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"A Good Hard Kick in the Ass"
Basic Training for Entrepreneurs
With Rob Adams, Author
Wednesday, April 10, 2002; 2 p.m. EDT
What can we learn from the survivors of the Internet economy? If you are starting or financing a new company, you might want to look at whether your plans are fueled by basic business fundamentals or hyped-up fluff.
Rob Adams, author of "A Good Hard Kick In The Ass: Basic Training for Entrepreneurs" and managing director of AV Labs, talks about dispelling the common business myths of start-up companies and examines key lessons for high tech entrepreneurs and venture capitalists.
Adams was online Wednesday, April 10 at 2 p.m. EDT, to discuss his book and basic training for entrepreneurs.
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Book cover: "A Good Hard Kick In The Ass: Basic Training for Entrepreneurs"
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Some of the nine key lessons for launching a business that Adams writes in his book are:
- Good ideas are a dime a dozen.
- You don't know your customers as well as you think you do.
- Don't wait to ship a killer product - get to market fast.
- Investors fund great teams - not business plans.
Adams is the managing director of AV Labs, which he founded in 1999. AV Labs is an early-stage venture fund providing seed and Series A financing to technology startups. With a view toward accelerating companies through their early-stage development, it combines a bench of experienced industry executives with a proven acceleration and validation methodology.
Before he started AV Labs, Adams was a partner at TL Ventures. Prior to entering the venture business, he was a technology executive for 18 years. He started his career with Lotus, joining the company shortly after its IPO, and was instrumental in launching Lotus 1-2-3 for Macintosh, and Lotus Notes. He subsequently co-founded and was CEO of Business Matters, a venture-backed developer of financial forecasting and modeling products. He was then an executive with Pervasive Software, a company he helped take public in 1997.
A transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Rob Adams: Good afternoon! Before we dig in, I wanted to answer why the book was written - a question I am frequently asked.
First of all, many entrepreneurs look for the one two or three 'silver bullets' they need to build a successful company. The answer is there are none. There are many items (in fact a book full of them) that need to be understood in the context of your particular company or start up.
Secondly, many of the successful companies we work with tend to know the things to do well almost instinctively - no one sat them done and spelled them out, they just built a company doing them. You'll find in the book the wisdom of these entrepreneurs. Rob.
Washtech.com:
Throughout 2001, the word on the street was that venture capital firms nationwide had billions sitting on the sidelines, waiting to invest in the appropriate companies. By and large, however, VC investments have continued to fall back to their pre-2000 levels.
Will we see a flood of venture investing in 2002?
Rob Adams: There currently is a lot of venture capital waiting on the sidelines looking for good companies to back. The venture business is sensitive to the supply of companies, not the supply of capital. As good companies become available to invest in you will see the capital put to work. Much of A Good Hard Kick in the Ass covers the way to build companies that venture investors look for.
Washington, D.C.:
Dear Rob,
I have two questions: (1) Aside from hiring an expensive market research firm, what are the most effective and reliable methods of conducting market, industry, customer and competitor research for a potential business idea? and; (2) What are the key features of markets or industries that indicate great growth and profit potential? (i.e., fragmentation, high barriers to entry, etc.)
Thanks,
Gabe
Rob Adams: The best market research is the stuff you do your self. Write down all your assumptions about your product (price, target customer, type of company, distribution, etc.). Then call 100 people in your target audience and ask them the same questions. You'll be suprised at what you learn. Total cost, several hundred dollars of long distance and a few days of work. Don't outsource this, do it yourself.
Best indicator of growth is people expressing intense pain around a business process. It keeps them awake at night, they have departments or consulting firms fixing it, or are spending money in some way to fix it.
You'll uncover all this stuff by simply making those phone calls.
Los Angeles, Calif.:
What are the best informational sources of entrepreneurial ideas? Personal experience? Media? Industry reports? Trade rags?
Rob Adams: Start with a 'hypothesis' based on your own industry experience, secondary research, media, trends, etc. Then pick up the phone and start calling people in the space you're targetting. Ask them what their problems are (without proposing a solution). Keep changing your hypothesis until you find an idea that resonates. Don't get emotionally attached to any of the ideas, and don't ask your friends or relatives what they think about them.
Sterling, Va.:
Say you do find an opportunity where the
customers are having a great deal of pain
and do want a solution. What are the most
important things to keep mind going forward
as you start selling your system? Is it
possible to succeed without VC funding?
Rob Adams: There are no easy answers to the first part of this question - the only thing I can tell you is it took a book to cover the critical issues, so I'd suggest 'A Good Hard Kick in the Ass' (in the literaray sense!).
On the funding front, there are many ways to succeed in business, and I'd suggest venture capital as a last resort. For some reason over the last several years it's viewed as the only way to build a company. Remember Microsoft only took venture capital after they didn't need it.
Alexandria, Va.:
What's different about the advice you give to entrepreneurs now compared to the go-go days of the late 1990s?
Rob Adams: It's the same. We only encourage company to scale once they have revenue traction, the opposite of what most companies did in the boom times.
Harrisburg, Pa.:
How do you know when you have a killer product? If you ship a product to the market too fast and it bombs in sales, you misjudged that it is a killer product. Yet, if you test market it too long, you've missed sales opportunities. What is your advice on balancing these?
Rob Adams: You have a killer product when your customers tell you you have one. Some of the signs are people are so anxious to get it they'll take it in an incomplete form, they are not cost sensitive to what you're offering, and they are willing to sing your praises to their peers.
Baltimore, Md.:
When negotiating with a VC or angel investor, what should one's strategy be?
Sincerely, Tony
Rob Adams: Tony, mitigate as much risk as possible and generate as much revenue as you can so you can get market value for your company. If you've done this you'll be in the driver's seat when negotiating.
Washington, D.C.:
If good teams are key, then how does one build a team? Better yet, how do you hire a great human resources person that will do it for you?
Rob Adams: The quick answer is the more you know your markets and can mitigate risk the better the people you'll attract. Human resource people can't do this for you, it has to be part of the culture of the company. Unfortunately, I can't cover all the nuances well in a paragraph, and it is covered extensively in the book.
Washtech.com:
Rob, would you recommend that entrepreneurs at start-ups seek venture capital funding, or should they focus on getting their businesses up and running first and go to the VCs to fund expansion rounds later, once the business is up and running?
Rob Adams: The best way to get a start up off the ground is by bootstrapping it. There are lots of other ways to capitalize a company; a few that entrepreneurs frequently use are their customers, with debt, or with consulting services. If you build your company this way first, you'll find venture much easier to raise.
Fairfax, Va.:
How do venture businesses and new companies avoid becoming the next Enron and Andersen? Do these recent cases weigh in on your training modules?
Rob Adams: Companies need to build the right cultures and management teams need to lead by example. Most strong start ups focus extensively around culture and ethics which are covered in the book.
Manassas, Va.:
Bob,
Given I want to have my own business yet cannot do everything myself. I do not have a "huge" money saving technology idea nor a new H/W S/W idea. Just a willingness to work hard, put in some of my own money, and follow some "proven" formula. What options are there. Is there a good franchising option in the tech world? A good MLM option in that area?
Marv
Rob Adams: Marv, you should explore the areas you already have experience in to see if there are any interesting opportunities. If none emerge, I'd then look to the other sources you mention to see if they have expertise you can call on to use your skills to succeed in other markets.
Washington, D.C.:
After the dot-com bust of the late 1990s, there has been renewed focus on business fundamentals, like industry structure and competitor intensity. In your opinion, what exactly makes a business model sound and sustainable?
Gabe
Rob Adams: Gabe, my answer is very basic here - one that gets to profitability with a modest investment. Most start ups are exploiting nooks and crannies of larger markets, so having competitors can actually be a validation that you're in an interesting space. Additionally, most start ups are attracted to high growth markets where opportunity exceeds supply.
College Park, Md.:
What are the most common mistakes entrepreneurs make early on?
Rob Adams: The most common one is focusing on technology rather than markets. Not many companies fail because they can't get their technology right - but many do becuase they can't get their markets right.
Dallas, Tex.:
Is it necessary to prepare a complete business plan in preparation for raising venture capital?
Rob Adams: Business plans should be last on the to do list. Understand your markets, build the team, and figure out the minimally acceptable feature set, develop sensible marketing and sales strategies and the business plan will be very easy to write.
Dallas, Tex.:
Appreciate the need for customer traction for future funding chances, but what is the best route for getting those first customers? It's hard with an early stage product.
Rob Adams: It is challenging, but if you've uncovered a compelling need and a real business problem people will settle for partially complete solutions from early stage companies.
washingtonpost.com:
Rather than starting businesses in the U.S., is there an increase interest in the foreign market and setting up companies in foreign countries?
Rob Adams: The US is the largest contiguous market in the world, so most companies will continue to be started here or pursue the US as the most attractive market.
Reston, Va.:
If someone has a viable or interesting idea for a new technology or software, but doesn't personally possess the science or tech background, what options does one have?
Rob Adams: If you've found a compelling marketing requirement, don't worry about the technology. Most companies fail for market, not technology reasons. So if your opportunity is truly compelling it should be straight forward to build your technology team.
Arlington, Va.:
Do you see more skepticism from venture capitalists? Now that many companies are laying off people, how can business entrepreneurs think about starting businesses, esp. with this economy?
Rob Adams: Skepticism no, but higher standards for what they invest in, yes. Now is actually a great time to get a company off the ground given the large pool of available talent and the large sums of venture capital waiting for interesting opportunities.
Washington, D.C.: Venture capitalists made a lot of bad decisions during the boom. A lot of companies were told to 'get big fast,' so they spent millions of VC dollars to no avail. As a VC, are you contrite at all about the sins of the VC industry?
Rob Adams: When the cycle times for companies from launch to IPO was measured in quarters, not years, the whole world was in a frenzy. The public markets really drove this (which of us wasn't a stock market genius in those days?) and as the liquidity cycles got longer, the rate of venture investment scaled down to match it.
Washington, D.C.:
What about vertical integration? When is it advisable to merge or join with strategic partners?
Gabe
Rob Adams: Gabe, question is best answered in the context of the opportunity and the industry. Bottom line is when value can be maximized by integration or merger they should be considered.
Virginia:
Why did you decide to write this book? Did you have any help in coming up with your nine key elements? What are those elements?
Rob Adams: The book was written to try to tie all the myriad issues a company needs to focus on together, show how they are inter-related, and give real world examples of how companies big and small handle them. Elements came from real world experience. Short list is;
Good ideas are a dime a dozen
You don't know your customer as well as you think you do
Killer products do exactly that - kill the company
You don't need to raise large amounts of money
Investors fund teams, not business plans
Investors wait for quality returns from quality companies
Advertising and marketing are not synonymous
Nobody else can sell your product for you
Big companies need to act more like start ups
Rob Adams: Great set of questions, enjoyed interacting with all of you, feel free to drop me a line at radams@avlabs.com. Cheers, Rob.
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