Wednesday, October 01, 2008

Startup Funding - How to be lean

The other day I read about one of Jason Calacanis 's posts about the lack of liquidity (and funding) coming in the startup space. I never like Calacanis's self promoting rants, but he raises an excellent point. Fred Wilson of Union Square Ventures sums it up nicely. Startups need to "get focused, get better, get leaner, and ultimately to get profitable". The following is from a comment I left on Fred's blog. I got so many comments on it (most via Twitter) that I decided to add it here as its own post. Here are a few ideas that I have used in the past that entrepreneurs can use to stay lean;

1) Don't pay the rate card - Whether it is online advertising, print or other - I was often able to negotiate steep discounts when paying for advertising (example was rate card was $24k I paid $6k / rate card $70k, I paid $10k ... It's all a poker game, when you first inquire, be a little aloof and ask them to keep you in mind when they have remnant inventory.

2) Don't buy CPM, or even only CPC - Make them a vested partner. When I built an affiliate channel, the most successful partners were ones that were revenue shares (they only made money, when they sold a product)

3) Don't waste your money on a meaningless booth at a meaningless tradeshow (I was dumbfounded by some of the companies that had paid for a presence at this years Web 2.0 in NY).

4) Let others do the heavy lifting - A lot of start-ups that I advise bring their social network business plans to my attention for my opinion/comment. They all make the same mistake, in that they are going to create this great social network around a particular niche. Why reinvent the wheel? If you need to be nimble early on, consider leveraging someone else's already existing social network (ie- make your service into a widget for FaceBook, or use Twitter as your member base). Consider that getting a new user to your service will likely eat up the majority of your cash. Save the driving new users to your site for latter when you have the cash.

5) Partner up with non-competing (even better complimentary) start-ups where you can share infrastructure costs. This can be anything from sharing office space, to sharing servers,etc.

6) Realize that your most important asset is not your programming expertise...consider hiring someone with a marketing background (*hint) early on. Most start-ups I speak with have ZERO marketing guys on board of their first 20 hires! A competent marketing person can often pay for themselves 10 fold by bringing you ideas, partnerships,etc that you likely would not have thought of on your own.

That's all the IP I feel like giving away today. If you want to pay me for it, here's what you can do. PLEASE COMMENT and tell me YOUR vision, or if you liked this Digg it. Want to comment away from this blog, send me a Tweet
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Mukund Mohan said...

Good post. I really like your idea on the partner up for cooperation.

Also can you clarify on the rate card issue? Even online services that have "minimal" telephone etc. support (like our hosting company) can be negotiated?

How did you do that?


Andrew Finkle said...

I negotiate everything (business and personal), and most everything can be negotiated. Even when you can not negotiate to your price, you can usually get other goods or services thrown into the mix (which can be equally as valuable as the price itself).

Negotiation is an art, not a science. I will blog about this in the next day or two. If you are following me on Twitter, you will automatically be alerted when it posts. Thank you for your comment.


Anonymous said...

These are some great tips... thanks for sharing.

reg. #4 are you suggesting just creating a widget/app with your concept before building out a site?


Andrew Finkle said...

Not replacing your website per se, but the idea of a huge marketing budget to attract your own members.

I call it a "spoke and hub" factor. Think of companies like Facebook,Firefox, even Twitter as being the Hub. Think of all the widgets (Facebook), Add-ons (Firefox), and with Twitter all the 3rd party apps. that run on Top of Twitter using their API.

When you register to use most developers Twitter apps., they mostly require ONLY that you provide your Twitter User name & Password. It is a lot more effective than if they required their own separate registration.

I can not even count all the email requests I receive daily to join yet another Social Network. I ignore 99% of them. But when I see an application that already works with a Social Network I am already registered on? ...Not having to sign up yet again makes all he difference in the world. You can always provide (offer) to register them separately to your service at a latter date - AFTER you have proven your value to them.

Lastly, when you "borrow" another social networks users, you have let them do all the heavy lifting for you ($$$ to attract users). Why re-invent the wheel, when you can be effective being just the spoke :-)