, the reality encountered by the settlers on arriving proved more challenging. The local Algonquin tribe was hostile to the newcomers, supplies were inadequate, and the colonists neaerly starved. When Sir Francis Drake, the greatest seaman of his generation, made a surprise call at Roanoake, all the settlers there left with him.
Raleigh, meanwhile, was diversifying. He had begun to shift his focus toward developing holdings in Ireland, which he’d helped occupy. And in April of 1587, he was appointed Royal Captain of the Guard, responsible for Queen Elizabeth’s personal safety. Still, he wasn’t quite ready to give up on a North American settlement, outfitting one final expedition there.
NEXT: Once a Pirate, Always a Pirate
Once a Pirate, Always a Pirate
On May 8, 1587, about 100 colonists led by an artist named John White set sail for Chesapeake Bay. But at some point the Azorean-born pirate Simon Fernandes, who’d been paid to pilot one of the boats, convinced the expedition to sail to Roanoake to check up on a group of soldiers who’d been dispatched to support the settlers, before anyone had learned of the Drake rescue. They arrived on July 22 but found no trace of them — they’d likely all been slaughtered. Fernandes then informed the settlers that they would not be allowed back on one of the boats. Making a quick pivot, he planned to use the vessel instead to attack and loot Spanish ships. The entire mission was now grounded at Roanoake. While White, who was nominally in charge, may have been expected to put up a fight, he later wrote that it “suited [him] not” to contend with Fernandes.
The decision would prove fateful.
The Queen had been issued on private ships leaving the British Isles as the French and Spanish navies kept badgering the them. Raleigh did manage to launch a two-ship relief mission to the colony, but it was forced back by a French fleet. It would be two more years before another crew was dispatched. When they arrived in August of 1590, they found the entire colony abandoned.
There are a number of theories to what became of the so-called “Lost Colony” at Roanoake, ranging from infectious disease to slaughter by Algonquins. A more recent theory suggests the colonists may have split up and assimilated into local tribes.
In any event, Raleigh ended up taking a £40,000 loss — $14 million in 2012 dollars — on the enterprise, according to historian Percival Griffiths, and it would be more than a decade before an Englishman would invest in the American colonial project again. A royal Privy Council at one point considered sponsoring its own expeditions, but the motion did not prevail.
Still, even in “beta,” America’s potential could not be ignored. In 1589, an account of Virginia written by a man named Thomas Hariot and featuring illustrations by White, the artist and settler, appeared in a travel compendium called “The Principall Navigations, Voiages and Discoveries of the English Nation.” Hariot described a place where “the ayre [is] so temperate and holsome, the soyle so fertile and yeelding such commodities.” Today, business plans generally include risk disclosures. Hariot and White didn’t dwell on the negatives. Instead they focused on the upsides.
Readers responded: The book went through 17 editions between 1590 and 1620. With that kind of promotion, it seemed certain, someone would eventually figure out how to make the America venture thrive.
The next to try was the Earl of Southampton, a wealthy nobleman best known as the patron and possible muse of William Shakespeare. In 1602, he paid for an expedition to tap into American natural resources and establish a trading post in the mid-Atlantic region. A coterie 20 colonists and a dozen crew, departed in March, arriving at Cape Cod in May. They built up a small fort, but by the end of that summer they’d lost enthusiasm for the project: they feared the Algonquins, and were worried about running out of supplies. It was agreed that they would sail back.
Next: The Jamestown Settlement
The Jamestown Settlement
But accounts of the region yet coming. Brereton’s “Relation,” published in 1602 by John Brereton, a priest, became the first English book to describe modern-day Boston and Cape Cod. This helped stoked further interest in America.
By this time, it was clear that a successful colonial enterprise would require more funding than a single individual could provide.
So in 1606, two groups of investors, one from London, the other from Plymouth and other parts of western England, petitioned King James for charters. The King obliged, granting rights to establish two separate colonies with a clear purpose: to “dig, mine, and search for all Manner of Mines of Gold, Silver, and Copper.” The crown would take a cut of 20% of the first two minerals and 15% of the latter, but the holdings themselves would be private. The London group was granted the rights to all territories stretching from South Carolina to New York. The Plymouth group got everything north of that. Neither would be permitted to establish a settlement within 100 miles of the other. Both were given mining rights and the license to print their own money, as well as take whatever measures were necessary to guarantee their own defense, and anyone trading with the colonies — the overseas operation — had to pay duties to the company back in England.
On May 14, 1607, 104 men and boys outfitted by the London group landed at the mouth of the Chesapeake Bay, naming their settlement Jamestown, in honor of the king.
Meanwhile, the King had established the Council of Virginia — essentially a board of directors — to oversee the operation. After two years, the London group applied for a new patent, granted a year later, that officially incorporated the company, now called “the Treasurer and Company of Adventurers and Planters of the City of London for the First Colony in Virginia.” While the King retained final say over its affairs, the Company itself could now elect a new council, which in turn could make laws for the colony and appoint a governor (or president) for the colony, not unlike a board electing its CEO.
The company also went public. Shares were priced at £12.10 — $3,665 in 2012 dollars. To be sure, it was an amount only the privileged could afford. If you bought £50 worth, you could sit on the council. If you were a settler, you got one share, as well as the right to a proportional share of land.
Next order of business: drafting a prospectus. To goose demand for stock, the company initiated an intensive marketing push. In those days, that meant pamphlets. Usually written in a breathless first-person prose, these accounts generally described how an investment in the Virginia project would bring massive returns, not to mention helping to boost England’s standing in the world.
One such testimonial read in part: “with-holding no longer, I yeeleded my money and endeavours as others did, to advance the same, and now upon more advised consideration, I must needes say I never accompted my poore means employed to better purpose.”
Another satisfied customer.
Initially, at least, such pitches struck a chord, and by June 1609, the company had raised enough money — one estimate says the float reached £10,000, or $1.58 million in 2012 dollars — to send 500 more colonists to Virginia.
But things went south quickly: So many new arrivals were struck down with “sicknesse” or famine that only about 60 survived to 1610. Worse, a key member of the original expedition, Captain John Smith, had returned to England to recuperate after his powderbag mysteriously exploded in his boat during a sally down the James River, severely burning his legs.
Smith had actually been arrested on the initial voyage to Jamestown in 1607 for insubordination, but he had proven himself an able leader of the colony during the next two years, having established excellent relations with the local Algonquin tribe after its chief’s daughter, Pocahontas, rescued him from a scrape. Still, his fellow settlers continued to loathe him — his self-promoted exploits included having beheaded three Turkish officers while fighting on the side of the Habsburg Empire, then subsequently getting sold into slavery by the Ottomans — and some historians believe he may have been the victim of sabotage.
Without Smith, the Algonquins became less eager to share their turf (they were not shareholders in the new enterprise, after all), and began sabotaging the colonists, by, for instance, cutting down their corn.
A replacement governor was named, but his voyage from England sailed off-course to Bermuda. The resulting lack of oversight proved increasingly problematic: It seems the individuals who were actually settling the colonies were a bunch of degenerates.
When Lord De La Warr (for whom the state of Delaware is named) finally arrived to take up his post as Governor, he sent back word that recruitment efforts should become more selective, and the Council dutifully established that only “honest sufficient Artificers, as Carpenters, Smiths, Coopers, Fishermen, Brickmen, … shall be entertained into this Voyage.”
In 1611 De La Warr’s health detriorated, and the company contemplated shutting down. By that point, cash flow had slowed, and shareholders were losing confidence, defaulting on their subscriptions.
Fortunately, another bullish report offered hope for improved prospects, and the company apportioned another £30,000 for two years, and then went on to raise an additional £18,000, in part through lotteries, a common revenue generator in the 17th century. In March 1611, three more ships, carrying 300 settlers, set sail for Jamestown.
This time, the company was able to sustain some momentum. It tapped a new revenue stream by figuring out how to grow tobacco, and initiated a new push to win over the locals, especially Powhatan, Pocahontas’ father.
The settlements were basically run as communes. The planters were organized into different classes according to skill level, and were required to devote a month’s worth of work a year to the colony’s upkeep. Each also had to contribute dues of 12.5 bushels of grain into the “magazine” — the common store — each year.
In another promotional pamphlet published around 1616, the company heralded Virginia’s “great plentie and increase of Corne, Cattell, Goates, Swine, and such other provisions, necessary for the life and sustenance of man.” It worked: By 1616, the colony had grown into six different settlements. Demand for American products was up, and people wanted to work there.
In 1619, Virginia’s first government was set up: 22 “burgesses,” or assemblymen, now representing approximately 900 settlers spread over 11 different districts. The advent of this body, ultimate control over which the company still maintained, was the last major push to make the Virginia enterprise more attractive to potential settlers. (It is officially the longest-running representative assembly in the “New World.”) Among its first measures: punishing a third charge of public intoxication with “lyeing in boltes” — leg irons— for 12 hours.
1619 would prove the last good year for corporate-run Jamestown. By 1624, the “sicknesse” and renewed native hostility, compounded by the death of Powhatan in 1622, had cut the overall population from 6,000 to no more than 2,000 settlers. Virginia was transformed into a quasi-paramilitary operation to fend off the Indians, and commerce began to wither.
Not surprisingly, a drop in revenues led to dissension. Council members — the board — began trading accusations of mismanagement. Eventually, a petition was submitted to the King to settle the dispute, and in 1623 a formal inquiry began. On April 13, 1623, he handed down a 39-count indictment alleging a litany of management missteps.
The company and the House of Burgesses vigorously contested the accusations, which the King responded to by putting some company officials under house arrest. The suit dragged on for another year, and in May 1624 the monarch decided he’d seen enough, revoking the company’s charter and assuming control of Virginia. By 1621, the shares had become largely worthless.
NEXT: The rise of Plymouth
The Rise of Plymouth
Attempts to settle the area granted to the Plymouth group — the second, northern, half of the original 1607 American charter — had basically gone nowhere after a settlement near present-day Bath, Maine, fell victim to factionalism and famine, forcing the survivors home to England.
In the meantime, John Smith was back in business as an explorer, heralding the great fortunes to be made in northern America. In 1616 he published “A Description of New England”, giving the territory an attractive new brand identity (one he originally coined two years before) we still employ today — one of the most successful marketing coups in American history.
Four years later — around the time when things in Jamestown seemed to be getting back on track — another attempt was made to settle New England. The initiative came from a single man, a nobleman named Ferdinando Gorges, who’d been part of the original Plymouth group and had basically sat on the rights for all those years.
On November 3, 1620, the King granted a charter for a 40-member council that would run a plantation there. The company failed almost immediately, however: A group of investors who’d promised to bankroll the venture to the tune of £100,000 backed out at the last minute.
The Council’s appointed Governor, Robert Gorges, Ferdinando’s son, proved feckless. Unable to support an actual expedition of its own, the council ended up simply doling out acreage to anyone who asked.
We recall one such group every November.
For more than a decade, a cadre of Christian radicals who rejected all religious authority had been camping out in the Netherlands, and were now concentrated in the town of Leiden. They’d been hacking it there as best they could, but the group’s unity was beginning to crumble as younger members seemed increasingly to lack the fervor of their parents. Eventually the prospect of a second emigration was raised. In part thanks to Sir Raleigh, who’d gone there in the 1590s to explore whether El Dorado — the City of Gold — really existed. But the group rejected the idea on the grounds that it was too hot, and too Spanish (and therefore too Catholic).
Eventually they decided on an area north of Jamestown. To make the move, three issues had to be addressed: They needed permission to settle there, they needed someone to pay for the trip, and they needed to be sure they wouldn’t get hassled — they’d still technically be subjects of England, after all.
To win the King’s blessing, they were required explain their views on Church and State. This would require real nuance — indeed, the result would have been the envy of any modern corporate PR shop. They duly submitted what’s now called The Seven Articles, which Griffiths describes as “a masterpiece of evasion,” appearing to acknowledge the Crown’s authority over religious matters, “if the thing commanded be not against God’s word.” That was some pretty cagey spin, but apparently it was enough to satisfy King James — who perhaps was simply happy to not have them back in England — and the separatists were given implicit permission to settle in Virginia. They also received a patent from the London Company to settle on its territory.
As for funding, the Dutch had approached the separatists with a promise of sponsorship. But despite their opposition to the Crown, Griffiths says, the Pilgrims were mindful of the poor optics involved in taking money from a foreign nation, and so turned down the offer. In early 1620, a man named Thomas Weston visited Leiden representing a group of adventurers. He drove a hard bargain, offering the Pilgrims a seven-year contract stipulating that all proceeds from trading would be returned to the syndicate, and all property held in common stock. After seven years, assets would be divided pro rata among adventurers and planters.
The result was a joint-stock company, with share prices set at £10. The funding round included about 70 investors, with a total float worth £1,500, or $265,000 in 2012 dollars. Weston apparently lacked the heft of the original London Company investors.
Separately, the adventurers had also signed up a group of English emigrants, and in July of 1620, the Pilgrims, in a boat called the Speedwell, went to go pick them up, setting sail with them from Southampton in another boat called the Mayflower. But the Speedwell kept leaking, and after two attempts to set sail as a flotilla, everyone was forced onto the Mayflower.
Finally, on September 6, 1620, the Mayflower left Southampton. En route, they were blown northward to Cape Cod.They decided to stay there, but realized they would need to get a separate license from Gorges to do so. As a temporary measure, they signed the Mayflower Compact, just to cover their bases. The Compact would also come to serve as a kind of statement of principles for their goal of founding a new community.
Weston ended up selling out of his stake early, perhaps sensing that the Pilgrims, as William Bradford called the settlers in his account of Plymouth colony, Of Plymouth Plantation, lacked the business sense necessary to sustain a going concern. (For their part, the Pilgrims regarded their angel investor as utterly corrupt.) The remaining investors were forced to change the terms of the contract, relaxing the communal land stipulation and granting each family its own private parcel for cultivation, on the hope that greater autonomy would produce higher yields.
But revenue growth was nil. So in November of 1626, a group of Pilgrims known as “the Undertakers” hatched a plan to buy out the Adventurers’ stake and take control. They settled on a price of £1,800 — about $278,000 in 2012 dollars — in installments of £200 a year. The debt wasn’t paid off until 1642, and Griffiths estimates the original investors only got about 33 cents on the dollar.
In 1630, the Pilgrims received another patent from the Council of New England in the name of Bradford. They technically remained subservient to the Plymouth Company, but five years later the company folded, leaving the Pilgrims free subjects, albeit carrying a large debt load and still under the authority of the Crown.
Despite their perseverance and moral character — we recommend Governor William Bradford’s account, an astonishingly humorous, intelligent read— the Pilgrims never numbered more than several hundred and eschewed most all forms of financial enterprise. As a result, they weren’t especially effective at doing much more than establishing a safe haven free from religious interference.
The job of turning North America into a going business concern would fall to the Massachusetts Bay Company, established in 1627 by a group of wealthy investors known as Puritans. The investors were led by Matthew Craddock, who would go on to become the first governor of the company. He is described by UCLA historian Robert Brenner as "one of the greatest traders of the period." (Unfortunately no image of him exists.)
While also known for their unconventional spiritual beliefs, the Puritans' views were not quite as radical as the austere Pilgrims'. Still, a crackdown on all non-mainstream religious groups in England created an urgent need to leave the country.
But they still had to raise the funds to do so. So on Feb. 27, 1629, in a bid to attract additional investment, the adventurers obtained a charter to form "the Governor and Company of the Massachusetts Bay in New England." Shares costing £50 — $8,080 — were floated, and 110 men subscribed. Each got 200 acres of land, plus 50 additional acres for every servant or labourer he successfully recruited to settle the colony (shareholders did not go themselves).
Some early investors got cold feet, defaulting on their share installment payments. But getting out of England remained of critical importance. A large voyage scheduled to leave on March 1, 1630, found itself £3,000 short of funds with only a few months to go, so some of the most fervent (and wealthiest) core investors agreed to double their stake. But it still wasn’t enough.
So following the Pilgrims’ lead, a group of Undertakers was formed to buy out all remaining shareholders under a new plan. The company would move its headquarters to Massachusetts itself, where it would be run for seven years, after which time the principal would come due to the remaining shareholders. They ultimately ended up getting about 33 cents on the dollar. But demand to emigrate was substantial: Over a thousand immigrants arrived in New England during the second half of 1630.
They were right to leave: In 1634, King Charles created a new body known as the Lords Commissioners Of Trade And Plantations and appointed an Anglican bishop, William Laud, to lead it. The agency was given virtually unlimited authority over England’s colonies, public or private, and Laud filed a suit against the Massachusetts company in July 1636 to take control of the colony. The Massachusetts settlers resolved to fight any takeover by force — an attitude that would last another 150 years.
The colony got a brief reprieve as Charles became distracted with foreign affairs, and Massachusetts was left to its own devices for some time. But in 1684, the company’s charter was revoked, and the crown took over.
Still, the combination the wealth of the company’s backers and a sustained wave of settlers fleeing intolerance allowed the Massachusetts Bay Company's to grow into England's first successful large-scale American colony.
Today’s startup founders are fond of talking up their commitment to changing the world. The Puritans did exactly that — though it helped that they had no choice.
As you can probably tell by now, it's hard to pinpoint who the heroes were in this story. The most visionary investors — the founders of the London company — weren't the most successful. The most successful settlers, the Pilgrims, were terrible with money. Matthew Craddock never actually visited America, and there is very little named after him in Massachusetts, or anywhere else for that matter, though his tolerant religious views and liberal-minded politics would come to be reflected in modern America.
The Massachusetts Bay Company was certainly the most prosperous of the there English companies. But it was not early America's most successful one. That distinction belonged to the Dutch West India Company, a nationalized corporation that between 1624 and 1664 set up a thriving trading hub at the mouth of the Hudson. They called it New Amsterdam...
The prospect of starting a business can be frightening. It is a risk and a tremendous opportunity, equal parts challenging and, hopefully, rewarding.
Given the enormous risk that's inherent in entrepreneurship, many potential business owners will ask very difficult questions of themselves: Is this worth the risk? Do I have the right personality type to be running a business? And perhaps the most frightening: Is my business idea any good?
These questions, while potentially disheartening, are important ones to ask. The following offers a few basic cuts, a checklist of sorts, to help you determine whether or not you truly have a good business idea.
1. Is your idea grounded in personal experience?
Founding and running a business is like writing a book. It's impossible to write a book that doesn't come from your personal experience. You can't push something out of you that is not inside of you to begin with. The best business ideas come from what's inside you. Henry Ford was an avid mechanic before he developed the assembly line. Bill Gates was a programmer at a young age. Donald Trump's dad was a very successful real estate entrepreneur so Trump was immersed in real estate from birth (too bad his Mom was not a hair stylist).
The core technology behind our company's software products is a system that converts financial statements into easy-to-understand narrative reports. The genesis for this kind of system came about when I was working with business owners and realized that they were good at running their businesses but could not read financial statements. I identified something in my own experience that was a problem then created something to solve it. Good ideas have to come from something within you: something you've seen, something that frustrates you or someone you know really well, something that you want to improve. That's a given.
2. Do you have passion and expertise in the business?
When evaluating the merits of your idea, it's very important for your personal experience to intersect with a passion you have. This can be trivialized and glossed over because it seems so obvious, but it's very important.
Most company founders I know, either A) love running businesses or B) love running a particular business, based on something they're interested in. The best entrepreneurs I know fall into both of these categories. I'm sure there are exceptions — people who can invest in single companies and do really well by picking the right businesses in a strategic, careful, and unemotional manner. There are entrepreneurs who can start businesses in industries they don't care about —buy for a dollar, sell for two. These people exist — I just haven't seen any successful ones. On average, I think you'll find that most successful business owners were (and are) passionate about the original idea behind their companies. The best entrepreneurs are like a musician who has a song and must sing it.
Also, this may seem obvious, but as a function of your interest in something, it helps if you're actually good at that thing. In order to successfully run a lawn cutting company, you probably need to have cut a few lawns before. Subject matter expertise is a tremendous asset and, in most cases, a crucial part of starting a successful business. Specific knowledge is needed.
3. Are you able to articulate the "why?"
The "why" behind your business idea is absolutely crucial. It's important to have a vision for your company — a strong internal driver of why it is important for you to be successful. A sense of purpose will help carry you through the unavoidable periods of trial, doubt, and struggle. It helps if, as previously mentioned, you care about what you're doing. When the inevitable tough times come, the ones who hang onto the tree are the ones who are passionate about what they're providing to the marketplace. Otherwise, they will not have the gas to make it through inevitable travails.
4. Is it in a healthy market or at least a market that is not unhealthy?
It's possible to be a successful entrepreneur by buying a railroad line or being a tobacco farmer. It is possible to be successful in a diminishing market, but you're certainly not giving yourself the best chance for success. You want to find a market that has health in it. If you're in a healthy market where the tide is rising, you don't have to be as smart or good. You may be passionate about running a telephone booth company or a travel agency, but there's not a lot of room for growth, expansion, or success in an industry like that.
5. Are you cutting out a middle man?
Successful entrepreneurs are always trying to make an argument against the equilibrium of the market. They're arguing that a certain process or service isn't being performed in the most efficient, streamlined, and effective way possible. They're introducing a new entity that will either outperform the current entities or cut them out completely. Remember that every time you start a business, you are adding one more unit of supply to the marketplace so your argument must be a strong one.
The internet has been a tremendously disruptive and devastating force against people who operate in "the middle." Ask real-estate brokers and travel agents about the impact of Craig's List and Travelocity on their business models. Anything that stands between the buyer and seller is being minimized, streamlined, or in some cases, totally leapfrogged. If your idea is cutting out an unnecessary step or (let's face it) an unnecessary profession out of the equation, the odds are that it's a pretty strong idea.
Don't be afraid to challenge and stress test your business idea by asking these questions. If you can answer most or all of these questions with a "yes," you've probably found an idea that's worth pursuing.
Born 167 years ago on Feb. 11, 1847, Thomas Edison was an incredibly successful inventor, scientist, and businessman, accumulating 1,093 patents in his lifetime.
Although the man from Milton, Ohio purchased many of his patents and is falsely credited with others (like the lightbulb), he was responsible for many useful creations. His laboratory in Menlo Park, N.J. was so productive that at one point, he promised to turn out "a minor invention every ten days and a big thing every six months or so."
All told, he played a vital role in shaping the modern world.
THE ELECTROGRAPHIC VOTE RECORDER: As Edison's first patent, this device permitted voters to push a "yes" or "no" switch instead of writing their vote.
Click here to read the complete patent (6/1/1869)
Source: Thomas Edison Papers
AUTOMATIC TELEGRAPH: In an effort to improve the telegraph, Edison created another, based on his perforated pen, that required no one to tap out the message at the receiving end. This new technology increased words transmitted per minute from 25-40 to as many as 1,000. Edison also eventually produced a "speaking telegraph."
Click here to read the complete patent (6/22/1869)
Source: Thomas Edison Papers
ELECTRIC PEN: Preceded by the perforated pen, which punched holes in telegraphs, this electric pen created a stencil as the user wrote, which could be used to press ink onto paper and make duplicates.
Click here to read the complete patent (11/6/1877)
Source: Edison Birthplace Museum
See the rest of the story at Business Insider
DON’T DO IT.
That’s my initial gut reaction whenever someone asks me whether it’s wise to work with a spouse or family member.
My wife and I have been running our startup together for the past five years; don’t get me wrong, we love it! We enjoy the challenge of building a business together and appreciate the unique value that each of us brings to our work. Our work life is a huge source of joy in our marriage.
But here’s the truth: you can truly love someone as a person, but still be incompatible with him or her as a professional.
Not being able to work with someone you love says absolutely nothing about the strength of your relationship to that person. Personal complementarity does not correlate directly with professional complementarity. When conflicts arise with your spouse in a professional setting, you risk having those issues bleed into your personal life as well. For that reason, I believe that it’s generally too risky to work with a loved one because the cost of failure could be the failure of your relationship (how much is that worth to you?).
Nevertheless, if you still want to see whether you and your spouse can make it as a startup team, consider the following scenarios to test your professional complementarity.
Your skills overlap too much: FAIL
Redundancy will kill your business partnership.
If you and your spouse have too much of the same skillset, you’ll run into conflict because both of you will want to tackle the same work. You may find yourself judging each others’ work and passively aggressively thinking thoughts like “if I were doing that task, I would do it way better than him.” Additionally, too much of the same skillset means that you won’t be leveraging each other optimally to run the entire gamut of responsibilities that are required for running a business, thus throttling your productivity.
To paraphrase one of my friends about overlapping skillsets being a killer to spouse founders:
“My husband and I are both very competent product managers. As a result, we would never be able to work together. Our philosophies on building product are so different that we would just fight all the time.”
Your skills do not overlap at all: FAIL
If you believe that having too many overlapping skills with your spouse is a problem, you would think that having no overlap is better. Not necessarily.
When you and your spouse have no overlapping skills, then you may find that you are each doing work on separate islands. Over time, you and your spouse may find that you are following different strategies to run your startup, damaging the focus your company needs to succeed.
Islands are dangerous because they can lead to miscommunication, which kills relationships too.
Your skills overlap mainly on strategy: WIN
The ultimate scenario of complementarity is when you and your spouse do not overlap, except for strategy.
In this world, you and your spouse can stay out of each others’ ways and run the respective areas of the business that suit your strengths. But, overlap in strategy means that you will be in constant, constructive debate over the general direction of the company and will be consistently aligned on the path you are taking your startup.
This is an awesome foundation for a healthy spouse/founder partnership.
Is this advice just for spouses or family members?
Nope. This article isn’t just about working with a spouse or family member. Think about the scenarios outlined above when you are taking on a co-founder or adding a key hire to your team.
Even if you’re not tied by blood or marriage, the relationship you have with your key business partners in a startup will feel very similar and intimate like a family relationship. You will be spending most of your waking hours with these people and revealing a side of you that is rarely seen by anyone else. Thus, choose wisely and make sure you’re truly complementary, so that your company will be set up for success and everyone will be happy.
July 20, 2012, was a big night for Dave Girouard.
It had been four months since he quit his job as head of Google Enterprise to pursue a bold new idea of his own. Now it was coming together. Crowded around a long wooden table with him at the trendy Foreign Cinema restaurant in San Francisco’s Mission District were his small, dedicated team; serial entrepreneur Andy Palmer, one of his enthusiastic investors; and six college students, bright-eyed kids with big plans who just needed a little boost. In front of him sat a stack of yellow envelopes containing a total of $210,000.
The group laughed and talked excitedly over glasses of wine and plates of seafood. It was the first time most of them had met in person, and they were eager to share their stories and dreams for the future. Paul Gu discussed the income-prediction model he was building. Omri Mor explained his work on a music platform.
Around 8 p.m., Girouard tapped his glass and stood. He reminded the table that the young people and the exciting things they were doing were the reasons he had left Google to start this company, Upstart. He thanked the six students there for being the guinea pigs in a totally new venture.
Two or three minutes later he wrapped it up. “We’re counting on you,” he told the students. “Don’t spend it all in one place. And do the right thing — make us proud.”
With that, he passed out the envelopes.
The Dream Machine
The stated goal of Upstart is to connect bright, ambitious young people with wealthy individuals who want to invest in their futures — and, with any luck, help them achieve their dreams. “Upstart was founded to help people do what they were meant to do,” the company announced at its launch in August 2012. “Many talented college grads take jobs they’re not excited about, rather than following their true passions. Whether constrained by debt or just comforted by traditional career options, too many students take the perceived ‘safe path.’”
Upstart, in essence, wants to put a fork in the road.
The venture is one among several attempts by companies to figure out how to give young people with brilliant ideas the financial means to see them through. Across the nation, a generation of would-be entrepreneurs, artists, thinkers, and innovators are being held hostage to student debt, limited credit, and financial instability. Grads with world-changing ideas often wind up abandoning them for the more stable path of a traditional job. In a great socioeconomic irony, the people who may stand to benefit the most from a healthy dose of capital tend to be the least able to obtain it.
“Younger people who are in the early part of their careers are underserved by the financial markets,” says Girouard, Upstart’s co-founder and CEO. “We’re thinking of our mission much more broadly as a huge and important part of our whole economy.”
The pursuit of an audacious dream can lead to great success, but it also demands risk. Upstart aims to spread that risk around through a shrewd model known as a human capital contract. Under these arrangements, borrowers receive funding from investors in exchange for a percentage of their future income over a set period. On Upstart’s platform, the borrowers are known as “upstarts” and the investors are termed “backers.”
What makes human capital contracts unique is that the investment made is not in a particular company or idea, but in a person. After all, supporters argue, companies are no more than the product of the people who create them. So why not simplify the investment process? Why not treat the person as the startup — or, by Girouard’s clever inversion — the upstart?
Upstart and its main competitor, Pave, are harnessing the power of the market to support young people with the energy, ambition, and creativity to make a genuine mark in their chosen fields of endeavor. Rather than appealing to donors’ charitable instincts — like Kickstarter, Indiegogo, and other crowdfunding sites — they are trying to create a scalable marketplace that can transfer capital from wealthy people who have it to innovative people who need it, utilizing big data and new algorithms that aim to quantify a candidate’s future potential.
“We’ve always been about democratizing access to funding and knowledge,” says Oren Bass, one of Pave’s co-founders. “You have people who are young, energetic, full of aspirations and energy and hope, yet they lack a suitable funding option that lets them go after these careers and these dreams of their choosing.”
One of those people is Andrew Galasetti, a self-published author and aspiring writer. Galasetti, 25, grew up in a poor household with his mother, a struggling artist, and an older sister after his father abandoned the family. Galasetti inherited his mother’s creative spark but struggled with a learning disability. Despite that, he nurtured ambitious plans for his future. In 2012, he graduated from Georgian Court University, a small Catholic school in New Jersey, with a bachelor’s in English, big dreams, and years of student loans to repay.
In December 2013, Galasetti turned to Upstart. Over the next two months, he aimed to raise $25,000 from backers to promote and publish an upcoming novel, establish a publishing company, and solidify his career as a writer. On his blog, he called it “A leap of faith with Upstart.”
“What if everyone could pursue their passions, purpose, and fulfill their dreams? Wouldn’t this country and the world be a better place?” Galasetti wrote on Dec. 7. “Upstart is trying to tackle these big questions. They may very well be the leap of faith into the right direction to make this a reality for more people. This is something special that I need to be a part of.”
The exact percentage of future income that each upstart, or Talent, as Pave calls them, gives up is determined by an elaborate funding algorithm each company has created to predict an applicant’s earning potential. The models take into account a set of data points that includes education, standardized test scores, credit history, and job offers. The contracts themselves can be either five or 10 years in duration. In years where the borrower’s earnings fall below a certain threshold, no payments are made. Upstart defers them and tacks up to five additional years onto the contract, while Pave counts these years in the participation period unless the Talent is enrolled in a full-time academic or training program. Upstarts can give up no more than 7% of their future income, and Talents no more than 10%.
Backers on both platforms are required to be SEC-accredited investors, which for individuals means they have either a minimum net worth of $1 million or earn more than $200,000 per year. Upstart targets an 8% return for them and Pave a 7% one, but backers can see an upside of up to five times their initial investment should their picks achieve great success. The backers have no control over how upstarts and Talents use the funds they raise, though they are encouraged to provide mentoring and advice.
For their part, Upstart and Pave make money by taking a cut of the funding exchange. Upstart collects 3% of what students raise up front and charges an annual 0.5% on investments to backers. Pave takes 3% off what Talents raise and then 1.5% of each repayment.
To the borrowers, high-flying dreamers like Galasetti, Upstart and Pave are selling a kind of freedom. For the backers, these platforms offer a feel-good investment option — the chance to support a new generation while realizing a decent return. And the unspoken implication is that the next Mark Zuckerberg could be hiding somewhere in the unsponsored pool. Back an upstart or a Talent, and you just might bottle lightning.
For this novel funding approach to take off, Upstart and Pave have made the lofty bet that they can take a generation of unpredictable young people — people with little or no work experience or credit history — and turn them into something highly predictable, a human asset class that even the most risk-averse investors will consider a smart place to put their money.
But the higher stakes are being played out on the other side of the equation by the upstarts and Talents. They will be the ultimate measure of whether these companies can truly democratize access to capital.
“It’s actually going to have a big effect on the socioeconomic makeup of America if we’re successful,” Bass says. “It’s a huge leveling of the playing field.”
Chasing Efficient Markets
In September 2011, Paul Gu dropped out of Yale.
Gu had just been named one of the inaugural Thiel Fellows. The program, created by billionaire PayPal co-founder Peter Thiel, annually awards $100,000 apiece to 20 or so of the nation’s top students if they agree to leave school for at least two years and work on an entrepreneurial venture instead.
Gu and a Yale friend, Daniel Friedman, were working in Yale’s computer science lab when they got the call. “We pretty much jumped into the air to chest-bump and promptly dropped our phones with the Thiel Foundation still on the line,” Gu told the Yale Daily News.
Leaving Yale wasn’t a tough decision. Gu’s prospective bachelor’s degree in economics and computer science interested him less than the chance to apply what he’d learned to real-life situations. In both college and high school, he’d always been more engaged in his own studies of efficient markets and investing than his academic work. He figured he could always return to finish his degree later. He turned down an offer from a major Wall Street firm. He had a $100,000 safety net to do what he pleased.
In January 2012, Gu started tinkering with an idea for the ultimate efficient markets model — one that could predict someone’s income over time. A model like that had huge potential. Instead of sizing up interest and profitability in specific ideas, entrepreneurs would be able to quantify the value they themselves offered to potential investors. Executed properly, it could transform the broader loan and fundraising industries.
It was the exact model that Dave Girouard was looking for.
The two met in the early spring and hit it off immediately. Gu liked the idea of Upstart and saw a perfect place to develop his idea. Girouard offered the then 21-year-old a unique deal: a spot on the founding team and a chance to take part in Upstart itself as one of the inaugural seven student-entrepreneurs — the ultimate Upstart poster child.
In April, Gu packed up his Tribeca apartment and flew from New York to Palo Alto.
Before he met Paul Gu, Girouard spoke with two other entrepreneurs — Pave co-founders Oren Bass and Sal Lahoud. All three were interested in the same concepts, but after initial discussions it became clear that they disagreed on the details.
Girouard wanted to create a product that would enable entrepreneurs to get their ventures off the ground. Bass and Lahoud had a broader conception of a platform that would appeal not only to Silicon Valley types, but also to artists, teachers, writers, and just your average motivated person with ideas. In the spring of 2012, they went their separate ways.
Two years down the line, Upstart's and Pave's platforms are nearly identical. And for both, the operational key to their success lies in the funding algorithm.
These proprietary measures — at Upstart built by Gu and a full-time data scientist, at Pave by a data scientist-demographer and a Yale professor of labor economics — are what make the two companies function. They determine how much capital upstarts and Talents can raise, how much of their income they’ll give up in exchange, and how much risk they represent for potential investors. At both Upstart and Pave, the algorithms have been built using longitudinal data — information gathered over a long period of time — from universities, the Internal Revenue Service, and the Bureau of Labor Statistics, among other sources. Upstart has admitted to signing some “very nasty government confidentiality agreements” for the privilege.
The reliance of companies like Upstart and Pave on predictive algorithms highlights an inherent irony at the very heart of their approach. The more effective these companies are at forecasting the future success of their borrowers, the better their business prospects. But rather than leveling the playing field and giving a boost to the deserving young people who most desperately need one, such models will naturally tend to favor applicants who already have clear advantages. The cheapest capital will be available not to those most in need, but rather to the likeliest winners — in other words, those who would probably succeed with or without the company’s help.
Scroll through the glossy profiles of fund-seekers on these sites and the same alma maters flash past again and again: Harvard Business School, Wharton-UPenn, Stanford Graduate School of Business, Brown, Yale. On Pave, Talents must fit into one of three so-called “affinity groups”: Columbia graduates, women entrepreneurs, or “rising stars.” Pave’s featured “success stories” include a filmmaker who graduated Dartmouth and turned down a spot at Oxford, and a USC grad who worked as an associate at BlackRock.
“For sure we want to fund as many people in as many different industries and sections of society attending different universities as possible,” Bass says. “We had to start with a very limited focus because we’re a startup, but eventually we want to be funding people from all walks of life.”
Not any time soon, from the looks of it. “We do filter by taking probably the top 5% of applicants,” Bass admits. “They go through a vetting process where we look at your achievements and your suitability.”
Arguably, such hotshots are already leaving their struggling peers in the dust. Their glide path to prosperity is all but assured. Showering them with mentorship and easy capital may be good business, but it’s questionable whether such an approach will narrow the opportunity gaps that are built into the system, or end up widening them.
On Upstart, investors browsing the pool can sort the candidates by interests, education, and intended use of funds. The education selection is broken down into four options: “STEM,” “Top Ranked Schools,” “MBA,” and “JD.” It’s a quick way to identify the cream of the crop. Gu says the model suggests that an MIT degree in something computer science-related is best for maximizing starting salary, while a Princeton economics combination optimizes mid-career earnings.
Emily Oster, an associate professor of economics at the University of Chicago’s Booth School of Business, thinks such algorithms are ill equipped to help people in lower income brackets. “At the bottom of the income distribution, most people are not considering college or other higher education,” she explains. “They are also likely to look like worse credit risks on observables. As a result, this group is unlikely to be in a position to take advantage of this option.”
Meanwhile, she points out, those at the top of the spectrum are unlikely to need the model, as they typically have plenty of options for financing their goals. Of course, that doesn’t mean they’d be unlikely to get funding — smart people with good credit history and strong education credentials still make great bets for backers. But in the middle of the income distribution, she says, there are plenty of people who stand to benefit from increased capital flow.
Girouard says Upstart aims to be “very democratic” insofar as it “certainly shouldn't be based on how much income your family has or that background.” Still, he admits that “there’s no question” the advantages certain people enjoy will give them a leg up on the platform. “It’s not our desire, but if you have better grades, better schools, better access to other schools…” he trails off.
“That’s kind of a systemic challenge that our country has.”
Upstart Trina Spear’s impressive resume includes a 2011 degree from Harvard Business School and finance jobs at Citigroup and Blackstone. Backers leapt to fund her profile last January. In a single month — half the time Upstart allots for borrowers to reach their funding goals — she raised $20,000 in exchange for a mere 1% of her 10-year income.
“I think at the time I was the fastest-funded upstart,” she mused. “I have 13 backers and a few of them ended up investing in the business too.”
The 30-year-old Spear is putting the funds toward what remains of her business school loans and living expenses as she raises seed funding for her medical apparel startup, FIGS. She didn’t consider using the Upstart money for her actual company — she was confident she could get it from other sources. Because Spear hasn’t started taking a salary, she falls below Upstart’s annual earnings cutoff and is deferring her repayments.
Spear says that for her, the real value of Upstart is in the access it affords her, not to funds but to powerful connections. After one of her backers, Andy Palmer, made a direct investment in FIGS, he introduced Spear to a number of venture capital firms that also ended up backing her business. “It’s not just really about the money,” she reiterates. “You could probably obtain cheaper capital just by getting a credit card loan.”
Her background in finance has also given her an acute understanding of the model she’s become a part of. Spear recognizes that companies like Pave and Upstart are playing the same numbers game with individuals that major venture capital firms do every day with startups and businesses. “They’re looking for the winners,” she says. “And they need the Facebooks and Twitters to offset the majority of startups that fail.”
That investor logic is also why Spear questions whether Upstart’s model will catch on with enough backers to make it scalable. Right now, the massive upside that finding the next Facebook or Twitter founder could bring just isn’t there. For example, what if a young Mark Zuckerberg had put a profile on Upstart or Pave back in 2006 and raised, say, $30,000 in exchange for 3% of his 10-year income? His maximum repayment would have been capped at five times his initial funding amount — so $150,000. That’s not a bad return, exactly, but in light of Facebook’s current valuation of some $170 billion, it looks like pocket change.
Platforms like Upstart and Pave want to have it both ways. By capping the maximum return backers can realize, they hope to protect upstarts from making exorbitant payments in the event of an extreme success. To remove or raise the caps could risk driving top talent away from the platforms, since the potential costs to them would tend to outweigh the value of whatever funding they received up front. It could also disincentivize borrowers from being as successful as possible, since a large share of their winnings would be paid out to other people.
On the other hand, the ventures hinge on investors buying into the idea that human capital is a safe investment and, on occasion, can yield sizeable returns. The cap on repayment can't be too low or else backers won't find the risk worth their while. And that’s also why borrowers like Spear are so appealing. She offers investors a high degree of stability. Even if FIGS tanks and she re-enters the traditional job market, Upstart’s algorithm knows she’ll do just fine.
‘If You Care About Returns...’
To understand why someone would put money into a new and untested investment model, it’s important to consider Upstart’s pitch to backers. “Income share agreements (ISAs) provide better risk adjusted returns than other asset classes, and are a great way to diversify one’s portfolio,” the company’s website declares.
That bold statement is supported by a compelling chart.
Higher estimated return. Lower estimated volatility. And far better risk-adjusted returns. In other words, a more stable and more profitable investment than just about any other asset class available. People aren’t as good as stocks and bonds — they’re better.
“Certainly one person can be enormously successful or far less successful than our model would have suggested,” Girouard explains, “but if you care about returns, which naturally most people do, then we always suggest you invest in a pool of upstarts. The model doesn’t have to be perfectly predictive for one person to be very, very useful in terms of an investment tool.”
The investing logic is sound, but as with the funding algorithm, it points to another inherent irony in the human capital contract model. If people are a safe investment because of their collective predictability, then it makes far more sense to put money behind a large, diversified group than a scattered few individuals. Grouped together, the weak returns or losses of one or two are cancelled out by the moderate successes of many others. This, in fact, is now an option available on Upstart. Backers can invest directly into an overall fund of people on the site that targets an 8% return. Many backers also choose to invest in one or two dozen upstarts, while only mentoring a small handful of them, if any.
A model like this is premised on investors caring about what happens in the aggregate, not at the individual level. In that case, what happens to the promise of mentorship, which is one of the key incentives for borrowers? What happens to the uplifting notion of wealthy people stepping in and helping the younger generation chase their dreams?
Even if upstarts behave like stocks, they’re still people. From their perspective, what happens at the individual level is the only thing that matters.
Tempering The Dream
Girouard says the last year has been a great one.
Upstarts now number 254, and more than 300 backers have registered, offering funds that top $3 million altogether. Of those who have already made an investment on the platform, around 30% return to invest in another upstart every month. Meanwhile, more than 2,000 payments have been made to backers with zero defaults. Pave has published 88 Talent profiles and has more than 1,800 backers registered.
Upstart itself isn’t profitable yet, but it’s supported by $7.8 million in seed funding and has big-name backers like Kleiner Perkins Caufield & Byers, Google Ventures, and Dallas Mavericks owner Mark Cuban. It’s also toying with other ways of monetizing its product. Down the line, the company could license its algorithm out to credit card companies, auto loan providers, and any other number of industries that are interested in assigning rates to people for financial purposes.
“I was talking to somebody from a traditional bank that just issues credit cards, and they were noting that the lack of any good income prediction algorithm pretty much throughout any industry is a huge problem,” Gu says. “So potentially you could imagine that we take this income prediction and license it out to others who could use it in basically any situation where it would be helpful to know what somebody’s future trajectory could look like.”
With growth has come realism. When Upstart first launched, it was marketed to fund-seekers as a route to following passions and achieving lofty goals. For backers, it was the chance to mentor a young person and share a small portion of the profits. Today, any would-be upstart who experiments with the company’s income calculator, an online tool that is at once fascinating and terrifying, will note that certain career paths tend to bring better borrowing rates and income forecasts. It is a quiet tempering of dreams.
“I think that while we think Upstart is solving a big problem for a lot of people and it’s adding tremendous value, we don’t pretend that it will solve the problem of funding or equality of opportunity in every sense,” Gu admits. “There are huge inequalities of opportunity that result from differences in people’s circumstances when they’re younger, and those are things that we’re likely to not be able to affect.”
As for Andrew Galasetti, the bright-eyed writer from New Jersey looking to overcome one more obstacle in the formidable hand life dealt him, the leap with Upstart fell short. On Feb. 8, he wrapped up a two-month funding period that yielded $10,300 in exchange for 2.77% of his 10-year income. The bittersweet total was just 41% of what Galasetti had hoped to raise, and only cleared Upstart’s all-or-nothing funding threshold of $10,000 after he appealed to his existing backers for a little more support with days to go in his campaign.
Galasetti isn’t letting the results get him down. He says the money will still be enough to let him focus on his writing and creative endeavors, and he's moving forward with plans for his second book, “To Breathe Free.” But his story is a cautionary one for Upstart, Pave, and any companies like them that talk of funding dreams and democratizing access to capital. For these models to fulfill such lofty promises, people like Galasetti with tough pasts and middling earning potentials need to be the norm on the platform, not the outliers. It’s too easy to count fully funded Ivy League grads and top-notch MBAs as success stories when those people would likely have reached their destinations with or without Upstart and Pave to nudge them along.
For the lucky ones like Spear, the price of $20,000 was 1% of her future, while for the less fortunate like Galasetti it was far higher. But, as Spear says, such things are the “cost of doing business.”
“Like anything else in life, if you're not as smart or talented, or as ambitious or as creative, you're probably not going to make it as far. If you don't work hard and get good grades, you might not get as good a job,” she says.
“There's always going to be people that are better than others and have more opportunities than others. That's just life.”
If you're frequently rejected, you're doing something right.
At least according to Chris Dixon, an entrepreneur and partner at venture capital firm Andreessen Horowitz. In a post on his blog, Dixon explains how he learned to value rejection. Rather than taking it as a sign of failure, he learned to see it as reinforcing that his goals were bold.
"If you aren't getting rejected on a daily basis, your goals aren't ambitious enough," he writes.
When his career was just starting out, Dixon says he applied to and was denied hundreds of positions at companies ranging from tiny startups to major tech institutions. The economy was tough — many startups were laying people off — and his background in philosophy, math logic, and computer programming didn't do him much good.
"The reason this period was so useful was that it helped me develop a really thick skin," Dixon reflects. "I came to realize that employers weren't really rejecting me as a person or on my potential — they were rejecting a resume."
Today, Dixon looks at rejection as just another step on the path to success.
Disclosure: Marc Andreessen is an investor in Business Insider.
In five short years, the venture capitalist firm Andreessen Horowitz has become an outrageously powerful investment firm, raising $2.7 billion and backing such names as Airbnb, Box, Fab, Facebook, Foursquare, Pinterest, Skype and Twitter, to name a few.
While Marc Andreessen is the company's outspoken front man, co-founder Ben Horowitz has quietly become the go-to guy for CEOs wrestling with really hard problems, reports Fortune's Miguel Helft in an in-depth profile on Horowitz.
He's known as the "CEO whisperer" and has counseled everyone from Facebook's Mark Zuckerberg to Twitter's Dick Costolo to Jawbone's Hosain Rahman to Skype's Tony Bates, (now a Microsoft exec), Heft reports.
Ben's experience and expertise make him one of the most important leaders not just in Silicon Valley but in the global knowledge economy.
But they don't come to him for ordinary problems like tech trends. CEOs call him with the hard stuff: how to bounce back when their company is doing really poorly or how to deal with personal stuff, like firing a friend.
Ben's advice has been invaluable to me over the past few years. He is forthright and direct, acknowledging, for example, that the job of leading can be impossibly lonely.
They come to him because he's a legend for his stint as CEO of Loudcloud, a company founded with Horowitz and other ex-Netscape alums that teetered on the edge of extinction for much of its life until Horowitz, its CEO, stabilized it. Then HP came along and bought it for $1.6 billion in 2007.
Despite his powerful status, Horowitz stays mostly on the down-low. Although he writes a popular blog, he rarely speaks in public or talks to the press.
Now he's stepping out in the limelight a bit, offering his best advice to everyone with a new book available March 4: "The Hard Things About The Hard Things."
Google CEO Larry Page is one of many big names to endorse it. Page says:
Ben's book is a great read — with uncomfortable truths about entrepreneurship and how to lead to a company. It's also an inspiring story of a business rebirth through sheer willpower.
So, what is his advice on how to fire a friend? The Fortune profile didn't say. But we've ordered the book and will report back.
Today, one entrepreneur talks about what it was like to start a new business — and subsequently overcome a fear of charging fair prices for her services. The experience taught her an invaluable lesson about not underestimating her professional self-worth.
When I launched a side business about five years ago coaching people about their finances, I enjoyed it so much that I barely charged—if I charged at all—for my services.
Many of the people I was helping were in the hole—and desperately trying to get out. Plus, I loved talking to them about their money, so it didn’t feel like an even exchange. I felt ashamed asking them to pay me.
After all, I had been deep in debt once, too, so I knew what it felt like to struggle to keep costs down. In fact, it was my own experiences that led me to become a money coach. As I began to share my success story, friends and friends of friends asked me to hold workshops, and pulled me aside for private advice.
I realized that there was a demand for money coaching, so I began doing it during my free time, while keeping my day job in market research. But when I first set out to offer my services, I charged nothing. I was caught up in the classic belief that if you loved what you did, you didn’t have to get paid for it.
Work, by nature, had to be hard—or so I thought. And if it wasn’t hard, then you were pulling the wool over someone’s eyes. So I did a lot of free sessions, irrationally hoping that someone would be so thrilled with what they were getting that they’d donate some money. Of course, that’s not how things work.
Wait … I Can Actually Get Paid to Do This?
As I started helping more people with their budgets, I realized that I could do it all day. I enjoyed problem-solving, crunching numbers and helping folks find creative solutions to sticky financial problems without having to declare bankruptcy or ruin their credit scores.
I decided that I eventually wanted to do this as a career—which meant that I had to figure out how I was going to, you know, make money. I was working with a life coach at the time, so I shared my aspirations with her, as well as my fear of coming off as greedy if I asked for money. Her advice was simple: Start small. Just charge a little something to gain the experience of someone paying you to do what you love.
So I did. A week later I charged my first paying client $25 for an hour-long session. He laughed and said, “That’s it?” I stopped offering free sessions after that.
A few months in, this client was getting great results, so I considered asking him to write a testimonial—but I was nervous for fear of coming off as selfish. I knew that it would help me build my future business, so I bit the bullet and asked him anyway. To my relief, he agreed.
His testimonial blew me away. I knew something had shifted, but after reading it I realized there was a real ripple effect happening in him. Not only had he started watching his finances better, but his smarter decisions and newfound discipline were also having a positive effect on his personal relationships and health. When I read it, something shifted inside me too.
I realized for the first time that what I offered was valuable to people in ways that even I didn’t expect. That first private client gave me the courage to take on more paying clients.
The Inner Critic Comes Out
Still, it seemed that no matter how many people I worked with, I always had the same nervousness in the beginning. The same inner monologue would loop over and over: “You’re not good at this. They’re going to demand their money back and tell everyone how awful you are.”
Oh, yes, my inner critic is a full-on monster, and she’s the reason I kept my rates ridiculously, laughably low, just so no one would get mad at me if they weren’t happy with my services.
This charging low fees thing went on for a few months with a handful of clients. Then I was contacted by a woman who’d heard about me through a mutual friend. She was a woman I admired, an entrepreneur who’d started a business a few years prior.
We sat down, and I asked her about her financial situation. I felt that I could help her, and she was nearly ready to say yes—until I shared my rates with her. Her mood changed immediately. Suddenly, she wasn’t so eager.
At first I thought my rates were too high—but it was the exact opposite. She told me that the reason she didn’t want to work with me was because they were too low. “I can tell by your rates that you’re not confident in your abilities,” she said. “So I’m not sure this is going to work out.”
After the initial shock wore off, I realized she was right. To this day, I’m grateful for her brutal honesty because it made a lightbulb go off. After that, I looked through my testimonials and interviewed past clients about what they got out of working with me. Most clients started to see results around the two-month mark, and the best clients stayed with me for three or four months. The people who didn’t get great results only came to me for one or two sessions.
At the time, I was billing on an hourly basis. So I started lumping sessions together and charging a bundled price to make sure people stayed long enough to see results. Each bundle was several hundred dollars—way more than I was charging before.
Next Step: Overcoming My Fears
When I first started offering bundled pricing, I was terrified. I kept playing with the numbers to make them “seem” lower, doing things like adding more sessions to justify the price.
When people would question my fees, I’d explain that most clients didn’t see results unless they were willing to invest some time, and the price reflected that. But I wasn’t confident enough to charge more—and potential clients picked up on that. They’d ask if I could just do one session or try to negotiate the price. Sometimes I caved, other times I didn’t out of fear that they’d run to the 11 o’clock news with their complaints.
None of my fears ever came to pass. They were and still are completely irrational.
But after landing a few clients at my new, higher rate, history repeated itself. Clients were happy. They were getting good results, writing testimonials and referring friends. I could breathe a bit easier. I felt like I had scaled a small mountain and found a spot at the top where I could rest.
A year later, I raised my rates again after calculating how much I would need to earn in order to leave my corporate job. By this point, I was devoting 20 hours a week to my “side” job, and I knew I wanted to do it full time. I remember the first, four-figure proposal I sent out to a potential client. She didn’t respond for a few days, and I chewed nearly all of my nails off waiting to see if she’d say yes.
Finally, the email came: “Let’s do this.” I was excited (for her) and terrified (for me). The inner critic, again looking for trouble, told me the other shoe was about to drop. I held my breath for a few weeks while I worked with the client, but after we both saw that she was getting great results, I let myself relax. And the higher rate became the new normal.
Accepting My Real Worth
I wish I could say that realizing my worth was a one-time event, but it wasn’t. It’s a journey. The fear never really goes away, but I’m learning how to manage it better. Whenever I offer a new service or raise my rates, that inner critic goes berserk trying to get me to revert to what is comfortable and safe.
Realizing my worth is like climbing a mountain with many peaks. You climb a small peak, and rest for a bit. Eventually, you have to get to the next one, so you keep going—but you’re terrified the whole way. Then you reach the next peak, and the journey starts again. With every peak, however, the urge to continue gets stronger.
I didn’t start off with a ton of self-worth when it came to the services I was providing—even if I felt plenty in other areas of my life! In the beginning, I attached my value to the dollar amount I was charging. But then I focused on whether my clients were really getting results. Then I made a promise to myself that if I couldn’t help them, I’d quit entirely. But as long as I was, I’d stay in the game.
It’s easy to stay stuck at a lower rate in order to avoid rocking the boat. Every time I’ve raised my fees, it’s usually been followed by a week or two of panic attacks, fearing that this time I’ve asked for too much. But eventually the awkward phase passes, and my rates feel like a cozy sweater again.
My hope is that, one day, I’ll be able to silence that inner critic who wants to devalue my professional self. But I know I’m not that enlightened yet. Still, one of the best things about going through this experience was finally realizing my self-worth. Here are some of my top tips:
Start small. Charging something nominal is still better than charging nothing at all. Don’t give your gifts away for free, which could breed resentment later.
Find encouragement. Get a coach or mentor to help you stay the course when you’re feeling uncomfortable about raising your rates or asking for a higher salary.
Focus on your results. When I get into panic mode, I read the testimonials of my clients. Seeing progress in their own words takes the spotlight off myself and shines it back on my clients.
Stay attuned to your emotions. This one is more of an art. If you are starting to feel a little resentful or burned out, it may be time to up your rates or ask for a raise. The increase can help get your sanity back—especially if you offer a client-based service.
Let your rates work their way up. You don’t have to triple your rates overnight to prove a point. That may backfire. Raise them incrementally and keep close watch on the results that gives you—and your clients. Eventually, you’ll be charging what you’re truly worth!
Jillian Beirne Davi is the creator of Abundant Finances, which offers articles and programs on how to get out of debt, amass savings and live a life full of abundance.
I don’t watch much television — with two small children and a business, I just don’t have time. But there’s one show that I DVR and watch without fail every week: "Shark Tank."
For those of you who aren’t familiar with the show, here’s the premise:
Aspiring entrepreneurs get a once-in-a-lifetime opportunity to pitch their business to a panel of “sharks” — five self-made millionaires and billionaires including the likes of Mark Cuban and Daymond John — and ask for funding in exchange for equity in their business.
Basically, it’s the dramatization of one of the most stressful, sweat-inducing, make-or-break moments in capitalism: the business pitch.
On any given episode you’ll see amazing and innovative businesses secure hundreds of thousands (and sometimes millions) of dollars worth of capital, or you’ll get to watch what’s obviously a weird, laughably-bad business be eviscerated by the sharks.
This is of course a “reality” show, with those quotes firmly in place; while the businesses are real and the entrepreneurs really do spend an hour or two with the sharks getting feedback on their products or ideas, that footage is then spliced and edited together into 5 minutes of entertaining television. The businesses that are comically bad were clearly handpicked by producers for that very reason.
But while it’s crafted for your viewing pleasure, "Shark Tank" actually offers a good dose of practical, real-world business advice for would-be entrepreneurs. You won’t get an MBA equivalent education just from watching the show, but you’d be surprised by the amount of actionable business tips you can pick up just from tuning in each week.
Below I highlight nine of the recurring lessons in entrepreneurship I’ve gleaned from "Shark Tank":
1. Learn how to pitch.
If there’s one lesson you take from "Shark Tank" and this post, let it be this: master the art of the pitch.
Even if you don’t think you’ll ever find yourself standing in front of a bunch of venture capitalists, every entrepreneur needs to know how to effectively sell himself and his idea to his potential partners, employees, and clients/customers.
You’d think on a show like "Shark Tank" — in which people know they’ll be asking for tens or even hundreds of thousands of dollars on national television – the entrepreneurs would prepare for their pitch like crazy.
But you’d be wrong.
I’d venture that 50% of the pitches on "Shark Tank" are absolutely horrible, 40% are so-so, and 10% are stellar. Some of the folks on "Shark Tank" just seem like they’re winging it, which makes for some awkward, yet entertaining moments.
“You have to learn how to communicate your vision. You have to practice in a mirror every morning. It’s the most important thing you can do because you only get a chance to make a first impression once. And when you stand up in front of sharks or any other investors you’ve got to be able to communicate why the idea works and why you’re the right person to do it.
I always tell young kids that I teach now in business school, ‘Look all this stuff you’re learning about numbers is great, but if you can’t stand up in front of your classmates and explain why you’re a winner and how you can be a leader, and how you can inform that business plan, you’re nothing… You’re just a nothing burger ’til that happens.’” –Kevin O’Leary, aka Mr. Wonderful
So how do you avoid being like the cringe-inducing pitchers on "Shark Tank"? Well, following the guidelines in our post on how to give an effective pitch (as well as what not to do) will put you leaps and bounds ahead of many folks. The gist of the advice in those posts is this: be poised, make your pitch sticky or memorable, know your business (and industry) inside and out so you can answer any question that comes your way, and play to the investor’s self-interest (show them the money!).
The best pitch I’ve seen on the show was from an 18-year-old girl who owns a skincare company called Simple Sugars. She was super poised (more so than many of the much older entrepreneurs who’ve been in the tank), she had a great story for her product (started the company when she was 11 to create an all-natural skincare product that was suited for someone who had eczema, like herself), she knew her business inside and out, answered the sharks’ questions and resolved doubts like a boss, and she clearly demonstrated how the sharks would make money investing with her. Her awesome pitch scored her a $100,000 deal with Mark Cuban. If you want to learn how to pitch like a pro, you’d do well to watch this young woman in action.
2. Hustle is necessary, but not sufficient.
A common refrain entrepreneurs on the show resort to when they’re about to get the nix from all five sharks is: “But I’m such a hard worker! I will toil night and day to make this business a success!” And every time, one of the sharks — usually Mark Cuban — will respond with something to the effect of: “You and everyone else on this show!”
We’ve argued that the world belongs to those who hustle. And it does. If you’re lazy, you’re not going anywhere in life. But in business, hustle is a given. You have to work hard to be a success, but working hard doesn’t guarantee you’ll be successful. If your business sucks and your product is a complete lemon, it doesn’t matter how hard you work. You’re going to fail.
Hustle, but make sure you’re hustling in the right direction.
3. Don’t be blinded by passion.
Here’s another recurring theme on the show: the overly-passionate entrepreneur who’s poured their heart and soul into their product and is absolutely convinced that their business is the next big thing/will change the world…even though everyone else can plainly see that their idea is an utter dud.
“I think passion is overrated. Everyone has a lot of passions. I have a passion for sports – a passion for music. That doesn’t make it a business, and that doesn’t make you qualified to run the business.” –Mark Cuban
It’s hard to knock these folks. Their passion and emotion is well-intended and is frankly admirable in our day of “overwhelming meh” aloofness. Ideally, you should love doing the thing you’re trying to make money at. But passion isn’t enough. Just like hustling can’t transform a sow’s ear into a purse, if nobody wants your product or service, passion in spades won’t magically turn your business into a success. In fact, that unchecked passion can blind you to warning signs that you’re on a sinking ship — before you know it, you’ve invested years of your life and thousands of dollars into an emotionally and financially costly failure. It’s truly sad when the entrepreneurs on the show admit they’ve taken out a second mortgage or emptied their children’s college fund to pursue a dream that all the sharks end up turning down. Had they led with their head instead of their heart, such a devastating anagnorisis could have been avoided.
4. Just because your friends and family love your idea, doesn’t mean it’s a good idea.
I can’t count the number of times I’ve seen people pitch what is obviously a stinker of a business, only to be stunned when Mr. Wonderful declares, “This is insanity! I forbid you to continue!” How do these incredulous would-be entrepreneurs invariably respond? “But all my friends and family think it’s a great idea!”
Of course they do. They’re your friends and family. They think you’re awesome, so they think everything you do is awesome; it’s the halo effect! Even if your friends and family do realize your business idea is a bad one, they probably wouldn’t say so. They’re worried you’ll shoot the messenger and so they’ll simply tell you what you want to hear.
Take the husband/wife creators of “Elephant Chat.” They invested $100,000 of their own money into developing their product – a little plush elephant stuffed inside an acrylic “communication cube” that a spouse could place out on the counter to let their partner know they wanted to talk about an issue in the relationship (“the elephant in the room”). It retailed for $60. They swore everyone they talked to thought it was an amazing idea. None of the sharks took the bait.
Besides being blinded by your passion, beware the family and friends filter. Always, always get an outside, unbiased opinion. Better yet, test out your idea on the unforgiving public to see if there’s even a demand for it.
5. Know your business.
Above we mentioned that in order to pitch effectively, you gotta know your business. But what does that mean exactly?
“Know your business and industry better than anyone else in the world.” –Mark Cuban
First, you need to know your numbers — sales, cash flow, debt, margin, and so on. The sharks often hesitate to make a deal with entrepreneurs who don’t know important data points like their customer acquisition cost.
But knowing your business extends far beyond having a handle on your numbers; it requires a deep understanding and grasp of the industry you’re competing in. Lots of entrepreneurs come on the show pitching a product or service they think is truly unique, only to be informed by one of the sharks that a very similar product or service already exists. If they had done just a bit of due diligence, they could have avoided that embarrassing “surprise.”
There are also plenty of entrepreneurs who come on the show with dreams of conquering certain industries (food, clothing, apps, etc.), but have no idea how those industries actually work; for example, they have a food item they want national grocery stores to stock, yet they aren’t aware of the huge amounts of money big corporations spend to secure that shelf space and what an uphill battle breaking into the market will require. Consequently, their plans to succeed are naive at best — completely misguided at worst.
A perfect example of entrepreneurs who came on "Shark Tank" without really understanding their industry (or even business) was a pair of doctors pitching a social network for their fellow MDs called Rolodoc. The docs had no clue how social media worked, or even what it was, despite the fact that their business idea would supposedly revolve round it. Consequently, they stumbled over even very basic questions about how their idea would be executed and how it would actually make money. Mark Cuban called it the worst pitch in "Shark Tank" history.
Before you start your business, research the heck out of the industry you’ll be competing in by reading industry journals and blogs and talking to folks who are already doing business in that market. Heck, even pick up a Dummies guide – there’s one for just about any industry you can think of. This research phase could take months, but it will save you major headaches down the road.
6. Concentrate on your core competency.
Sometimes an already successful business will enter the tank seeking more capital to expand and grow. Nothing wrong with that. The problem arises when one of these companies wants to use that money to expand into a somewhat related product line or service that detracts from their original core competency. Most of the sharks are leery of these businesses and will often tell the entrepreneur that they’ll only invest if they drop their plans for the expanded product line. Why would they want their money funneled into an untested product or service instead of being used to boost a proven winner?
It’s good to experiment and try different things in business, but never lose sight of your core competency. Getting sidetracked has been the downfall of many a business. This is especially true with the volume and ease with which you can get feedback on social media these days; you might hear from a bunch of folks who say, “I wish you guys would make this too!” leading you to believe there’s a popular demand for a new expansion in your business. Then it turns out that those commenters actually represented a very small but disproportionately vocal minority.
Know what you’re good at and stick close to it.
7. The best businesses solve real problems.
The entrepreneurs that succeed in landing a deal usually have one thing in common: their business solves a real problem. Typically the problem the entrepreneur sets out to solve was one they experienced themselves.
The businesses that typically fail at securing funding don’t solve an actual problem. They’re either novelty products or products that solve a problem that doesn’t actually exist. Every now and then you’ll see a shark invest in a novelty item because they see the opportunity to make a lot of money really fast by riding a trend or fad, but for every one of those, you have something like Man Medals – novelty items that are as a dumb as a rock, not the next Pet Rock.
8. If you’re not making money, it’s just a hobby.
Kevin O’Leary has a saying, “Any business that after three years isn’t profitable isn’t a business, it’s a hobby.” There’s nothing wrong with hobbies. They’re fun and provide a creative outlet. But don’t fool yourself into thinking that your little manly-scented artisanal soapmaking experiment is a promising biz just because you’ve sold 8 bars on Etsy. If you’re plowing lots of money into your project, but seeing little return on your investment, embrace your endeavor for what it is – a pleasant pastime.
9. Not every business needs investors.
Some entrepreneurs come on "Shark Tank" looking for an investment to expand an already successful business, only to be told by the sharks that they don’t need an investor and should actually continue to bootstrap the business. I think this is an important, but often overlooked point. In a business culture that glorifies million dollar venture capital deals, lots of aspiring entrepreneurs have the mistaken belief that if you want to succeed in business, you have to have investors.
Plenty of successful businesses bootstrap their way to success without the assistance of investors; with a good idea, hard work, and proper money and resource management, they’re able to fund continued growth with the cash flow they have coming in. Bringing in an investor wouldn’t do much for these businesses except add another cook in the kitchen – and another hand in the pie.
“Banks are not forgiving, and the last thing you want to do is build your business with a priority placed on having to pay back the bank before you invest further in your business. Equity is far better and sweat equity is the best.” -Mark Cuban
Besides, some businesses just aren’t well suited for investment. Investors typically want businesses that they can scale and aggressively expand. You can’t scale a business that specializes in handcrafted wooden chests made by you, unless of course you’re willing to license your design to a factory in China. But managing the mass-production of wooden chests may not be what you envision as your vocation and you’d rather keep things small – making less money, but staying hands-on with the work.
Taking venture capital ultimately means giving up control. We ourselves have been approached a few times with VC offers but have never seriously considered them. Once you bring in people who are only concerned about the bottom line, they’re going to start pushing you to do things that may not jive with your values and vision. “We need to blow the Art of Manliness up and increase traffic faster! Why don’t you publish more often and do like, oh, I don’t know, some posts on the ‘hot girl of the month?’” Um, no thanks.
Before seeking investment, ask yourself: Do we really need outside funding? Have we reached a point where we can’t continue to grow without it? Are we the type of business an investor would even want to invest in? If so, what would we do with the extra capital? Do I really want to give up control of my business?
Also, if you’re looking for a great bootstrapping success story, look no farther than our friends at Huckberry. I’m so impressed with their success — they keep growing and growing — and they’ve done it without VC. For an inside look at the benefits and challenges of taking this path, check out this great article on them at 37Signals.
If you’re an aspiring entrepreneur, I hope you’ll take all this advice under consideration, or in the words of Mr. Wonderful, “You’re dead to me!”
To aspiring entrepreneurs dreaming of landing a deal on "Shark Tank," a former contestant says don't bother.
Scott Jordan, founder and CEO of apparel line TEC-Technology Enabled Clothing, appeared on ABC's hit pitch show in March 2012 seeking a $500,000 investment in the licensing of his clothing company in exchange for a 15% stake. He was eventually offered a combined $1 million in deals but felt all the equity asks were too high, and walked away empty-handed.
Two years after that experience, Jordan says he considers "Shark Tank" an entertaining TV program but a terrible way to raise funds. "If you truly think that this is an opportunity to raise money, it is idiotic to say the least," he tells Business Insider.
Jordan argues that the percentage of deals that actually receive funding on "Shark Tank" is tiny. According to ABC, some 36,000 people applied to be on the show last season. During that time, 26 episodes aired with four products typically featured in each. That's a total of 104 entrepreneurs (or teams) who actually got air time, or a mere 0.3% of the people who applied for a spot — and none of them are guaranteed an investment from the Sharks.
That said, the lucky few who do secure air time on "Shark Tank" certainly get a boost. Experts estimate that a slot on the show could be worth as much as $4 million to $5 million in free marketing exposure, particularly if the temperamental Sharks take a liking to the product. In the past, appearances have vaulted smartphone apps to No. 1 spots in the iTunes App Store overnight, and doubled sales in just months.
Jordan acknowledges the exposure value of going on the ABC show. But even considering that, he still doesn't think the slim chance of a big payoff is worth the six to 12 weeks of effort it can take to apply and, if chosen, film a segment. He takes issue most with what he feels is a massive perception problem about "Shark Tank."
"I think that people watch the show and think that appearing on it is pretty much a guaranteed path to riches," he says. "It's important for people to know that this is not the golden ticket. There are more traditional, better ways to do it."
Rather than trying to raise money on "Shark Tank," Jordan suggests people go to family and friends for help, or take out a second mortgage on a house. It's a valid point, but also worth taking with a grain of salt. Unlike most other early-stage entrepreneurs, Jordan was not strapped for cash when he went on the show.
At the time, Jordan's company was on track to do $12 million in sales for 2012. He was an ex-lawyer who had carefully calculated how to seek funding from the Sharks without sacrificing a bit of his lucrative retail line. He also had powerful connections, and made a point of placing a call to his board member, Apple co-founder Steve Wozniak, midway through his "Shark Tank" segment.
When Jordan balked at the options on the table, the episode became confrontational and nasty. "What is your problem?" Shark Robert Herjavec asked. "Kevin, you're out, you're out," Jordan shot back, pointing at Kevin O'Leary and Herjavec. "I don't need you."
"Show a little more respect," Herjavec yelled, as the TEC founder stormed out of the tank.
Today, Jordan still clearly holds grudges against the Sharks (he's happy to call Dallas Mavericks owner Mark Cuban a "billionaire bully"), but his thoughts on the show are more tempered. Watch it, enjoy it, but don't put all your faith in it.
"There are lots of business lessons to be learned, but do not believe that what you see on TV is what is happening," he says.
When he was 12 years old, Luis von Ahn came up with a plan to make gyms free.
People exercising on machines can generate electricity, he figured, and that energy is valuable. So why not eliminate gym fees, hook all the machines to a power grid, and sell the wattage produced to a major electric company? Everyone could go free of charge, the world would have a new source of power, and people would be healthier to boot.
"It turns out it's not a very good idea," von Ahn, now 34, chuckles. "People aren't very good at generating electricity. It's much better to charge a membership fee."
While that idea didn't pan out, the computer science professor at Carnegie Mellon University has been dreaming up innovative business models ever since. And he's done it well. Over the past eight years, von Ahn has created and sold two projects to Google. His new venture, free language-learning app Duolingo, is a perpetual favorite in the Android and iOS app stores and has already accrued more than 12 million users. In 2006, he was awarded the prestigious MacArthur Fellowship, or so-called "genius" grant.
If there is true genius to be found in von Ahn's work, it lies in the theory that underscores all of his projects: the idea that by using technology and a little bit of fun, you can harness tiny bits of time and energy from people all around the world and make them collectively useful. In what might be the cleverest application of crowdfunding principles yet, von Ahn is turning our mindless Internet activities into something productive.
Von Ahn's entrepreneurial ventures began in earnest in 2004 with an idea he had for a new kind of online game. The program would randomly pair each player with another user on the Web, and show them a series of images. Both players were instructed simply to "type whatever the other guy is typing." The more overlap you produced, the better your score was. So, for example, if a picture of a dog appeared, both users would probably type "dog" along with other words like "animal,""pet,""puppy," or "cute."
It's the kind of time-killer that most of us love: a perfect medley of fun images, competitive quizzing, and mindlessness. But for von Ahn, it would have a second use. "When people play the game they help determine the contents of images by providing meaningful labels for them," he and his co-author wrote in a 2004 paper. "If the game is played as much as popular online games, we estimate that most images on the Web can be labeled in a few months."
Take a moment to consider that proposition. A tremendous number of unlabeled images are floating around on the Web, which impairs everything from the accuracy of image searching to the blocking of inappropriate content. Tech companies have created an entire job category for people who review content and flag it for various graphic violations. Von Ahn was proposing that much of this could be outsourced to your everyday person, if only it were made a little fun.
The program launched in 2005 as The ESP Game. Within four months it had lured 13,000 bored Web cruisers into producing 1.3 million labels for roughly 300,000 images, Wired reported in 2007. Von Ahn's demo of the game at Google caught the eye of both Sergey Brin and Larry Page, and just months later it had been acquired and relaunched as the Google Image Labeler.
Von Ahn's next venture, reCAPTCHA, also managed to utilize the work of unsuspecting Web users. In the early years of his Ph.D. study, von Ahn had helped his advisor, CMU computer science professor Manuel Blum, develop a handy identity verification device known as a CAPTCHA. Think of those distorted words you're asked to translate after attempting to log into your email too many times to verify that you're human. Those are CAPTCHAs. Initially invented to help keep spambots out of chat rooms, these tests are effective because computers have a difficult time reading distorted text, while people are rather good at it.
Von Ahn watched the work on CAPTCHA and decided it had potential beyond distinguishing humans from robots — the extra 10 seconds people were taking to access their email and other accounts could be put to use. In 2006, von Ahn launched reCAPTCHA. Unlike its predecessor, reCAPTCHA challenged users with two distorted words to decode, and looks something like this:
The brilliant twist is that this test isn't just verifying your humanity; it's also putting you to work on decoding a word that a computer can't. The first word in a reCAPTCHA is an automated test generated by the system, but the second usually comes from an old book or newspaper article that a computer scanner is trying (and failing) to digitize. If the person answering the reCAPTCHA gets the first word correct (which the computer knows the answer to), then the system assumes the second word has been translated accurately as well.
In 2009, Google acquired reCAPTCHA for an undisclosed amount (von Ahn says the sum was somewhere between $10 million and $100 million) and put the program to work on a tremendous scale, digitizing material for Google Books and the New York Times archives. In 2012, it was translating about 150 million distorted words a day.
"The CAPTCHA was really my idea," says Blum. "Getting humans involved and getting them to help do this stuff was Luis's idea. He was the one that pointed out, 'Look how many hours have gone into building the Panama Canal or the Pyramids — and with all the people that are on the Web now, you can get a lot more hours.'"
The latest incarnation of this theory is Duolingo, von Ahn's popular language-learning game. The free service offers lessons in Spanish, French, Italian, German, and Portuguese, and uses a computer-game structure with level-ups, un-lockable bonus skills, and a virtual currency to intrigue users. It's classic gamification.
"When you talk to people using Duolingo, they usually say 'I'm playing Duolingo,'" von Ahn notes. "If you ask people the main reason they're using Duolingo, it's not because they're learning something but because it's fun."
The app's 12.5 million active users spend, on average, 30 minutes a day with Duolingo, but it's also designed for people to pull out for two or three minutes as a time-killer while waiting in line at the grocery. Von Ahn says his research shows that spending 34 hours on Duolingo teaches the equivalent of one semester of a college language course. Eighty percent of traffic to the app comes from mobile.
A quarter of Duolingo's users are from the U.S., but another 35% are from Latin America and Brazil, and 30% are from Europe. This is important to von Ahn, who grew up in an upper-middle class family in Guatemala City before heading to the U.S. for college, and saw firsthand how his fellow citizens struggled to climb the socioeconomic ladder.
"Guatemala is a very poor country," von Ahn says. "Everybody in Guatemala seems to want to learn English, but no one can afford to."
To that end, von Ahn has sworn to keep Duolingo entirely free for users. And using the same logic that built The ESP Game and reCAPTCHA, he's come up with a clever alternative for monetizing the product. When users sign onto Duolingo, one of the options they have for practicing their language is "immersion." In this section, users get a chance to apply what they've learned by trying their hand at translating real documents on the Web.
Where do those documents come from? CNN and Buzzfeed, for starters. The major media companies have contracted Duolingo as a translation service for their materials. Even with novice users, the translations are fairly accurate because several people on Duolingo work on each document and then up/down vote other translations before the final version is sent back to the media outlets. For the users, it's another language-learning tool; for Duolingo, it's a way of generating hundreds of thousands of dollars.
As with all von Ahn's projects, the trick in Duolingo comes down to shrewdly harnessing the time people happily spend on one project to do something useful in another. One invention after another, he is satisfying our desire for mindless fun while tricking us into making society as a whole more efficient. The brilliance of the theory, ultimately, is that it's so simple and yet extremely effective.
"It's just taking something that people do anyways," von Ahn says, "and trying to extract value out of it."
Nine years ago, Adam Braun was backpacking through India when he asked a child beggar what he wanted most in the world. The boy’s reply: a pencil.
The answer stuck with Braun. The boy, he learned, had never been to school — like the 67 million kids around the world without a chance at an education.
With that experience rattling around in his head, Braun returned home to the U.S., graduated from Brown University, and nabbed a job at the consulting firm Bain & Company. He figured he'd spend a few decades establishing financial security and then pursue his social impact dreams. But while the corporate gig gave him prestige, stability, and a hefty paycheck, he couldn't shake the idealistic urge.
So in October 2008, he founded Pencils of Promise, an education nonprofit that's now built more than 200 schools across the globe. While it started as a side project, he soon left Bain to pursue the venture full time. Since then, Braun has become something of a darling in the world of social good: Forbes named him to its 30-under-30 list, Justin Bieber has taken up the cause, and his new book, "The Promise Of A Pencil," has endorsements from Richard Branson, Cory Booker, and Deepak Chopra.
In less than six years, Braun has grown the organization's reach to 20,000 students in four countries and scaled the staff to 80 employees. The rapid growth has required building an infrastructure that emphasizes training and grooms potential leaders — since, after all, Braun can't do it all on his own.
“After we built one school, I realized that other people were interested,” he says. “It went from being a personal project to an organization — so all the skills from Bain were going to be used in building a great organization.”
Braun, 30, says one of the most important lessons he's learned so far is the power of stepping away, something he picked up in his consulting days. At Bain, he saw how new hires received dedicated training so that they could become as good as their bosses, if not better. Cultivating those competencies early allowed the boss to move from consultant to manager, manager to partner.
"A lot of founders have this belief that they’re the only ones that can do a certain job as well as they believe it needs to be done,” he says. That way of thinking gets in the way of growth, because "an infrastructure is primarily dependent, in my opinion, on a combination of talent and then investment of higher level leadership in training and fostering and cultivating that talent.”
That understanding carried over when Braun was ready to make his first in-country hire.
“I was riding my bike around Laos and visiting these villages, and I realized on my probably third or fourth visit that I really needed a Lao local, someone who's on the ground, speaks the language, to be the point person to oversee all of our work,” he says. “The person that I trusted most and that I also saw greater potential in was a woman named Lanoy, who was in her late 20s and worked at the guesthouse where I stayed when I was traveling.”
Although she spoke great English, Lanoy Keosuvan had no formal business training. Her job was to change the sheets, clean the dishes, and take care of the guesthouse. But Braun saw potential in her, and he asked her to be the organization’s first volunteer coordinator.
Braun carefully trained her. They opened up an email account together. He walked her through sending her first email. He taught her how to build PowerPoint presentations, how to use Google Apps, and how to manage a team.
It paid off. Today, Keosuvan is now the country manager for Laos, leading a 40-person staff across multiple regions. When the U.S. ambassador Dan Clune comes to Laos, he visits with Keosuvan.
“We were a startup, underfunded to begin with,” Braun says. “But as that startup really starts to grow, employees' responsibilities grow in relation to the growth of the organization.”
And that's why Braun is dedicated to the power of education — of both his students and his team.
Why change at all? It seems like a nonsensical question, doesn’t it?
If you or your organization isn’t evolving — innovating, growing, or reinventing — you are in danger of failing.
Astrophysicist and author Carl Sagan once said, “Extinction is the rule. Survival is the exception.”
The global landscape is littered with the remains of organizations that rose to great heights only to have their fortunes plummet because they were unable to transform themselves as times changed.
Digital Equipment Corporation and Wang Computers, once the titans of the nascent information age, failed to innovate and were sold off to other companies. Woolworth’s, once a fixture on Main Streets across the country, did not adapt its business model to the advent of mega shopping malls and big-box retailers and closed its doors in December 2008. Pan Am and TWA, once the standard bearers of the U.S. airline industry, could not overcome economic pressures and were forced to declare bankruptcy. Transformation was the imperative they all had missed out on.
With the rapid change of the social-technology-economic climate, transformation is the greatest leadership and management challenge of our times.
And no industry is immune to waves of change. The automotive and energy industries are racing to find the next stage of their evolution in a world that is challenged by the question of accessibility to oil in the face of global market demands.
The media is grappling with the democratization of information resulting from the Internet, which has completely eroded the business models of film studios, music producers, and print publishers. The financial services industry tries to recover from the chaos resulting from bad risk taking and regulatory oversight failures, failures so bad that deep intervention by the U.S. government was needed, forever transforming banking, stock trading, and investment regulations.
Disruption and Transformation Is Nothing New
At the beginning of each new business era, the existing paradigm resists with vigor.
Sooner or later almost every organization needs to transform or diversify from their original market intent. Consider the following examples:
As economic conditions change and products reach market saturation, transformation is the only option for maintaining growth and financial viability. The difference between successful and extinct companies is the recognition and successful execution of this transformative process. Embarking on a transformation is more than just deciding to do something different or expanding into adjacent markets. It requires examination, planning, and execution.
To be successful in today’s business climate, most enterprises need to transform themselves on a regular basis.
The Way Forward
I have found that the organizations looking to establish an on-going transformative process should prepare themselves by considering the following seven principles:
1: Establish the business purpose of each investment. Is it to enable growth, maintain, or manage risk?
2: Determine whether the metrics you use have changed along with modifications in business, processes and/or technology.
3: Agree upon metrics that show how your organization creates go-forward options. This will ultimately lead to metrics that accurately measure business value.
4: Understand the economic environment and how your organization adjusts its strategy to changes in the environment.
5: Createmanagement capabilities that support prioritization, consolidation, and standardization to manage and define the requirements needed in support of a collaborative culture.
6: Translate the business strategy into tactical plans for short-term and long-term value creation.
7: Instill in teams the behaviors and values that will lead to the best use of information for customer, supplier, and partner relationships.
Transformation is not a singular event. A one-time makeover will not cut it. Growth through innovation must become part of any organization’s soul. Successful, sustained organizations are those that are continually transforming themselves, or have segmented themselves to enable overlapping transformative initiatives that allows them to escape economic disruptions.
This requires new organizational thinking, the creation and sharing of new kinds of information, and new processes for creativity and innovation. Only in this way can growth through innovation become repeatable.