South by Southwest

Going to South by Southwest?

I’ll be speaking on two panels related to virtual reality – it’s ability to create empathy, and actually do good.

We’ll go beyond the current hypemania and do deep dives into the very real potential for VR to create transformational changes.

http://brinkinstitute.org/brinksxsw

If you’re going to be there, stop by and say hi!

Paul Hynek

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Necker Island

Two weeks ago I went to Necker Island, Sir Richard Branson’s private island in the British Virgin Islands.

Richard Branson is the entrepreneur’s entrepreneur – running an international Virgin empire with over 400 companies ranging from airlines to financial services to yes – Virgin Galactic. And on Necker Island, over some 40 years, he’s built, well, there’s really no other way to describe it, a paradise.

I was invited there to attend the Extreme Tech Challenge (www.extremetechchallenge.com) a wonderful event organized by MaiTai Global, an incredible group of international entrepreneurs led by Susie Mai and Bill Tai. I went with my buddy Gregg Katano who helped organize it.

The Extreme Tech Challenge isn’t only for startups – but for disrupters.

Over a thousand companies applied, and it got narrowed down to ten semi-finalists, who went to Las Vegas during the CES (Consumer Electronics Show) where I got to meet them all, and wound up having dinner with the three finalists:

Bloom
(www.bloom.life)
Technology for pregnant women

Giroptic
(www.griroptic.com)
Virtual reality camera

Sphero
(www.sphero.com)
High-tech toy robots

These three companies were invited to the final pitch on Necker Island, where the judges included Richard Branson.

It was an amazing time. Such passion for innovation, all on an island paradise with 100 staff, flamingos, lemur habitat, and the resident billionaire.

I met more cool people than I can count. Everywhere you turned there was someone fascinating.

Richard Branson was fun, smart, funny, and quite gracious. Before dinner, I went to him and thanked him for having us, and I said that although I know he had seen virtual reality, he hadn’t seen *this* in virtual reality. The *this* was him – right before the start of the Tech Challenge finals, I recorded a virtual reality picture of the scene, with audio. Sir Richard broke into a big smile as I showed it to him on an Unofficial Cardboard virtual reality headset (www.unofficialcardboard.com – I am a partner and CFO) that we had made custom for the event. He broke into a huge smile as he turned around and saw a slice of the event recreated in front of his eves. He then wrote notes on the package for the viewer, and asked a staffer to immediately put it in his office. (I’ll be happy to e-mail you the virtual reality photo, you can view it with a free app called Cardboard Camera.)

The three finalists were quite impressive. Sphero is selling the BB-8 robot from Star Wars, and they’re not exactly struggling. Giroptic has bar none the most impressive virtual reality camera n the market. But it was Bloom who won the day with their integrated approach to pregnancy.

This is why I started EZ Numbers, to be in this exact kind of situation.

I’ve mentioned in previous articles that I feel that passion is far and away the most important ingredient for a successful entrepreneur, and that was on display on Necker Island. That and rum drinks.

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Rich vs. King: The Founder’s Dilemma

So you’ve just started your baby.

Your shiny new company.

You haven’t yet even done a soft launch, but you’re already getting amazing feedback from various and sundry people. And by various and sundry people, I mean people who don’t have your last name.

Then one fine day, you pitch at an Angel event, and someone wants to invest. Trouble is, they will only do so at 20% of the valuation you proposed.

Should you do the deal?

The answer is basically yes.

Check out this HBS article on the Rich vs. King spectrum. You might be in for a surprise.

The bottom line – if you’re a control freak, then by all means, hoard your equity like Gollum clutches Precious. If you want to get rich, then don’t worry about the valuation, just focus on making an insanely great company.

https://hbr.org/2008/02/the-founders-dilemma

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“I Give You My Word(s)” – How a Business Plan Can Hurt You

You may have seen in various places on our site that we’ve fallen out of love with the fancy thirty page business plan. If you’re in startup mode, you don’t really have time to write it, and investors simply don’t have time to read it.

So it’s largely a waste of everyone’s time.

That’s why we provide the free Two Page Plan template, and don’t point you to the various sites that help you make an old fashioned business plan.

But it’s worse than that.

One of our customers made this point to us in a phone call. She’s starting a specialty food company, and needs to raise money. Before buying EZ, she did a long business plan, and poured her heart into it.

But she found that a funny thing happened. She met with a potential investor, someone for whom she had great respect and admiration. He said he would like to work with her, but that he didn’t like her strategy. She was disappointed and upset. She had so carefully crafted her approach in the business plan.

As she listened to him, she began to realize that his approach would be less expensive to start, have more potential upside, and actually fit her mission better. It was still the same basic business, just modified a bit.

But the thought of redoing the whole business plan, with all that those hours and late nights it would again require, raced through her mind.

Then she caught herself – a potential investor told her that he was interested in investing in her company, but if she adopted what even she thought was a better strategy. This was even better than someone saying they would invest – now she had a better strategy too!

The long form business plan had ossified her. The act of writing out the plan had in essence committed her to doing exactly what was in it, and losing the ability of evolving as needed. I’m not saying that you never commit to a course of action, but if anything – a business plan, a corporate strategy session, whatever – ever stops you from improving your plan to something you know is better, and cheaper to boot – then don’t be surprised if someone else does it – the world is always looking for something better.

Faced with the choice of changing her strategy or her fancy business plan, she changed her plan, and did a simple four page summary.

Did she get the investment? We’ll see, this just happened.

It’s a funny thing. Sometimes words are harder to change than numbers.

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Ok, So What Do Pre-Money and Post-Money Valuation mean?

You may have heard these terms bandied about.

Startup valuations are hard enough without some jargon to muck up the waters even more.

Fortunately, these terms are about as simple as it gets, once you learn the math.

Let’s put this in the context of a startupper named Casimir. Casimir has come up with a new Internet router technology that he’s sure will either be bought by Cisco within 2-3 years, or bankrupt them within ten. Hey, we entrepreneurs are nothing if not brobdingnagingly optimistic.

Casimir kills it at the Tri State Angel Investor Dinner PitchPalooza. Calls flood in the next day over the VOIP network powered by, what else, his new router. One Angel in particular seems like a great fit, and after a couple discussions, they’re ready to talk turkey. The investor says he’s willing to invest $1 million at a $5 million valuation. Casimir quickly crunches the numbers, and realizes that the investor would get 20%. So far, so good.

But then the investor says “And to confirm, this is pre-money.” No entrepreneur wants to reveal that he doesn’t know a basic investing term, so Casimir responds “Of course!”

Was he right to do so? Or was there some pooch screwing here?

He was right.

In the example above, the investor would get 20% of the company, because he’s saying that the company is worth $5 million, so if he invests a fifth of that amount, he gets a fifth of the company ownership. That is the pre-money valuation. Simple as that.

The post-money valuation is just the pre-money valuation, plus, yep, the money. So in this case it’s $5 million plus $1 million = $6 million.

That’s it. Valuations are often the most difficult part of negotiations with a potential investor, but this terminology doesn’t have to be.

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Guide to Intellectual Property

There are a lot of things that you don’t think of when you finally take the plunge and start your new company.

One thing that often sneaks up on entrepreneurs is intellectual property. Are you comfortable with how much you know about patents, trademarks, and copyrights?

One of the free bonuses that comes with EZ Numbers is our Guide to Intellectual Property. It walks you through the basics, and gives you some horror stories to help you avoid some really difficult situations. If you’d like a copy of the guide, e-mail us at info@eznumbers.com, and we’ll send it to you.

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EZ Numbers Free Version

We’ve just created a Free Version of EZ Numbers.

You need the paid versions to really understand your business in depth, get a loan, or get an investment. We’ve had a lot of users tell us that until they used EZ, they hadn’t really understood their business.

But if you just want to test out a rough business idea, the Free Version might be all you need. It is a fully functional pro forma template for your startup projections. Enter your Capital Expenditures, Sales & Marketing and Operating Expenses, Personnel, Sales, Loans, and Investment, and you’ll instantly get your P&L, Cash Flow, and Balance Sheet.

Note: The Free Version is not the same as the paid versions. It’s completely different code. So it’s not designed to be an evaluation for the paid versions, which have far more functionality.

It will only take you a few minutes to see how your business idea pans out – and then make as many changes as you like and see how they affect your bottom line profit and cash flow.

To get your copy, just e-mail us at info@eznumbers.com.

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Important Patent Law Change

You may be aware of the Leahy-Smith America Invents Act.

Passed in 2011, and just going into effect last month on March 16, this law represents a sweeping change in American patent law.

From the beginning of patent law in the United States, we have operated under a “first to invent” system. Therefore even if someone else filed a patent before you, if you could somehow prove that you had not only come up with the idea (remember, no law anywhere on earth protects ideas alone) but a “reduction to practice,” then you would have grounds to invalidate the subsequent filing by the other party. Whether or not you would be able to afford the often drawn-out legal proceedings is another matter.

But now we are on a “first to file” basis, like much the rest of the world. This means that even if you invent something first, have meticulous inventor logs and other forms of proof of your primacy, if you do not file first, you will not get a patent.

This is widely seen as an advantage for large companies and patent trolls who can rifle off application after application. For many inventors and small business people, filing a patent is an expensive and drawn out proposition.

There are some interesting aspects to the law, including:

-If you have been using substantially the same invention for more than a year before the date of another party’s filing, you will still have the ability to continue exploiting the invention in the same way, with some limitations.
-The definition of prior art – previous disclosures which can prevent a patent from being granted or invalidate an existing patent, has been widened to include more international information.

This law is an important change to patent law, and it’s important that you be aware of it if you have any plans to file a patent now or in the future.

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When Is the Right Time to Start a New Company?

I’ve had people ask me when is the best time to start a new company.

-“I better wait until after the election.”

-“This sequestrations business – better to see how this all pans out.”

-“I heard that crowd funding for startups will be legal soon. That’s the perfect time.”

There’s always that “perfect time” around the corner. Past that big uncertain event, or after something that will make things more advantageous for you.

Don’t buy into that.

The right time is now.

Right. Now.

Two reasons.

The first is that you starting a new business can be exciting and terrifying all at the same time. You want to wait either because of some important external event like ones listed above. Or it could be something internal – the product’s not perfect yet, you need to get the intellectual property nailed down, or that key partner/employee needs to be locked into place first. There’s a huge difference between doing the prep work for you new company. It’s all too easy to keep putting off actually starting your company, and to find a rationalization.

There’s never a perfect time. You’ll never find all of the internal and external stars all aligned perfectly. The universe just doesn’t work like that.

The second reason is that if you have a great idea for a new company, a truly great idea – it needs to be a novel solution for an existing market problem. If the market has a need for your idea, it needs it now. In these days of lean startups and fast and furious flowing information, you simply don’t have the luxury to wait – the market will promote other solutions. Your idea has a very short shelf life.

So don’t wait for that new tax law or until you get that first big contract. Start your company now. Today. That doesn’t mean you have to throw all caution to the wind – quit your job, and pour all of your savings into your company immediately, but you need to commit – because once you actually start it, you’ll think about it in whole new way. And with a little luck, it won’t be too late.

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“The Pivot”

A friend of mine has a new software solution to help hospitals better plan nurse shifts. It works really well, and he’s gotten some nice early adoption.

Question: What’s his business?

Well, sure, it’s nurse shift software. But I’ll argue that it’s still too early to really know what his business is, as he hasn’t yet been presented with the strategic choice that will really illustrate what his business is. It’s what I call the “Pivot.”

Now let’s fast forward two years. Assume he’s going gangbusters, and getting lots of profitable clients, but starting to run out of hospitals to approach. To keep growing, he needs to expand past the nurse shift software.

Let’s pose the question again – What is is his business?

The way to answer that is by seeing how he will expand:

a) Create other software for hospitals
b) Adapt the scheduling software for different clients

Will he pivot off customers and create new solutions for the same overall customers, or pivot off the product and find entirely new clients? This is a central strategic choice. If the former, then it’s a hospital solutions company. If the latter, then it’s a scheduling software company.

That’s how you really know what your business is – by deciding not just where you are now – your location, but where you’re headed – your direction.

It’s easy to get so involved in your startup that you don’t sit back and think about where you’re headed, and all-too-often, it can be the allure of a big contract that will pull you in one specific direction, sometimes a direction that turns out in the long term to not be where you wanted to go.

So take some time early on and think about your pivot – because the day could well come much sooner than you think when you need to know where you’re going.

Another advantage to figuring out your pivot early on is that it always helps to know where you’re going so that you can lay the groundwork early on.

Finally, it helps to have follow through. I saw an interview once with a karate black belt who would chop through boards and such. He was asked what he was thinking when his hand came down on the boards. He replied that he was visualizing his hand having already successfully gone through the boards.

So think about this in terms of your current business, or when you launch your next startup.

What is your business?

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