“Why the hell does my board act like that?”



Posted on:
Posted by:

Guest Post By Jerry ColonnaThe Monster in Your Head ( Professional Coach)

Jerry Blog “Why the hell does my board act like that?”

The phone rang at the appointed hour. My client, a software company CEO, was calling for his regular session. I picked up the phone:

“Hello”

“Why the hell does my board act like that?”

“Good morning, James,” I answered and we both laughed.

We talked through the upcoming financing. Some of the investors—folks who came into the company only in their last round—were already jockeying around terms and prices of the upcoming round. Some of the other directors—investors who’d been with the company since the beginning—were also beginning to draw a hard line around terms that they would find acceptable.

In a sense, while they were all directors, as investors they were beginning to play a game of chicken with the company’s financing—each holding fast to a position deemed best for the shareholders they represent and yet, as the negotiations would tick on, the company’s ability to actually raise the needed funds could be jeopardized.

After the session, I asked him he if I could quote him.

“Sure,” he wrote, “just let me know if I ever end up there with an actual video recording of me calling [the board member] a ‘fuckhead’ – it’s not that I’d be bothered by that, it’s just that I’d want to make sure I sent the link to all my friends.”

Jerry Colonna “Why the hell does my board act like that?”A year ago I was sitting in the office of the CEO of a company on whose board I served. The recently elected chair and the CEO were screaming at each other and, as usual, I found myself trying to mediate.

“What you don’t understand,” said the chair rising from his chair and trying to tower over the seated CEO, “is that you’re here,” and he held out his right hand, palm down, “and the board is here,” and he moved his left hand on top of the right, again palm down, “and I’m here,” and he placed his right hand over the left.

Capo dei capi—boss of bosses.

My client’s question was spot on: Why does this happen? What is it that makes the relationship between board members, investors, and management so tricky? And, even when you remove the notion of director as investor (or investor representative) you can still end up with troubled relations.

The board/management relationship is tricky, complex, and nuanced. There are few structures within traditional businesses that are quite like it. Most businesses, indeed most organizations, are built on some variation of a command and control structure. Because of their inherent hierarchical nature, it’s often clear who’s in charge, who makes the decisions, and who’s ultimately responsible.

Even in enlightened business, as people like Warren Bennis have pointed out, where the power and decision making reflects not the pyramid of classic command and control but the inverted pyramid of the ways in which information, and therefore, accountability should flow, there’s relative clarity.

But when it comes to boards of directors, confusion is often the norm and, as a result, there’s often frustration and anger. For example, does the CEO work for the board of directors or the company? Does the Board “work” for the company? Who holds individual board members accountable for the actions? And what is the relationship between board and staff members?

And underlying all of this is the responsibility to represent the shareholders.

I’ve served on dozens of boards of directors; this includes public and private companies, for profit businesses and not-for-profit organizations and I think the core troubles stem from a misunderstanding of the key elements of the roles.

Directors aren’t quite like any other management position in an organization. They have power but often times lack the information to wield that power as well as managers. They have perspective—often times significantly more experience than senior management but, by the nature of their responsibility, they are disconnected from the day-to-day operations.

Directors need to remember they have a delicate balancing act of influencing without dictating, and engaging and sharing their experience and perspective by virtue of their gravitas as much as a result of their power.

Management, too, needs to remember that the task of being a director or a trustee is unlike any other job one has ever had. There’s an explicit accountability that goes along with the job and that fact, combined with the implicit lack of information, can cause most folks to feel terribly anxious and to act in awful ways.

Everyone on both sides of that divide need to take a step back, see things from the other view, and work towards making the board as functional as possible.

As my friends and colleagues are tired of hearing me say, I’ve never seen a board guarantee an organization’s success but I have seen it guarantee its failure.

 

 “Why the hell does my board act like that?”

Part V: Scaling Up Investment—Finance the Startup of Start-up Communities



Posted on:
Posted by:

Guest Post By Tom Nastas – Scaling up Innovation – (VC, Mentor, Blogger)

Tom Nastas a 25 year VC veteran in US, int’l and emerging markets wrote a series for Startup Rev on the ‘spark’ which sparked the startup of Russia and how the development of start-up communities in emerging markets are shaped much more by the cultures of risk vs. what we investors and entrepreneurs face in the USA.  An interesting read, below are the individual posts and content for each one.

In Part V, subjects discussed:

1.)   For Entrepreneurs—What are You Selling to Investors?
2.)   For Investors—Let’s Be Realistic
3.)   For Governments/Development Finance Institutions—Atypical Leadership Needed
4.)   Concluding Remarks
5.)   My Next Blog Series—Mobilize Local Capital to Finance Your Dreams
6.)   About Me
7.)   Links: Evolution of Runet (Russia Internet) & the Russia Tech Scene

Last time in Part IV, the Quest for Growth, I discussed:

1.)   Clonentrepreneurship or Alternative Paths to the Start-up of Start-up Communities?
2.)   Change the Culture & Amazing Things Happen

Read Part IV here.

The ‘take-away from Part IV.

Clonentrepreneurs sensitize local investors to the rewards of investing in technology since clones match the behavior of local investors to risk. As results are achieved and money is made by all, investors open up to new investment opportunities a bit more adventuresome and innovative—disruptive vs. cloning.

Cloning and Clonentrepreneurship is one strategy to impact the DNA of local investors in emerging countries to spark the startup of start-up communities, but of course others exist.

What are the other actions which each you can take to achieve your objectives and fuel the startup of start-up communities?

For Entrepreneurs—What Are You Selling to Investors?

Entrepreneurs raising money too often attempt to shape investor risk behavior to their investment opportunity. Instead, shape your business model to match the needs of not only your customers but investors too.  Think creatively to find the solution which your customers will pay for—no matter how little the revenue is per customer—to craft your business model to match investors’ DNA to risk.  Design your business model and its execution to systematically attack each of their fears to early stage tech deals.

Risks that Scare Investors + Source Info Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Once you have this business model executed with paying customers, approach investors by ‘selling risk, then opportunity,’ i.e., demonstrate how you’ve eliminated risk in each of the four categories to prove your great investment opportunity. Once you raise money, execute yes but also pay forward in your start-up community; be the role model to other entrepreneurs, teach/mentor them in the solutions which you executed to overcome the fears of local investors in emerging markets.

For Local Investors—Let’s Be Realistic

Rarely will Western clones match the big returns as your investments in telecomm, real estate, construction, food/beverages, fast moving consumer goods, wholesaling and retailing have performed.  Yet as the economy in your country progresses and incomes grow, populations and enterprises open their pocketbooks to products and services which better match changing needs.

In the Chinese online travel industry for example, Ctrip and eLong have millions of registered users. Entrepreneurs seeking money to compete against them is risky and uncertain; however opportunities exist for unorthodox business models. For example, Chinese company Qunar is a travel search engine for online travel services. It aggregates travel information like air tickets, hotels and holiday offerings so Chinese consumers can make better and more informed travel decisions. Qunar serves the evolving needs of consumers and achieves success by approaching the market differently by making competitors—its partners.

Tell entrepreneurs your needs for business models which generate revenues in the immediate term; postpone your demands for immediate profits and cash distributions. Be creative in deal structuring and flexible to valuations since tech business models scale better across customers and geographies to justify higher prices paid vs. investments in brick and mortar.

Structure the investment agreement to align and incentivize entrepreneurs to your attitudes and behaviors to risk.  Oh, how does that work? An example:

American investor financings typically include an equity option plan for founders and employees.  In some emerging countries, legislation permits the issuing of equity options to management of start-ups. When permissible, distribute equity shares based on revenues realized vs. traditional metrics like length of time served in the company or # of users engaged. If legislation does not permit this action, structure the investment agreement as equity earn-ins held in escrow with shares issued when agreed-upon metrics are achieved.

For Governments/Development Finance Institutions—Atypical Leadership Needed

Governments and their finance institutions conceive venture initiatives to catalyze venture funds, to finance the startup of start-up communities.  Frequently these funds are modeled to the program called Yozma, the Israel Government’s fund-of?funds.

Yozma was capitalized with $100 million; $80 million which financed new VC funds with $20 million for direct investment into Israeli tech SMEs.  It invested $8 million into a private VC fund with a minimum of $12 million/fund invested by Israeli and foreign venture capitalists. Yozma financed ten VC funds with a total capitalization exceeding $200 million. These funds went on to finance innovative companies and spur the development of the high tech SME and VC industry in Israel, where one did not exist before. Fast forward 10 years and the 10 funds supported by Yozma were managing over $3+billion with the VC industry in Israel managing $10+billion.

Yozma-type schemes offer economic incentives to induce investment and build learning experiences in seed and early stage tech investing such as:

1.)   Commit up to 49% of the capital to the creation of a new VC fund
2.)   Offer preferential returns to investors
3.)   Take 1st losses on failed investments
4.)   Cap financial returns to the Government so as to boost profits to investors
5.)   Subsidize management fees &/or pay the costs of investment due diligence
6.)   Allow private investors to ‘buy-out’ the Government’s equity, usually within the 1st five years of fund operation, at cost + a bank interest rate of return

Yozma worked exceedingly well in Israel and a few industrial nations.[1]  But results in China, Russia, Chile, and other emerging countries has not been so spectacular; local investors didn’t respond in the #s or volume of investments in the seed and early stage sector as expected and targeted by sponsoring governments.[2]

HmmmmReality sets-in as staffers scramble for new solutions and a chair before the music stops. “Let’s try something different.”

When domestic capital does not change its risk behavior to seed/early stage tech, government staffers work vigorously to create a new class of investor—angels—since their risk behavior better matches the profile of entrepreneurial ventures. While angel investors are welcome in all countries, developing this community takes years to accomplish with multiple false starts and entrepreneurs seeking money now going unfunded.

Hmmmm—let’s rethink what the initiatives should be.”

Plenty of money exists in the pocketbooks of local investors in emerging markets to finance start-ups for a start-up community to emerge.  What’s required is the unlocking and mobilizing of local capital for investment in technology, 1st time entrepreneurs and early stage tech SMEs. Certainly encouraging a cloning strategy in the entrepreneurial community is one solution to unleashing local capital as the successes of Russian clonentrepreneurs proved.

Another solution is to think forward—design venture schemes which better match local investors’ behavior to risk and the mentoring of local investors in early stage tech investment. Include in this mentoring ‘show & tell’ sessions of other financing solutions: royalty based or technology performance financing schemes, i.e., capital invested in technology SMEs with investment returns generated from the cost savings and/or revenue enhancement earned by customers.

What else might you do, say with founders and management teams?

Organize a mentoring program; get them the mentors they need to ‘shape’ early stage tech business models to the risk attitudes & behaviors of local investors + ‘sell risk, then opportunity.’ Until investors can understand and ‘buy’ the risk in start-ups & early stage SMEs in the emerging markets, little capital will flow to them.

But what can you do if you seek to do something more ambitious, i.e., generate knowledge creation to disrupt industries and attract local investors for the needed finance?  Deal flow funds are one solution to attack both needs.

Deal flow funds finance entrepreneurs and SMEs executing to a single technology, product or service platform, technical challenges that require new thinking in science and engineering to accomplish.  What might be an example of technical challenges in need of solutions?  Take a look at these slides which tell this story.

Slide1 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Slide2 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Slide3 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Slide4 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Slide5 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Slide6 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Slide8 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Slide9 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Tech Solutions not Ldt to Russia+source info Part V: Scaling Up Investment—Finance the Startup of Start up Communities

A ‘deal flow’ fund finances technology development and commercialization.  And in Russia for example, development of the Shtokman field is a national priority of the Russian Government, not only because of its wealth potential but also the promise of new economic prosperity to the Russia Far North.  The linking of technology to a country’s national priority helps assure local financiers that innovators deploying the tech have a market and paying customers.  It’s this matching of tech solutions to customers which harmonize the risk behavior of local investors to the risks of start-ups and early stage SMEs.

Concluding Remarks

Emerging markets face huge obstacles in finding talent, capital, knowledge, and yes, the business models which match the risk appetite of local investors.

Spark Points3 Part V: Scaling Up Investment—Finance the Startup of Start up CommunitiesClones are one solution to spark the startup of a start-up community since they generate the revenues which local investors demand as a precondition for investment.  As Clonentrepreneurs achieve success, it encourages others to try entrepreneurship too.  Some are a bit more venturesome and launch improvements to models cloned from the West.  Others do something different and inject their own notions of creativity by innovating new solutions layered on top of Western platforms like Russian beta-stage start-up ClipClock is doing to YouTube or IVI.ru is doing in the Russian video streaming industry.

Start up Nitroo Part V: Scaling Up Investment—Finance the Startup of Start up CommunitiesAnd isn’t that what we want?

More entrepreneurs driving business and economic growth, irrespective of the business model or the platform technology. We all want more investment, more initiative and more conversation with more saying “I can do that” and “I can invest too.” Such actions generate the growth, the economic opportunities for citizens, and the prosperity that all countries, regions, cities and towns desperately seek.

 

 

My next Blog Series: Mobilize Local Capital to Finance Your Dreams

This is one of the topics I mentored 80 entrepreneurs from 36 countries—at Singularity University, located in the heart of Silicon Valley.  These entrepreneurs learned about exponential technologies to solve global challenges, and my job was to work with them—selecting ideas, developing and shaping business models to investors’ behavior to risk.

I was one of approximately 16 or so team project advisors selected from around the world to mentor these entrepreneurs at Singularity University, created by x-Prize Foundationfounder/CEO Peter Diamandis and inventor, entrepreneur and futurist Ray Kurzweil.

Nastas Title Slide Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Till then, be well and be lucky

Question slide Part V: Scaling Up Investment—Finance the Startup of Start up Communities


[1] For explanation why Yozma worked great in Israel and not so well in emerging countries, see ‘The GoForward Plan to Scaling Up Innovation, page 4 (English). For my Russian readers, go to ‘The GoForward Plan to Scaling Up Innovation,’ by Thomas D. Nastas, June/July 2007, Russian edition, Harvard Business Review.  Hungarian readers go to October 2007 ‘Scaling-Up the Innovation Ecosystem,’ Hungarian edition, Harvard Business Review; Sept. 200. Spanish readers go to ‘Innovation for Growth,’ Latin America edition, Harvard Business Review

[2] For explanation, how local investors in emerging market typically behave-invest, when managing Yozma-type schemes, see slides 50-68, ‘Bridging the Valley of Death,’ presentation of Thomas Nastas to staff of the World Bank & IFC, 29 November 2011

 

About Me

IMG 70411 300x200 Part V: Scaling Up Investment—Finance the Startup of Start up CommunitiesI am a venture and private equity investor since 1986, financing university tech in Michigan with liquidity events including Neogen (NEOG: NASDAQ), AISI Inc. (acquired by ESI, ESIO: NASDAQ, USA) & Personal Bibliographic Systems (acquired by Thompson Financial, NYSE: TRI) as examples.  An entrepreneur myself, I left Michigan in 1992, created int’l and emerging market funds in Africa, Canada, Europe, Kazakhstan and Russia, for ROI & economic development, i.e., >$300 million invested to advance entrepreneurship, innovation and growth in int’l and emerging market countries.  I am past/current Independent Director, Board of Directors of eighteen (18) companies over the past 25 years, USA & international enterprises.

I can work with you in four ways.

1. As an investor advising LPs and GPs in your country for emerging market investment, create venture initiatives (+ raise capital). I invested my own capital + established and managed cash flow, venture, private equity and fund-of-funds as shown in the 1st picture below. The 2nd picture shows the deal structures and strategies executed to localize money for investment in each country and to match local investors’ behavior to risk.

Nastas Infographic VC Funds2 300x225 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Nastas Infographic VC by Deal Structures2 300x225 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

2.  As an advisor to Governments & development finance institutions.

  • Design & execute venture initiatives: My clients include Development Bank of Canada, European Commission, European Bank of Reconstruction & Development, IFC/World Bank, Russian Venture Company, Govts of Slovakia, Croatia and the US Govt’s USAID—create, startup, finance & execute:
    • Venture capital funds
    • Venture lending funds
    • Private equity funds
    • Royalty based & cash flow funds
    • Fund-of-funds
  • Design & execute grant schemes—to advance tech dev. thru commercialization:  With six other directors, I manage the $85 million technology commercialization project in Kazakhstan, making grants to finance and advance science from proof-of-concept thru 1stcommercialization.
    • We established the policies/procedures for grant investment, criteria, tender & selection process including all documentation for program execution
    • Selected & committed $22.5 million to 21 development stage SMEs and R&D groups in 2011 & 2012, average grant ?$1MM
    • I lead the creation of 1st technology commercialization office in Kazakhstan, to transfer Kazakhstan tech to market.  I established strategy, programs, key performance metrics, deliverables and all tasks for commercialization & execution-budget is $2.8 million, staffing of four international experts + five Kazaks.
  • Design & execute int’l—cross border tech transfer & commercialization initiatives:  Conceive programs and connect—Russian Corporation of Nanotechnology (Rusnano)—& int’l organizations
    • Created project to establish technology proof-of-concept tech dev. & commercialization program between Rusnano & tech transfer offices of US universities (e.g., Colorado, Utah & Michigan). I established the trust and confidence in the parties to negotiate & secure signed agreements

3.  As an entrepreneur mentoring founders & entrepreneurs as an Independent Director, member of the Board of Directors or member of the Advisory Committee.  I established legal entities, hired & managed staff in Africa, Canada, Europe, Kazakhstan and Russia, all costs of market entry and operation financed by me. Living, working and      investing in these counties—paying the bills too—developed in me the experiences to counsel:

  • Founders of mid-size companies, revenues to $100 million, solutions to integrate their firms into global markets, harmonize products/services & the organization for this global expansion, raise int’l capital and build the 2nd tier layer of management for execution
  • Entrepreneurs of early stage companies, my contributions include conceive/negotiate partnerships for 1st commercialization, raise 2nd round VC financing, ‘shape’ business models to the risk profile and behavior of local money in the country, mentor/counsel management team in growth & development

My other contributions to global entrepreneurship:

Nastas Country Experience 300x225 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

4.  As a thought leader & advocate of VC, entrepreneurship and innovation to solve global challenges, I conceive and deliver keynote talks and Master Classes to engage stakeholders with the ability, interest and resources to finance technology commercialization and early stage venture capital.  View my publictions which spread ideas—solutions to create more investment, innovation and entrepreneurship.

Let’s engage on how to make an impact, make money and have fun. Contact me atTom@IVIpe.com. Learn more at Scaling Up Innovation.

Links: Evolution of Runet (Russia Internet) & the Russia Tech Scene

Top 10 Web Start-up CEOs in Russia, 2011

Top 10 Russian Web Startups of 2011

Top 30 Russian Internet Companies (Forbes, 2011)

Top 10 start-ups of 2009

Top 10 Internet Entrepreneurs, 2009

Top 10 Internet CEOs in Russia

Top 10 Russian Venture Capital Internet Investors 2009

Top 10 Russian Web Startups, 2008

Top 10 Russian Web Apps & Sites, 2007

http://www.eddy.lt/2011/12/10-must-know-facts-about-russian.html#!/2011/12/10-must-know-facts-about-russian.html

http://goaleurope.com/2012/04/21/eastern-europe-weekly-news-from-eastern-europe-baltics-russia-ukraine-and-poland/

http://thenextweb.com/russia/2012/04/19/skolkovo-stimulating-russias-it-industry-by-spending-stupid-money-smartly/

http://thenextweb.com/russia/2012/04/20/already-europes-largest-internet-market-and-still-growing-astoundingly-fast-russia-by-the-numbers/

http://thenextweb.com/russia/

http://www.marchmontnews.com/Archive/News/18636.html

 Part V: Scaling Up Investment—Finance the Startup of Start up Communities

Part III: The Power of Clones to Startup—Start-up Communities



Posted on:
Posted by:

Guest Post By Tom Nastas – Scaling up Innovation – (VC, Mentor, Blogger)

Tom Nastas a 25 year VC veteran in US, int’l and emerging markets wrote a series for Startup Rev on the ‘spark’ which sparked the startup of Russia and how the development of start-up communities in emerging markets are shaped much more by the cultures of risk vs. what we investors and entrepreneurs face in the USA.  An interesting read, below are the individual posts and content for each one.

Subjects in this post include:

1.)   Drive Growth and Innovation in the Supply Chain
2.)   Sidestep the Obstacles that Impede Scaling Up—Investor Attitudes to Risk & Failure
3.)   Controversy of Clonentrepreneurship: Cloning the Idea or Hatching a Start-Up?
4.)   The Spread of Clonentrepreneurship

Last time in Part II, Cultures of Risk—Financing the Startup of Start-up Communities, I discussed:

1.)   The Cultural Divide:  What Investors ‘Buy’
2.)   What Investors Fear
3.)   The Culture of Venture Capital:  Friend or Foe?

Read Part II

Read Part I

Read Introduction (to the series)

The ‘take-away from Part II. Local investors in the emerging markets ‘buy’ risk by investing in the known and understandable. This explains why they finance business models of fast moving consumer goods, food and beverage, supermarkets, telecoms, light manufacturing and automotive components as examples.  Investors finance such business models even at the seed and early stage of company development.

The reason investors invest as they do; markets and customers are a 100% guarantee in these sectors, even in greenfield projects, with the risks of investment in execution, not the risks of market existence and the uncertainties if the tech will work, will customers come and pay.

Clones copied, localized and pasted into emerging economies impact the DNA of investors to risk since many generate revenue quickly—overcoming the fears that investors have for early stage tech.  But impacting the behavior of investors to risk is not the only contribution of clones to the start-up of start-up communities.

Drive Growth and Innovation in the Supply Chain

Although clones look the same on the surface, one country to the next, there are multiple differences in execution.  Many clones require supply chain partners for them to work, yet many of these companies do not exist in emerging countries.  While outsourcing from delivery to call centers are common services for hire in the US and Europe, clones frequently build them themselves, in what I call ‘self-sourcing.’  In other cases, new supply chain entrepreneurs emerge to offer the services to make clones work.

Let’s examine three such innovations.

Logistics and delivery

Lack of effective and efficient delivery companies forced Ozon, the Russian clone of Amazon, to organize its own logistics operation for door-to-door delivery of goods to their customers in Moscow and St Petersburg plus the delivery to more than 2,000 pick-up points across the Russia Federation.  With this asset in place, Ozon offers delivery services to others as the market for online businesses grows in Russia.  Like Ozon, the discount shopping club KupiVIP delivers product with its self-owned fleet of 100 vans; it leases extra vans when capacity is short. Yes FedEx and DHL exist in Russia, but the cost for local delivery approaches $100, too expensive for a book costing $15 or a $40 pair of shoes.

Getting paid

65% of all transactions in Russia are paid for in cash.  Almost 90% of Ozon revenues ($300 million) are cash.  ATM’s that accept cash for payment are widely used in Russia, made by QIWI, a Russian innovator.  But a new complication develops in a cash economy. In Russia for example, customers regularly inspect the goods to confirm that what was ordered is actually in the box. 25% of all online orders are rejected by the buyer with no money trading hands in cash transactions, or a credit has to be made if payment was made through a QIWI terminal, another snag that required innovation for e-commerce clones to work in Russia (and other emerging market economies based on cash vs. credit or debit card transactions).

Call centers required to reassure online buyers

50% of Ctrip (Chinese online travel company) customers purchase tickets by phone as do large numbers of Russian customers of Ostrovok, a Russian online travel company.  Both Ctrip and Ostrovok operate self-owned call centers staffed with real live persons to reassure customers that their on-line orders are placed, accurate and confirmed.

Clearly what emerging markets lack in the sophistication of online shopping in the United States creates a sea of supply chain opportunities for more start-ups to service clones in the developing world.

Sidestep the Obstacles that Impede Scaling Up—Investor Attitudes to Risk & Failure

It Wont Work Out Part III: The Power of Clones to Startup—Start up Communities

It’s great to talk about the need for failure, how great business models evolve from failed attempts and the need to encourage more failure. The question is who pays for this learning, and how recover from it? Investors not only in Russia, but other emerging markets label a failed entrepreneur a loser for life, never to raise money again with failure an embarrassment that frequently spills onto her or his family; such shame creates an environment where entrepreneurship is discouraged as a career path vs. a ‘safe’ job, e.g., working for Government, a state-owned enterprise or a multinational corporation.

Even more troublesome is another deep seated cultural attitude to failure in emerging market countries.

Bank Robber Part III: The Power of Clones to Startup—Start up Communities

Failure = Fraud: we know this is not true, but that’s the verdict when entrepreneurs fail in emerging markets.

The attitude that failure equals fraud stems from ‘who pays for the cost of failure’ as failure in emerging markets means the promoter, the entrepreneur, and the team did not possess the competencies to overcome the challenges of development, or did not really understand all the requirements needed (or did not do all) for success. Yet we know that experimentation, trial and error, failure and pivoting are necessary to define the requirements for business model creation, making the path to progress unlikely in developing countries.

In the former Soviet republics, East Europe too, entrepreneurs and scientists have financial responsibility to repay money under failure; prosecution and jail-time are real possibilities.  Even more chilling are the threats of investors to entrepreneurs “You lost my money (equity), now you must pay the money back (i.e., the investment is equity if achieve success, debt if the venture fails!).”

The fears of investors, attitudes to failure and who pays for failure create a culture that makes early stage venture capital dicey in the emerging markets.  Such behavior discourages risk taking and incentivizes entrepreneurial commitments to proven business models for proven markets like fast moving consumer goods, retailing, wholesaling, telecoms, and yes, clones from Clonentrepreneurs.

But given the successes of clones to start an entrepreneurial revolution in a country, they are not without their critics.

The Controversy of Clonentrepreneurship: Cloning the Idea or Hatching a Start-Up?

Holy Crap Pete is that You Part III: The Power of Clones to Startup—Start up Communities

 

Given the successes of clones to satisfy the appetites of domestic customers and local money, they have their critics when taken to the extreme.  Sarah Lacywrote an upbeat article in TechCrunch aboutcopy-cat business models in China yet almost three years later levied stinging criticism at the Samwer Brotherswith their rip-off of Fab.com called Bamarang.

Their newest clone for the Middle East Lazada is especially bold: I thought I had inadvertently landed on Amazon, that’s how closely Lazada resembles it.

Even Union Square venture capitalist and blogger Fred Wilson jumped into the frying pan with his opt on cloning start-ups.

 

Condemnation aside, one can’t argue with the quick and profitable financial successes of cloning.

Samwar Brothers1 Part III: The Power of Clones to Startup—Start up Communities

Controversy intensifies when founders clone not just the idea, but every pixel of the start-up to make the clone an almost exact duplicate of the original as the Samwer Brothers did.

In Russia there are multiple groups creating and financing clones.  One of the most aggressive is Fast Lane Ventures which cloned Pinterest (PinMe), Quora (OdinOvet), Eventbrite (Eventmag), Airbnb (RentHome.ru) to name a few; their Zappos clone Sapato was acquired in 1Q2012, 18 months after launch for an approximately 2x return for investors including Fast Lane (plus Intel Capital, eVenture Capital, Kinnevik and Direct Group too).  

The Spread of Clonentrepreneurship

Clonentrepreneurship is sweeping not only Russia, but all of Planet Earth.

The Spread of Clonentrepreneurship around the world 1024x386 Part III: The Power of Clones to Startup—Start up Communities

Cloning has become a trusted way for more entrepreneurs to raise more money from more investors, thereby financing the future of their start-up communities, not only in the emerging world, but developed countries too as the explosion of car sharing clones demonstrates.

Car Sharing Clones around the World Part III: The Power of Clones to Startup—Start up Communities

Zipcar was one of the first to execute Internet business models for the sharing of cars.  Zipcar was not the innovator, but the imitator with Vancouver’s co-op called Modooperating for more than 15 years and the catalyst that helped communities and non-profits get car sharing started in several continents.  While it may not have started in the Internet space, Modo was one of the first to institutionalize collaborative sharing in the community.

So what is really being cloned, who is cloning what and to whom?

Is it car sharing or the collaboratively sharing of underused assets and transforming them into new business opportunities? If the later, clonentrepreneurs are hard at work around the world creating the next set of companies in the sharing space to take advantage of this social movement as these examples demonstrate:

  • ParkAtMyHouse.com—shared parking spaces
  • SkillShare.com & TaskRabbit.com—sharing of skills and chores
  • Murfie.com & Swap.com—collaboratively sharing of DVDs, books & video games
  • Snapgoods.com & Neighborhoods.net—sharing of ‘stuff’
  • I-Ella.com & Thredup.com—sharing of clothes & wearables
  • Sharedearth.com & Yardshare.com—the sharing of land for gardeners & land owners with capacity
  • Freecycle.com & ILoveFreegle.org—sharing of ‘stuff’ people no longer want/need

Given the contributions of clones to spark the startup of start-up communities, are they a panacea to growth? Do alternatives exist in the quest for growth? And what can actors in the start-up community do to impact investor DNA for more seed and early stage investment?

For Next Time—Part IV: The Quest for Growth

In Part IV, subjects I’ll discuss:

1.)   Clonentrepreneurship or Alternative Paths to the Start-up of Start-up Communities?
2.)   Change the Culture and Amazing Things Happen

Comments, opinions and questions are welcome here or send directly to me atTom@IVIpe.com

Be well and be lucky.

Tom Nastas

 Part III: The Power of Clones to Startup—Start up Communities

Your Spouse Is Your First Investor



Posted on:
Posted by:

This is a guest post from Scott Yates and Kathy Yates. Like me and Amy, they are clearly partners in much of how they live their entrepreneurial life. Also like us they are thinking about these issues out loud, us with our upcoming book, Startup Life: Surviving and Thriving in a Relationship with an Entrepreneur, and Scott and Kathy with this blog post:

Any entrepreneur will tell you that that the first investor is often the hardest one to get. What we’ve found is that there’s one special kind of investor you have to get a commitment from before even that first cash investor, and that’s your spouse.

While your spouse won’t be signing a term sheet, there’s little doubt that your spouse will be invested in your success. Before you can go out and get investors, or even customers, we think it’s important that you convince the person closest to you that you have a good idea, a good market, that the opportunity is ripe, and that you are the one to go after it.

Think about it. If you are starting a new venture, there’s a good chance that your spouse will be investing in the idea pretty directly by supporting you as you work initially without a paycheck. Or the spouse may be sacrificing the time that might have been spent enjoying life with you as you spend all your nights and weekends working on your business.

And it’s a risky investment. If you get regular investors, they will put some money and time into your business, but if the business fails that investor isn’t going to lose much, really. Investors build their funds with the idea that a certain percent of the investments will return nothing.

With your spouse’s investment, however, the risk is dramatic. Retirement funds, college funds and the like are just the start. Add in all the time they don’t get to spend with you that they never get back. There’s a reason we use the same verb for money and time — spend — and entrepreneurs are asking a huge spend of one or the other and most often both.

In short, it’s a hard sale. Brutally hard.

Some entrepreneurs don’t make the sale — they cheat. They essentially steal that money and/or that time because they think they won’t be able to make the sale. Suddenly a spouse looks up and two years and/or all the savings are gone and they don’t really even know what happened.

Our view is that you need to make that sale. You need to convince that first investor to go all in with you.

We speak from the experience of three businesses that Scott has started and Kathy has “invested” in.

In all of them, Scott tried hard to treat Kathy has an investor, making sure that she bought into the vision, that she understood the potential risks and rewards. He told her about the market analysis, and shared with her the struggles. Heck, as Scott struggled with a name for the new company, Kathy even came up with a brilliant one: Blogmutt.

She was no pushover, either. Scott worked hard at convincing her that companies had a need for blog content, and that it was potentially an idea that could generate $100 million in annual sales if run just right.

In part because Kathy did such a good job in her due diligence, Scott was much better prepared to go out and talk to investors and when he did he found top notch investors for his seed round.

Now when Kathy sees the Blogmutt logo hanging proudly on the Walnut Street offices in Boulder, and she knows that hundreds of businesses from around the world count on Blogmutt for blog content, she has the special kind of pride that investors know well. It’s a pride that comes with knowing that she played a significant part of the success of the entrepreneur. Like other investors, she knows that she’s not in the trenches, but she helped arm and prepare him physically and emotionally to get into those trenches and fight fight fight.

Imagine if she’d been opposed to the idea from the start.

The idea of marriage is that you share success and failure. If an entrepreneur doesn’t work hard to convince a spouse of the merit of an idea, they are both robbed of the joy of celebrating success together. If the business suffers a setback, the entrepreneur can’t take solace with the one person who is supposed to always be there.

And on the spouse’s side… It’s good to look with a critical eye at the idea of your entrepreneur spouse, but not too critical. Remember, this is the dream of your husband or your wife. This is how they want to change the world.

If an idea is a little bit crazy sounding, that doesn’t mean that you should oppose it out of hand. Imagine if you’d said no to a guy who came home one day and said that he thought people should be able to rent out a spare room in their homes to total strangers. If you talked a spouse out of starting that idea, you just robbed the world of Airbnb and your own family of enough money to buy your own island. The ideas may be a bit crazy, but that doesn’t mean they won’t work

Yes, it should have some research, and yes the idea should play in a big market. If your spouse has a dream of fixing things for all of the left-handed bocce ball enthusiasts in the Upper Peninsula… maybe encourage that entrepreneur to dream a bit bigger.

But once your spouse has an idea that’s got potential, it’s time for you to switch from “prospective investor” where all you have is questions to “investor” where you can still ask questions but the questions come from a place where it’s absolutely clear that you are 100 percent committed to the success of the entrepreneurial vision.

If not, you are just a person standing between the dreamer and the dream.

Do you really want to be that person?