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Jan 16 2012
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Startup

Tim Tebow, Startup Mentor

Tim Tebow’s first season as a starting quarterback came to an end this weekend in the playoffs against the New England Patriots. I don’t know if Tebow will be a long-term starting quarterback in the NFL or not. Regardless, there is a lot to like about Tebow and a lot that entrepreneurs or aspiring startups can learn from him.

1) Ability to drown out criticism. Even before Tebow declared for the NFL draft the noise around his ability to play in the NFL was loud and critical. It only intensified as he moved from backup quarterback to starter this season. As an entrepreneur your idea, your timing and your ability to execute will be criticized. Entrepreneurs have to develop the ability to separate the noise from the substance, always listening to improve but never listening to be discouraged.

2) Strong work ethic. Tebow is normally the first guy at practice and the last guy to leave. He works out with the lineman, often benching and powerlifting alongside them. He studies game film late into the evening, calling his coaches after 10pm with questions. As an entrepreneur there are a lot of things that will come your way that you can’t control but the one thing you are always in control of is your own personal effort. Your company may not succeed, but don’t let if fail for lack of hustle.

3) Inspires confidence in others. “A good leader inspires people to have confidence in the leader, a great leader inspires people to have confidence in themselves.” – Eleanor Roosevelt. At every level, Tim has inspired the best in those around him. (And not just players on the field but people fighting illness, disabilities and other obstacles are inspired by Tebow). Maybe that’s why he’s been able to succeed at every level as a quarterback with only marginal football skills. Growing and scaling a business is a team sport. When your company is just getting started people will look to you for confidence. It’s your job to bring out the best in them and teach them to believe in themselves.

4) Loves to compete and win. John Fox, Tebow’s coach, refers to it as his “competitive greatness.” Tebow doesn’t slide into a first down, he lowers his head and runs over people. He may be a gentle spirit off the field but he’s a giant presence of a competitor when he’s on the field. Business is the most competitive sport in the world. Today we are competing against people from all over the world and all different ages. If you’re sliding into first downs then it’s time to turn the company over to someone else or to dissolve it gracefully.

Jan 15 2012
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Sunday

Laughter

I spent a good part of this week at CES in Las Vegas. I got the chance to reconnect with some old friends, develop deeper relationships with new friends and spend quality time with current friends. We shared meals together, talked shop and spent a lot of time laughing. Some of the things that cracked us up most likely weren’t even all that funny, but laughter is contagious.

Isn’t it interesting that humans are the only species that laugh? Some animals make sounds that researchers say may mimic laughing, but none laugh and giggle and carry on like we do.

Laughter is part of the universal human vocabulary. All members of the human species understand it. Unlike English or Spanish or Chinese, we don’t have to learn to speak it. We’re born with the capacity to laugh. The first laughter appears at about 3.5 to 4 months of age, long before we’re able to speak. At ages 5 and 6, we tend to see the most exuberant laughs. Adults laugh less than children, probably because they play less. And laughter is associated with play.

Very little is known about the specific brain mechanisms responsible for laughter. But we do know that laughter is triggered by many sensations and thoughts, and that it activates many parts of the body. When we laugh, we alter our facial expressions and make sounds. During exuberant laughter, the muscles of the arms, legs and trunk are involved. Laughter also requires modification in our pattern of breathing. (source)

So, why do we laugh? A naturalistic worldview believes that it evolved from the panting behavior of our ancient primate ancestors, but struggles explaining why in humans we enjoy laughing so much. I like the creationists answer better. We were designed as emotional beings, created in the image of God with a spirit, a consciousness and self awareness. We can experience sadness and joy, weeping and laughter. We can stimulate those emotions in others also.

Try to watch either of these and not find yourself laughing along:

Jan 11 2012
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Startup

Playing with the Lead

I’m back in Vegas for CES. A few of months ago I went with my parents and grandparents to Vegas. On the first night my mom sits down at the three card poker table and on her fourth hand hits a Royal Flush in spades and wins $10,000. It changed her approach and attitude the rest of the trip. She’s a modest gambler and there was absolutely no way that she wasn’t going home a winner despite how the rest of her evenings went.

In baseball when a team scores 10 runs in the top of the first inning it normally changes their game plan for the better as they are now playing with a lead that is hard for the opposition to overcome. There’s not a single coach of any professional sport that doesn’t want to score early and score often.

If you’re starting a new company then I recommend you do the same. Scoring early in business normally means identifying clients that will pay for your product or service and generating positive cash flow as soon as possible. It may mean adding multiple thousands of users for your software or service in a very short period of time that you can later monetize (think Evernote or Facebook). It does not mean writing a slick business plan and shopping the idea to investors.

Only rapid growth and profitability or rapid user adoption with a path toward profitability allows you to play with the lead in business. Playing with the lead helps you recruit great talent, gain new business, generate positive PR, and then attract investors, assuming you even need the money, at a much higher valuation.

From day one of starting a new company you should know how to keep score for your business and then focus on how to score early and score often. Sounds obvious but you would be surprised how many “PowerPoint” businesses I see with no momentum and no idea how they plan to keep score.

Jan 09 2012
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Startup

3 Reasons Why You May Not Be Ready To Start A Company

In 1995 when I graduated from a small midwestern college I don’t recall a single student talking about becoming an entrepreneur. Today, entrepreneurship seems to be on everyone’s mind with incubators launching almost as fast as the companies they will help to create.

I love being an entrepreneur and supporting entrepreneurs through mentoring and investing. Schools and incubators can help you develop the skills and raise the resources necessary to successfully launch a company. This post is about something they don’t teach and I rarely hear discussed, your personal life. If I’m making a significant investment in your company or partnering with you in a new company then there are a few things I want to know about you personally that are as important to me as your idea and previous experience toward the success and sustainability of your startup:

How does your spouse feel about your startup?  When you say “I do” you are making a personal commitment to value someones opinions about your future as equal to your own. You are also making a legal agreement…what belongs to one belongs to both, including stock in your company. Starting a company requires long hours and almost certainly a financial sacrifice for some period of time. It’s an emotional roller coaster and some days you’ll wake up elated and return home depressed. Your spouse needs to be equally committed to your startup and someone who you are comfortable sharing the highs and lows with. If you’re relationship is on the rocks then now is not the time to start a company. Going through a divorce is never a good thing but during the first few years of your company it can be devastating. And, post-divorce you now have a new partner in your company that is neither active or likely on speaking terms with you unless you can make some type of arrangement to buy them out during the divorce which you most likely can not afford to do.

How are your personal finances?  If you’re a recent college grad without a family then you can likely live on next to nothing. If you’re married with kids in college then your commitments are a bit less negotiable. Either way though, if you ever want to be an entrepreneur then I recommend you live a life as close to debt free as possible. Both times I left a job to start a company I made less money for at least the first two years compared to what I would have earned staying put or switching jobs. In my mind, barring any type of medical crisis, there are only three types of acceptable debt; mortgage, student loan, and car payment. Your mortgage or rent should be equal or less than 20% of your annual income and your car payment, if you must have one, should be no more than $200 per month. Bottom line is that you are going to find it very difficult to start a company if you are living paycheck-to-paycheck and your tolerance for working through the lean years will be thin if you’re having trouble making ends meet. I want to invest in people or have business partners that have staying power.

Are you in good health?  I think that a prerequisite for most people to starting a company should be a thorough physical. If I’m starting a company with a new partner then I want to know if they are physically fit for the job and they should expect the same from me. While there can be a medical surprise even after a physical, you generally want to know that you are physically healthy and not likely to suffer a health crisis in the next couple of years. Startups are typically long hours with potentially lots of stress. Being physically active will clear your mind, reduce stress, fight depression, and give you an overall optimistic feeling about your life and day. Eat healthy also. It’s no badge of honor to brag about living off of Red Bull and candy bars while catching two-hours of sleep under your desk. If you aren’t currently physically active then get a good physical and take the next 90 days to improve your health and make exercise and healthy eating a habit prior to starting your company. Whatever is not an integrated part of your life today certainly won’t become one post-startup. Even a successful company is a failure if you’re not healthy enough to enjoy it.

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Jan 08 2012
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Misc

A Tale of Nothing

Once upon a time there was Nothing.  Nothing did not live in a far-away land, did not perform noble acts of bravery, and did not pursue a princess of humble origins with an outstanding gift for singing.  In fact, Nothing quite simply, did nothing.  Nothing had no dreams or desires, no imagination, no residence or place to be found, no companionship, and no concerns or jealousy for having nothing.  Nothing did not even know that it had nothing since there had never been something to have!

And this is where the story takes a most unbelievable turn.  Even though Nothing had no materials to work with, no imagination to dream with, and no intelligence to design with, Nothing made something from nothing!  And not just any old something, but an amazing something!  Matter, time, and energy governed by complex laws of physics that regulate and hold the Universe together. Galaxies full of stars and planets still immeasurable in size.

Yet the beauty and glory of it all would have been wasted had Nothing not somehow created it’s most magnificent something – life!  How Nothing took nothing to make something is puzzling in itself, but how Nothing made something that could appreciate the something that Nothing made simply boggles the mind.  Yet here we are, placed upon a single planet that has all of the conditions just right for life to develop and thrive, as if we were designed for the purpose of being here, appreciating and adoring the something that was made from nothing.

Of course, Nothing has never created something since.  Even the something that Nothing created cannot create something from nothing.  Yet in this one example – unexplainable, unbelievable, unrepeatable example – something was created by Nothing.

Jan 05 2012
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Agency

What’s your Agency Worth?

Since announcing the sale of Rockfish to WPP in August I’ve had a number of people reach out to me to ask questions about selling their agency. Inevitably the conversation comes around to the one question that is on the top of their mind…valuation.

I don’t share the specifics of our deal, nor would it matter anyway. The reality is that your agency is worth whatever you can get someone to pay you for it. Yes, there are valuations that are guidelines for our industry but every transaction is unique and varies widely. And, the types of companies buying digital agencies is diversifying, as evidenced by yesterdays announcements from both Walmart Labs and Deloitte, which also will shake up valuations.

For what it’s worth, here’s my thoughts (mostly obvious) for getting the best value possible for your agency when you are ready to sell:

  1. Have good financials. That means solid growth and healthy margins. Little to no debt and a good history of timely receivables is helpful. And, spend the $20K or so to audit your financials every year. Use a strong regional firm and not one of the top firms, you’ll save a fortune and still have the information you need to improve your business and provide a buyer. Your buyer will find everything when they audit your financials and ask questions about every expense and client receivable that looks questionable. I don’t blame them…they want to know what they are buying. Handing them your past five years of audited financials will save you time and make a good impression. On the other hand, if your books are a mess then not only does that reflect poorly on your company but it can significantly devalue your agency.
  2. Hire an amazing team. I’ve always tried to have a leadership team that reflected a company much larger than we actually are as I believed that was necessary for significant growth. Have good employment agreements and relationships with your employees. Your buyer will also want to know that your leadership is committed to stay with you post-deal.
  3. Have strong, direct client relationships. They will want to speak with your customers. You get bonus points when your relationships are at the highest level in the organization and your existing customers are showing growth with still plenty of room to grow. If a significant part of your income is as a sub-contractor to another agency or industry partner then your buyer will likely seriously discount that revenue as they will assume it’s likely to dry up post acquisition.
  4. Have a good reputation in the industry. Do work that wins awards and is widely regarded. Keep the media informed of interesting projects and growth.  Speak at events.  Treat your peers with respect. Lose pitches gracefully (be pissed but only internally). We’re all allowed one vice (primarily airlines), but generally speaking don’t bitch about any company on Twitter or other social media as they might be a client of the firm considering your agency. Even when you fire someone, do so with respect and consideration. The general vibe around your company will make a difference when you are ready to sell.

Another important factor is to have a point-of-view as to why you want to sell your agency as that also affects valuation. Common reasons are:

  1. You’re done and are looking for an exit. This is a tough industry to work in, much less lead a business in. Some of us are burnt out and need a change. Others may love the work but want a career change for a variety of reasons (most common is family). Whatever your personal reason for being done, just know that services based businesses are purchased for their people and their clients and your interest in departing will likely reduce those who would be interested along with the ultimate value unless you’ve been preparing for this for some time and have put in place a proven organization that doesn’t require you to be successful.
  2. You’re growing fast and need capital. Services based businesses often have to hire 60 to 90 days in front of revenue. Rapid growth can kill a company as fast as no growth if your not managing your financials properly. Rapidly growing debts are not a position of strength when you are negotiating but if those debts are tied to actual growth and not swank condos in NY, company cars, and designer clothing or bad receivables and poor collections then you’ll be fine. A friend of mine sold his agency because his bank began to limit his growth based on how much additional debt they were willing to provide him.
  3. You’ve grown as much as you can. Maybe your company sprinted out of the gate and quickly reached forty or fifty employees. The last few years though have been fairly steady with little growth. There’s nothing inherently wrong with that as running an agency of that size has lots of advantages. However, you personally want to double in size and believe you need help to make that happen. An acquisition of your firm can put in place a structure that stretches you personally and creates growth for your firm.
  4. Selling can accelerate your growth and opportunities. This was ultimately what it came down to for me. As owners we often think about the value of money in our companies but neglect to consider the value of time. If I was going to sell Rockfish I needed to be convinced that our new owners could significantly accelerate our goals for the company and do for Rockfish in a matter of years what may have taken me decades by remaining independent.

I’m sure there are many other reasons. My point is to know what your reason is as that will help determine who your potential buyers are and how your agency will be valued.

One last related question…should you go it alone or hire a broker?

I believe that in the majority of cases you should hire a broker. Exceptions might be when:

  1. You have a number of interested buyers proactively reaching out to you. That will significantly help you know what type of value you should expect for your business and likely ensure you get a premium.
  2. You have a strong in-house legal and financial team with experience in M&A and have hired a good M&A law firm with industry experience.

If you do hire a broker then they will work with you to put together a book on your agency and shop it to potential buyers. They will also help you negotiate a favorable deal and terms. Most people that I know who have sold their agencies have worked with brokers and considered them a very valuable partner in getting the best deal for their agency.

Jan 04 2012
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Rockfish

Rockfish Rewards

At the end of the first quarter last year we launched a new program at Rockfish that we called Rockfish Rewards. As our company grew I was getting frequent requests from people who wanted to recognize a co-worker with a gift-certificate to dinner or small gift for working extra hard to meet a deadline or exceed a clients expectations. I liked the idea of peer recognition and wanted to create a more formal and exciting way for Rockfish to manage this, thus the beginning of Rockfish Rewards.

We built a catalogue of items that each had a point value. Everything from online gift certificates to iPads to Ducati motorcycles. Everyone at Rockfish was then given points each quarter that they could use to recognize a colleague(s). When a co-worker awards you points for a job well-done then you can immediately redeem those points for something less expensive or save them up for something really spectacular. It’s been a big hit at Rockfish. Recently one of our employees posted a review of her experience on our blog that’s worth a read.

Last year we managed Rockfish Rewards through Excel spreadsheets and email. Not a bad way to get started but a significant administrative hassle. In true Rockfish style, we decided to formalize Rockfish Rewards as a SaaS application called YouEarned.it. We rolled it out to Rockfish to kick-off the year and intend to make it available to any company that wants to use the software very soon. In the meantime, if you want to be a beta user of the service send me a message on Twitter (@kennytomlin) and I’ll see about getting you set up.

Following are a few screen captures of the application:

Jan 03 2012
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Misc

Committed vs. Loyal

When you are committed you have a particular attitude toward something and act according to that resolve. But commitments can be, and often are, broken as our feelings or resolve changes. We make New Years Eve commitments but often break them as the year wanes on. Even around half of all marriage commitments end in divorce.

Loyalty is a step beyond commitment. Loyalty is being faithful to your commitments regardless of whether or not those feelings and actions are reciprocated. I was born in Kansas City in 1972. I’ve never seen the Chiefs so much as even play in a Superbowl, much less win one. The organization often frustrates me by drafting free agents at the end of their career and hiring poor coaches. Still, I’ll be loyal to the Chiefs until the day I die. Ironically, the players are only committed so long as they are under contract. As soon as they become a free agent they are happy to move on to a team that will pay them more or has a realistic chance of winning.

Your grandfather was likely committed and loyal to certain companies and brands. He likely wore the same after shave, bought the same brand of blue jeans and worked at the same company his entire life. People don’t feel that way about brands or companies any longer. And that’s a good thing for all of us!

American car manufactures thought their customers were loyal when in fact they were only committed. When Asia started making great cars like Toyota and Honda consumers quickly changed brands as they tired of the cheap mediocrity and lack of innovation coming out of Detroit. As a result, today car companies in America are building better products than ever which benefits all of us as it challenges every manufacture to innovate or die.

Your company likely has very few, if any, loyal customers or employees. Even iconic brands like Apple and Nike have very few loyal customers. Strongly committed, yes…but not loyal. It’s much healthier to operate under the awareness that your customers and employees are only committed to your brand or company and not loyal. Every year you have to innovate and delightfully surprise them to keep them committed for another year.

Jan 02 2012
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Misc

Learning to Code Again

A few days ago I ordered three books on iOS development and two on Ruby. Believe it or not, I used to be a pretty decent coder. All self-taught though so I’m sure my code was sloppy and inefficient. Regardless, through about 2005 I knew enough to build multimedia applications in Director (Google it…it used to be awesome) or Flash and sites in classic ASP. I stayed fairly current through founding @Rockfish in 2005 and was able to do the development on our companies first project. Then I quickly and wisely began to hire developers. Still today a huge part of our company is developers and we have some of the most talented in the business!

So, why learn to code again? In case anyone at Rockfish or a client of Rockfish reads this, please know that I have no illusions of ever billing for one hour of time as a developer or ever releasing an application where I’ve written even one line of code.  I recall that I found the logical challenges of coding both stimulating and relaxing and I’m taking it up again more has a hobby than a profession.  I’m learning for the same reason some people take up cross-word puzzles or start fishing. It exercises my brain, stretches my thinking and opens my mind to new possibilities.

I read today that I’m not alone in picking up coding again in 2012. Fred Wilson posted on his blog (AVC.com) that he’s also going to update his “long lost coding skills” using Codeyear.com.

Dec 28 2011
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Misc

First Post

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