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A STOLEN STORY

by John Jonelis

“Tell me a story, Uncle John!”

“A story eh?” My pal Loop Lonagan got in big trouble telling stories to Jim Kren’s little girl. “Y’know, Princess, in this case, maybe discretion’s the better part of valor.”

“But I always get a bedtime story. I can’t sleep without a bedtime story. Please, Uncle John! Pleeeeeeeeeze!”

How can a guy turn this kid down? “Okay Princess, just lay back and pretend you’re sleepy.”

“Make it a Christmas story!”

“Hmmm.” After a moment, one occurs to me—one I can steal. “Okay Princess, here goes. There’s this bright guy I know. Immigrant entrepreneur. I mean, Princess, he comes to this country and founds a startup company.”

“I know what it means.”

“It’s high tech. Agricultural analytics. Starts it during the dot-com crash around the turn of the century. Despite the lousy economy, it takes off big-time, goes public and makes me and the other investors real happy.

“His two sons work for him to build up the business. They’re his key employees and make fair salaries. The company adds a mobile app, enhanced AI, and thrives right through the 2008 recession. Years later, it’s still strong. Stock keeps going up-and-up.”

“That’s not a Christmas story, Uncle John! That’s business stuff. You sound just like my daddy.”

“Hold onto your red fur hat—I’m just getting warmed up. Papa loves those boys more than anything—wants them to run the company when he retires. Lost his wife years ago and these two are all he cares about.

“Now let’s look at the younger son. He knows he’s gonna inherit a lot of stock some day and can’t want to get his hands on it. He feels trapped and longs to run his own life while he’s still young. So on Christmas in 2006, he announces he wants his inheritance—right now. Like most kids that age, he’s full of himself—not seeing things from his fathers point of view, maybe not considering all the ramifications of what he says. But it’s kinda like telling the old man, ‘I wish you were already dead so I had your money.’”

“That’s not nice.”

“No it’s not and it gets worse. The young buck’s not interested in the company at all. Not planning to stick around. Just wants to cash out and enjoy life.”

“This is a bad boy, Uncle John.”

“Ah Princess, don’t be so hasty to judge. You don’t know what’s really in his heart. Now the company’s listed on Nasdaq, and Papa still owns 40% of the shares. He says to himself in his broken English, ‘That what they want? Okay!  Is Christmas!’ There’s a family trust set up, so he simply transfers his stock—all of it to the two boys.

“Right away, the young colt sells his stock on the open market. With all that loose cash, he feels rich. So he moves to Vegas. Lives the wild life. Gambling all night. Show girls. Maserati. Yacht. Private jet. Hangs around with movie stars. And lots of foolish investments that don’t pay off. He never calls or writes home. Doesn’t visit the next Christmas.

“Now the older brother is still working at the company. But as you might have guessed by now, the old man is really the brains of the outfit. The shareholders—especially that big VC firm that owns a lot of stock with a seat on the board—they all want to keep Papa running the company. The board of directors votes to keeps him on as CEO, with a fat salary—bigger than he ever paid himself.

“Now I want you to notice something: That move wrankles the older brother. He secretly wants to run the show, but there’s nothing he can do about it. So he hoards his shares and bides his time. He stays at his job, working harder and harder, trying to prove himself. Doesn’t like it that his father’s salary is coming out of his share of the company. Can’t wait for the old geezer to croak so he can slide into that big desk.”

“Ugh! How horrible! This brother is worse than the other one!”

“Right Princess. Pappy doesn’t have a clue what’s cranking through this guy’s mind. The kid works hard. He’s dependable. Therefore, he must be a fine boy, right? But he’s so secretive—so sour—never smiles—and for some reason that Pops doesn’t understand, the other one still holds a soft spot in his aging heart.

Back to the younger buck: By the second year, this kid’s portfolio takes a dive, and at the same time, he’s going through money like water. Kid starts looking for work. After all, he was a big executive at a successful company. Impressive LinkedIn resume and all. But now it’s the great recession of 2008 and all he can get are temporary consulting jobs. He forms a startup company, crunching numbers for big investment houses and actually raises some capital. But not enough. Goes belly up within the year. Figures he’s a failure and he’s ashamed to let his father know how bad things are turning out for him. So he doesn’t visit the family that Christmas either.

“By the third year, he’s broke, can’t pay the rent, and gets evicted from his hotel suite. Most of that year, he’s living in his car and scrounging food, feeling mighty low.

“Don’t cry, Princess.”

She sniffs. “This is a terrible Christmas story.”

“Wait and see. Finally, the kid hits rock bottom and comes to his senses. I mean—hey—he’s starving to death. He decides to go home. Even newbies at his dad’s company make a decent living. He’ll confess everything to his father—his failure, his waste—he’ll apologize and beg for a part-time job. Nothing special—maybe an internship or some low-level gig on probation—something like that. He knows it’s more than he deserves.

“Out of the blue, Papa sends him an invite to Christmas dinner and a plane ticket that year, so he texts that he’ll come. Spends the whole flight practicing his confession.

“On Christmas Eve, the old man gets restless; hires a limo and goes out to make a few preparations. Phones his secretary with special instructions. Stops at Mens Wearhouse and lotsa other places. Gets to O’Hare and hangs around for hours. I mean, this guy hasn’t even heard from his boy in three years! When the kid finally walks out the concourse, Papa runs to him, throws his arms around him, hugs him tenderly, tells him he’s glad he’s home. The kid hasn’t changed clothes in a year. Stinks to make your eyes sting. No luggage. Papa leads his son to the limo, arm over his shoulders, and tells his boy he loves him.

“In the back of the limo, the boy stammers out his practiced confession, tears streaming down his face, but his father will have none of it. ‘Stop—no more!’ he shouts. If there’s anything this kid ever learned, it’s to obey his father’s commands. Papa breaks out two tumblers and a bottle of Drambuie and leads the conversation into fond recollections and good times. Does most of the talking and the kid can’t help but laugh at some of the memories.

“Limo stops at the Union League Club and they take in a steam and swim and shower. The kid opens his locker to find a new shirt, jeans, sport jacket, shoes—the works. He can hardly believe it and again stammers out his confession.

Enough already! I not hear it!’ says his father, and the old man’s word is always final.

“When they get home, the place is full of Papa’s close friends and dear customers—maybe 300 people. A twelve foot tree sparkles with a million lights.  A live band pumps out Christmas music.  The aroma of good food fills the house. A caterer lays out an amazing number of enormous turkeys with stuffing and potatoes with gravy, and cranberry sauce, wine and all the trimmings. All that food takes up the big table in Papa’s baronial dining room and they set up a buffet line. People enjoy their meal milling around, indulging in lively conversation. When everybody eats their fill, out comes the pumpkin and mincemeat pies, ice cream, coffee, and brandy. The band leads the crowd singing carols. Take it from me: this is a great party! I for one, enjoyed every minute of it.

“Now the older brother works late at the office that night, as usual. One of the guests notices him out front, pacing in the snow. Papa runs out to him—doesn’t even stop to put on his coat. Begs the boy to come in and join the party. But the kid spits out words in anger: ‘I work for you day and night! I never refuse to do anything you say! Do you ever throw a party for me? But when this worthless bum—this son of yours—shows up, after squandering your money on women and gambling—you celebrate like some kind of idiot, disgracing us in front of all our friends and customers!’

“Papa hugs him and speaks softly to him in his native dialect. ‘On you I depend always. You are good boy. You own all my company stock. But your brother is home! After three years he come home! We must celebrate! Is like he come back from dead!’

“But the older brother won’t be consoled. He curses and shouts, ‘He should be dead,’ and gets in his car and drives off.”

I smile at Princess. She doesn’t look sleepy at all.

“What happens then?” she says.

I sigh. “The old man—Uncle Ludditis, in case you hadn’t guessed already—he eventually retires and opens that bar he always dreamed about.  Rents me the back room for my magazine.  The older brother takes over as CEO and forces the younger one out.

“Uncle John!  That can’t be the way it turns out!  It’s not fair!”

“Why not?  Those are the consequences of their decisions.  The older one holds onto his 20% share of the company so he finally runs that show, a rich miser living alone.  The younger one learns from his mistakes, finds employment elsewhere, marries a good woman, raises two wonderful children.

“And Princess, their father loves them both deeply, no matter what.  His love is all he has left to give and he’s not stingy with it.  Close your eyes now.  Merry Christmas.”

Story credit: Jesus Christ, The Parable of the Prodigal Son –Luke 15:11-32

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More Christmas Stories:

BEST GIFT

A LOOP LONAGAN CHRISTMAS

THE BUM IN ME

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Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. Please perform your own due diligence. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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Filed under angel, angel capital, angel investor, App, Big Corporations, big money, Conflict, Donatas Ludditis, Entrepreneur, Entrepreneurship, Innovation and Culture, investor, Jim Kren, loop lonagan, Mobile App, Relationships, Startup, startup company, vc, venture capital

INVESTORS LOSING PATIENCE WITH PIVOTS

by Howard Tullman

There’s no polite or easy way to say this, but winter is on its way in the venture world. It’s getting tougher and tougher for startups caught in the lukewarm limbo between ideas and invoices to get their early backers to up their bets especially when it’s not clear that they’ve found a viable business model and/or a way to stop the bleeding sooner rather than later. Too many pivots with too little to show for the dollars down the drain and pretty soon no one wants to hear your, “someday soon,” story or your next grand plan.

dice

And if you’re not breaking even, no bank will look twice at your business or your balance sheet. This change isn’t restricted to the unicorpses in the Valley; it’s going on in every village where waves of wishful thinkers are starting to wonder what hit them.

My sense is that the smart investor conversations taking place today aren’t very often about the company going big for the gold or about the current investors doubling down so some startup can shoot for the stars. These increasingly cranky chats are less about excitement and enthusiasm and much more about ennui and possible exits. Because the two things that some early investors and every VC understands are sunk costs and opportunity costs.

While the entrepreneur is sweating survival, the investors are trying to decide whether their incremental dollars would be better spent on a new deal elsewhere. These are the days when easy money gets hard.

Those great gluten free sugar cookies (from the hip new bakery down the block that just shut its doors) are tasting more like ashes in their mouths and they’re asking themselves how they ended up sitting in a room with no doors feeling like some sucker after the circus left town.

The unhappy folks who are still sitting at the table (more likely associates now than the partners who got the ball rolling) aren’t talking about how much more money they can put to work; they’re trying to figure out how little additional cash they can put up to preserve what’s left of their position.

cash

Everyone is telling you that they’re really not inclined to do much of anything at all if you can’t drag some new money from outside players to the table to help set the price and get the next round started. Flat valuations in times like this are the new “up” rounds and there are down rounds galore.

This is a Plan B world at best and the down and dirty talk on the limo ride to LaGuardia almost always includes whether to also shoot the CEO while they’re in the process of trying to clean things up and save a little face. So if you’re the one on the bubble, forget Plan B, and get started on what I call Plan C. You need to get a head start on talking about the tough choices and critical changes that need to be made.

It’s about figuring out what immediate actions you can take that will make a difference before they turn the lights out. You can have results or excuses, not both. Focus on facts rather than futures if you want to be there when things turn around.

And forget about playing the blame game – no one cares.

Plan C is all about choices: contraction, consolidation, combination, conversion, and concessions. The last C is closing the doors and that’s not a sight that anyone wants to see. So find out which of the C’s makes the most sense for your startup.

contraction

Contraction

Just suck it up and admit it. You can’t be all things to all people and no one ever has been. Focus on what sets you apart and what represents the best prospect of a long term sustainable competitive advantage for your business and forget everything else. Don’t apologize, don’t try to explain, just buckle down and get the job done. The recent launch of UberEats in Chicago (as an “instant” meal delivery service) and its almost immediate abandonment of that commitment is a good example of knowing when to hold ’em and when to fold ’em. It doesn’t take a genius to figure out that it’s pretty stupid to open the umpteenth home meal delivery service in Grub Hub’s hometown.

Businesses that scale too soon and which are a mile wide and an inch deep are doomed for many reasons, but the clearest and most telling is that they can’t cost-effectively engage with, support, or connect to their customers because the customers are simply too few and too far between. It’s critical to nail it before you scale it and, if you’re grossly overextended, your business is going nowhere.

consolidation

Consolidation

Shut down the stupid San Francisco office sooner rather than later. You had no business being there in the first place and the fact that you doing no business there ought to speak for itself. San Francisco may be the most overheated and least representative market in America. Everyone there drinks the KoolAid for about 10 minutes and then moves on. Building a new business there is as slippery and unstable as trying to nail Jell-O to a tree.

New York should be next on the list. NYC isn’t a city – it’s 5 or 6 different marketplaces all mashed together – with a million people just waiting to eat your lunch. Your business expansion needs to be driven by actual demand, feasibility and real opportunities – not by some investor’s fantasies and/or fables about life in the Big Apple foisted on the public by the media and by people barely making it in Brooklyn.

combination

Combination

Take a careful look around and see who else in your space (or adjacent to it) is doing things right and see what the prospects of some kind of combination may be especially if your market itself continues to be more cluttered and competitive. We hear constantly that the shared/surplus economy or the “Now” economy continues to grow fueled by millions of millennials holding multiple jobs. But tracking the gig economy isn’t quite that easy. While the number of multiple job holders has in fact grown dramatically, the percentage of the number of people so employed as compared to the total number employed has been flat or down over the last decade.

We had a great example of a timely and smart combination recently in Chicago where Shiftgig and BookedOut got together and decided that there were all kinds of economies and opportunities in a merger as well as the sheer relief in knowing that they could stop trying to beat each other’s brains out in the market. They are both players in the increasingly crowded space which the Commerce Department is trying to define as “digital matching firms.

Shiftgig was bigger and better established, but BookedOut had a lot of momentum and was gaining important traction in the experiential marketing sector. Now instead of spending time building duplicative back ends and other redundant systems and offerings, they can bring a single story to the market in a cleaner, more efficient and less costly way. This is exactly the kind of story that all of their investors wanted to hear.

It’s not easy in any market to attract the technical talent, the motivated sales people, and the operations folks that you need to grow quickly and a well-planned and thoughtfully executed combination can demonstrably accelerate the process. You need to be careful to make sure that the companies’ visions are aligned and that the problems they’re addressing are similar and that the cultures of the businesses (and the leaders in particular) aren’t in conflict.

These things aren’t made or broken in the board room when the papers are signed, they rise or fail in the implementation and the execution. But in today’s world, it’s often a lot better and smarter han trying to go it alone.

conversion

Conversion

Sell some of your stuff to someone else. You may be great at lead generation and lousy at closing the sale once those prospects show up at your door. Or you may be a great sales organization that sucks at fulfillment and customer service. When you look at your skill sets and your customers, users, clients, etc. through a different lens—looking at them as potential assets to be converted or sold to some other enterprise, it helps you see more clearly exactly what kind of business you’re building. It may make the most sense to look at your company as a conduit or an intermediary and not as a one-stop shop trying to meet all the needs of the marketplace. You’ve got to play to your strengths and build on those if you’re planning to stick around.

concessions

Concessions

Maybe your pricing made sense in some early fever dream where you were the best and only player in the space, but now there are fast followers and clones everywhere you look and their offerings (at least on the surface) look a lot like yours. Once your customers start talking about price, you’re on a very slippery slope.

 

Conclusion

Here’s the bottom line. In the long run, you can’t save your way to success and it’s no fun to fire your friends or postpone your pet projects. But if you don’t survive during the difficult times, you and your business won’t be around to savor any success down the road. Do what needs to get done and do it now.

 

Big Gulp from Howard Tullman

About the Author

Howard Tullman is the father of 1871 and Matter—the huge Chicago incubators.

This article appeared previously in News From Heartland

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References

Shiftgig

BookedOut .

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Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. Please perform your own due diligence. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
.
.

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Filed under 1871, angel, angel capital, angel investor, big money, Chicago Startup, Chicago Ventures, Economics, Entrepreneur, Entrepreneurship, Heartland Angels, Innovation, Invention, investor, Startup, startup company, vc, Venture, venture capital

MILLENNIALS ARE BECOMING OBSOLETE—ALREADY!

by Tom McBride

The first time I heard the word “obsolete” was when I overheard my father talking to a stranger on a bus. They were speaking about a new expressway that the city had built, and the stranger said, “That thing was obsolete before they ever opened it.”social media MS OFFICE

I was impressed. I went home and looked up the word. And in time I realized the stranger was right. The builders of the new road had put in four lanes but should have put in six. Soon enough, traffic was snarled, and eventually cars started avoiding the route altogether. Then the side streets became overcrowded with autos. The whole thing was a mess.

“Obsolete” was a terrible word. It still is. If something or someone is obsolete, then he, she, or it no longer works. He, she, or it languishes in irrelevance. And then he, she, or it comes to be avoided altogether. Everyone would rather take the side streets. Obsolete things are just in the way. They are like old professors on college campuses. The young sneak behind buildings in order to avoid them.

Today’s Millennials are not obsolete—yet. Born between 1980 and 2000 they came to this planet during a fairly prosperous time, so they represent a population glut. There are already more Millennials alive than Baby Boomers, who constituted the mother of all population explosions.

percent of workforce MS OFFICE

Corporations are working overtime to figure out how to market to this bunch of fickle young consumers, who have an embarrassment of choices. Human resources directors are wondering how to motivate them in the workplace. They are praised for wanting a more healthy balance between work and life (some of them think overtime is evil), and they are feared, almost, for being digital natives. Unlike the rest of us, they grew up high-tech, so what do they know about cyberspace that we don’t?

phones and tablets MS OFFICE

Others can’t stand them—why won’t they look us in the eye at Starbuck’s instead of staring at their phones all the time? And a few of us older people see them as symbols of a world we don’t want to have much to do with. The whole idea of “looking something up on your phone” (which has more data than your local public library) seems repugnant somehow.

infographic MS OFFICE

But there’s one thing these non-obsolete Millennials can’t avoid: In time, they will become obsolete, like the city expressway of my childhood. They will seem irrelevant. They will be in the way. Young people will hide from them. The new generation will have to work around them.

The question, though, is how can Millennials tell when they’re becoming outmoded?

startup venture MS Office

Like, invest in my startup, huh?

The answer is simple. It’s when they start beginning sentences with “These kids nowadays…” I’ve heard early rumblings of this sentence, as when an older Millennial said of younger Millennials, “These people just take wireless computing for granted.” He was too young to say “these kids,” but give him another ten years.

loft MS Office

The truth is that older Millennials are already far enough along to have teen-aged children. A Millennial born in 1980 is now thirty-six and may well have a fourteen-year-old around. In just ten years that will be true for Millennials born in 1990. They will enter that most dreaded source of becoming old-fashioned and resented: parenthood. And then you will hear such sentences as these:

“You kids have it so lucky. We actually had to flip switches to get lights on in a room—none of this decadent voice-activation stuff.”

“You’re lucky, you kids: When I was your age we couldn’t get our genes edited at birth to make us better-looking.”

robot MS Office“When I was your age, we didn’t have to pay extra to get an actual human being to teach us calculus—unless you kids can learn on a machine, you’re going to bankrupt me.”

“Yes, that’s right, kids. Only when a political party isn’t in power does it object to big government deficits. That’s the way it’s always been. Don’t think that you kids can change it!”

“You kids just trust technology too much. I don’t want to have a robot remove my appendix even if it is cheaper.”

Do you hear the notes of weary impatience in these sentences? Do you detect the tone of resentment in the voice of older people when they encounter the youth and idealism of their kids? Do you sense the envy of the young? Do you pick up on the fatigue of bearing parental burdens?

time magazine MS OFFICE

Yet every one of these sentences will be spoken by…a Millennial. They will be speaking to their offspring, which will be called something like Generation Alpha.

And what about the rest of us—old Boomers and Gen X types? Most of us will be even better than obsolete. We’ll be dead.

But don’t you feel better knowing that these young whippersnappers today will also go the way of all flesh? That’ll be true even if, as predicted, people will be immortal by having their brains downloaded into a computer.

Eventually, even the computer will become…obsolete! Ha!

Cell Phone Girl MS Office

Tom McBride is co-author of The Mindset Lists of American History

and The Mindset List of the Obscure,

and the author The Great American Lay: An All Too Brief History of Sex.

He lives in southern Wisconsin.

Graphics from MS Office.

This article appeared in News From Heartland

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CHICAGO TECH’S NEXT CHAPTER

At Tempus, Ocient and Catalytic, Chicago’s most prominent entrepreneurs are moving on to their next big thing.

by Jim Dallky

Chicago tech is growing up.

One sign of a maturing tech ecosystem is the success of a city’s serial entrepreneurs, and recently we’ve seen some of Chicago’s most high profile founders and technologists move on to their next companies, and tackle big industries like the Internet of Things, cancer research, and artificial intelligence.

Uptake - ChicagoInno

Look no further than Groupon founders Brad Keywell and Eric Lefkofsky. Keywell brought Uptake1 out of stealth in 2015, and the fastgrowing IoT startup has already raised $45 million at a $1.1 billion valuation. Lefkofsky left his CEO role at Groupon last November and, as we first reported in July2, has since been working on Tempus3, a healthtech startup that’s “building the infrastructure to modernize cancer treatment.”

 

Ocient - homepage

Also in July, Cleversafe founder Chris Gladwin, who sold his data storage company to IBM in 2015 for $1.3 billion, unveiled4 his next startup Ocient5. Gladwin has yet to make Ocient’s product plans public, but the software company expects to “ultimately hire hundreds of local employees.”

 

pushbot - website

Sean Chou, the former CTO and employee No. 2 at Fieldglass—which sold to SAP for more than $1 billion—recently, launched Catalytic6, a startup building chatbots for businesses. The company’s platform, Pushbot, helps enterprises “build, run, and improve your processes.”

 

bright - website

You can also look at Jeff Judge, the founder of Signal (acquired by BrightTag in 2014) who’s now building business metrics platform, Bright.7

Kickstarter cofounder Charles Adler is giving entrepreneurs, creatives and makers a better place to work with the Center for Lost Arts8; Motorola veterans are spinning out to create new hardware startups like John Renaldi’s “invisible wearable” company Jio9; along with many, many other founders who are on to their next project and have committed to building in Chicago.

“Certainly, as a community, I think we are maturing,” said Illinois Technology Association CEO Fred Hoch. “It’s being driven a lot by those serial entrepreneurs that are coming back and doing their next thing.”

Hoch described how the city experienced an “excitement period” 3-4 years ago where a lot of startup activity was taking place but, “a lot of bullshit was being developed…things that don’t have a long-term revenue stream.” Chicago’s strength as a tech city is in B2B, Hoch said, and Chicago tech has started to get back who it is as a community. “What’s happened over the last 18 months is that we’ve come back to realize who we are,” he said. “[Entrepreneurs] are not thinking about dog-walking apps. They’re thinking about big things that affect businesses nationally and globally.”

1871 CEO Howard Tullman added that Chicago also has a handful of who he calls “benchers,” successful entrepreneurs who are taking some time off but will likely “be back in the action in a reasonably short time.” This list includes Fieldglass founder Jai Shekhawat, AKTA founder John Roa, and Roger Liew, the former CTO of Orbitz. Tullman also said that 1871 isn’t just full of first-time founders. There are dozens of serial entrepreneurs working out of the Chicago tech hub.

“People don’t understand that the 1871 members aren’t remotely all first timers,” Tullman said. “We have several dozen serial entrepreneurs working here and building their next businesses who are smart enough to avoid making sizeable infrastructure and other capital commitments until they determine whether the dogs will be eating their new dog food…we are definitely seeing a wave of more seasoned, more talented and more aggressive serial entrepreneurs—all working in Chicagoand, largely using their own resources to start the next group of great tech businesses right here.”

Of course, as Chicago’s tech community matures, it doesn’t come without growing pains. Some of the city’s most prominent startups have gone through layoffs in recent months, with Avant firing 60 employees and Raise trimming 15% by cutting 45 people. And the city is still well behind other markets like New York and Boston when it comes to total venture funding.

tempus - website

Tempus

 

But Chicago is proving to be a city where entrepreneurs are willing to double down after successful exits, and that’s good news for the future of Chicago tech.

“We’ve come a long way in the last 10 years,” Hoch said. “[Entrepreneurs] are choosing to stay and be a part of this community because it’s a strong community now.”

 

About the Author

Jim Dallke is the Associate Editor of ChicagoInno of Streetwise Media, where this article previously appeared.

This article appeared in News From Heartland

 

 

Links cited:

Graphics and logos from company websites and ChicagoInno

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. Please perform your own due diligence. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
.
.

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Filed under 1871, angel, angel capital, angel investor, Big Corporations, big money, chicago, Chicago Startup, Chicago Ventures, Entrepreneur, Entrepreneurship, Howard Tullman, Innovation, Innovation and Culture, Invention, investor, new companies, Startup, startup company, vc, Venture, venture capital

THE BIG LITTLE TRAP

by Scott M. Anderson

An investor, Sally, recently heard two pitches. The first was from A-Dot-Co, which will produce polka-dot jellybeans using a new patented process. The second was from BetterBean, will produce purple jellybeans using a trade secret method which improves existing manufacturing processes.

Having spent several years owning a candy company, Sally was interested in both opportunities.

Jellybean T

Sally knows that the jellybean market is large and well established. With a few regional exceptions, she knows the annual market growth has been 3% for many years.

sales projection MS Office

Accordingly, she was a bit surprised to see strong growth projections in the presentations from both A-Dot-Co and BetterBean. More diligence would be required.

Sally asked both companies to submit detailed materials in support of the projections they presented. She was particularly focused on the factors responsible for revenue growth. Since the market is large and established, Sally knew that growth for a new entrant must come from either expansion of the overall market or from switching behavior (customers switching from established providers to new providers). She was hopeful that the detailed support material for each revenue projection, would reflect management’s understanding of these market dynamics.

 

A-Dot-Co

A-Dot-Co

Sally received the following support detail from A-Dot-Co:

A-Dot-Co Revenue

She knew from prior experience that the total candy market was very large and she was glad to see the jelly bean sub-market in excess of $2 billion. There would be plenty of upside for A-Dot-Co. She was also glad to see that in year 5, the founder did not expect to exceed 1.0% of the market. Any larger share percentage would require major resources and additional funding rounds.

However, before investing, Sally still needed more information on the detail behind the market share projections. She scheduled a follow-up call.

On the call, A-Dot-Co was very enthusiastic. It went like this:

Sally: “Thank you for your revenue detail. I have some follow up questions. How do you expect to land nearly $2 million in revenue in the first 2 years?”

Founder: “A-Dot-Co is well positioned to achieve our revenue goals. We have a seasoned team who formed many candy company startups in the past.”

Sally: “That’s great. But how do you intend to land $600K of sales in year 1?”

Founder: “My team has deep knowledge about the jelly bean market. We only need a mere 0.03% of the market to land the projected $600K! Surely there are enough polka-dot jelly bean eaters out there to achieve this projection!”

A-Dot-Co’s founder fell into The Big Little Trap.

trap MS Office

 

The Trap

The Big Little Trap occurs when a founder believes his future projections are achievable because the market is so big and the market share percentage is so little. Specifically, that the sales goal will be very easy to accomplish because the market goal is such a small percentage, such as 0.03% with A-Dot-Co. (“It’s so small that anyone can reach it…as easy as falling off a log!”) In fact, the Trap victim might further say that the percentage is so tiny, that it may take only a few customers to reach it, and “…clearly the market has more than just a few customers!”

The response to an enthusiastic Trap victim: “I’m glad you’re excited. Name the customers!”

 

BetterBean

BetterBean

BetterBean submitted the following detail to Sally:

BetterBean Revenue

 

As before, Sally was glad to see confirmation of the jelly bean market. (They must have used the same market study). But she was even happier to see customer detail behind the revenue projection.

target market MS Office

The detail reveals several important items:

  1. BetterBean knows his target customers and may already have relationships established with them.
  2. Knowing BetterBean’s target customers should lead to a more efficient operation by helping the company prioritize the company’s limited time with its important customers over less strategic prospects.
  3. BetterBean has applied the 80/20 rule—at least 80% of the revenue is derived from specific, identified customers. The remaining revenue will come from other customers, currently unknown. Forecasting is an inexact science and to communicate over-precision in the detail implies the founder may be taking his projections too seriously. BetterBean has not been overly precise.
  4. When—not if—BetterBean misses its projections, the detail will provide insight as to why the projections were missed. The “why” is more important for fixing future revenue projections.
  5. BetterBean is more transparent than A-Dot-Co. Specifically, BetterBean’s founder has shared his target customer list, perhaps with the hope that Sally may have contacts to be leveraged at those customer accounts. Conversely, A-Dot-Co has shared no customer detail, suggesting that its founder may not know who his customers will be. This is concerning if true.

 

Decision Time

Sally rejected the opportunity with A-Dot-Co. It fell into The Big Little Trap—and didn’t even realize it. The lack of transparency did not generate confidence in the company’s management team.

Sally proceeded with further diligence on BetterBean.

The Big Little Trap grabs victims all the time. Like Sally, an investor should consider the market size, but only in the context of the startup’s upside potential. As she observed, there’s, “…plenty of upside for A-Dot-Co.” However, market share is not the justification of year-to-year or month-to-month revenue goals. Market share is best seen as a byproduct of sales efforts.

The jellybean example is fictitious, but the Trap is very real. Watch for The Big Little Trap at your next pitch session. See if the founder falls into it!

 

About the Author

Scott M. Anderson is a principal at Anderson Financial Services, LLC and has been performing cash projections for decades as an investment banker, a workout specialist, and recently, as an advisor to investors and startups. He can be reached at scott@andersonfsllc.com

Graphics from MS Office

 

This article appeared in NEWS FROM HEARTLAND

NEWS FROM HEARTLAND – The Journal of the Heartland Angels is published tri-annually for its members. We encourage reproduction and quotation of articles, if done with with attribution. Copyright © 2017 Heartland Angels. John Jonelis, Editor – John@HeartlandAngels.com

FOR MEMBERSHIP IN THE HEARTLAND ANGELS, contact Ron Kirschner Ron@HeartlandAngels.com

FOR FUNDING, apply online. Go to www.HeartlandAngels.com

NEWSLETTER SITE – View past and present editions at News.HeartlandAngels.com

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. Please perform your own due diligence. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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THE TRUMP EFFECT

WHAT THE NEW ADMINISTRATION MIGHT MEAN FOR HEALTH CARE

By Erik Clausen

Several months have passed since the U.S. Presidential election, and…we’re still here, folks. After years of political rhetoric and theatrics, and a few months of uncertainty, we are starting to gain some clarity around exactly what the new administration and its policies might mean for the life science industry and, by extension, marketers within it.

Most importantly and as a wise man wrote before the election, “There is no need for panic.”

the scream EdvardMunch

Edvard Munch – The Scream

Now that the rhetoric has momentarily quieted, we need to balance Trump’s desire to make dramatic policy changes with the realities of the legislative process and with the expectations of a public that benefits from life science and healthcare innovation. Widespread policy changes take time to implement and often require strong Congressional support, even with a Republican-controlled House and Senate. The recent defeat of the health care bill is a case in point.

In other words, as we look at the major policy changes that are likely to affect life science marketing in the years ahead, we need to recognize that there will be time to adjust marketing strategies and tactics accordingly. This may even mean building multiple marketing plans to address different contingencies.

fear MS Office

 

Possible repatriation of US dollars

U.S. pharmaceutical companies have substantial funds tied up in accounts overseas due to punitive tax laws. The administration has proposed, as part of his economic stimulus plan, to dramatically reduce this tax rate and encourage those dollars to come back to the U.S.

In theory, by lowering the tax burden on these businesses, the economy will see an uptick as businesses are encouraged to invest. These companies benefitting from tax relief would in turn reinvest those dollars domestically in the form of new deals, R&D, acquisition and job creation.

Since pharmaceutical and instrumentation companies typically grow based on acquisition, we could see a resurgence in life science M&A and dramatic increases in the value of emerging biotech, diagnostic and tools companies. No doubt, these topics are top of mind at industry gatherings like the January 2017 J.P. Morgan Healthcare conference.

dollars MS Office

If this move does have the immediate and positive effect on the life science sector as promised, it would give corporate brand managers and marketers much to do to position their companies correctly to take full advantage of the M&A environment.

Of course, this assumes that the financial boon to corporations is reinvested or used for acquisition and not simply distributed to shareholders. Increased deal-flow will lead to increased budgets. This will undoubtedly bring increased noise in a busy economy. Therefore, we should focus on building long-term brand equity in an expanding GDP and economy.

 

Corporate tax rate reduction

The administration will also propose in the President’s Budget Bill, a much lower corporate tax rate. This plan would significantly reduce the cost of capital and reduce the marginal tax rate on labor.

By most analyses, these incentives could increase the U.S. economy’s size in the long run, boost wages, and result in more full-time equivalent jobs—including in the life science sector. The question remains, what the estimated reduction in federal revenue will mean for federal funding of medical and scientific research. Such grants often precipitate early discovery that soon become commercialized.

 

tax tax tax MS Office

The size of the proposed tax breaks for corporations are, simply put, Huge.” But if the administration can actually get it through Congress, it has the potential to give corporations exponential buying power, increase cash flow, build up inventory, and re-invest in technology. Dismissing any possibility of a bubble and or the rich simply getting richer, these tax breaks should create jobs and boost all sectors of the economy, including life science and healthcare.

 

Reforming the FDA

In his 100-day plan, Trump specifically cited, “…cutting the red tape at the FDA…” as among his highest priorities. In the plan, he stated that, “…there are over 4,000 drugs awaiting approval, and we especially want to speed the approval of life-saving medications.” We can only assume that such reforms would also have a direct effect on approval and clearances for new medical devices and diagnostic tests, as well.

An accelerated approval process at the FDA could potentially have a positive effect—at least in the short-term—on the life science sector. With therapeutic candidates and devices moving more rapidly through review than anticipated, biotech, pharmaceutical and device companies in mid to late stage clinical phases could see increased valuations of companies with early approvals.

fda MS Office

Additionally, this could encourage earlier stage companies to get more ambitious about moving candidates to the clinic and could make would-be acquirers more bullish.

In the long term, if that accelerated review brings products to market too quickly, it could threaten public health, cause another costly set of reforms, and damage the brands of those companies.

 

What does the new agenda mean for marketers?

While it will take some time to feel the effects on any proposed legislation or policy changes, the administration will tie everything back to growing the economy: no small challenge. A lot has to come together with or without a cooperative Congress. The President will have to build a consensus.

marketing MS Office

For now, as marketers we need to do what we’ve always done—assess market opportunities, pinpoint our target audiences, develop smart strategies to reach and influence their behavior, and measure outcomes. Certainly, researching the impact of policy decisions is part of that research, but acting too quickly on proposed policy changes only fuels uncertainty.

And, if there is one truth in the market, it doesn’t like uncertainty.

screaming robot MS Office

In the end, even if the President is able to pass a fraction of what he’s proposing, it should lead to economic prosperity and marketing opportunity in our industry.

Now, if we could just turn off his Twitter account, we might make social media great again, as well.

 

chempetitive group logo

About the Author

Erik Clausen is part of the Chempetitive Group, a Chicago based marketing initiative for pharmaceutical, chemical, biotechnology, diagnostics, and medical devices.

This article was previously posted online

Graphics: THE SCREAM courtesy www.EdvardMunch.org

All other graphics from MS Office.

 

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. Please perform your own due diligence. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
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INQUIRY AND INNOVATION

by John Jonelis

What happens when you invite the community into your high school and send your high school students into the community?

Amazing things! You create a THIRD SPACE in people’s lives.

[Britta McKenna is the Chief Innovation Officer at IMSA.]

Britta – “You have your home and you have your work and you have third spaces in your life where you feel comfortable and find a community. Robert Putnam believed in third spaces. He has a book called Bowling Alone 1. It used to be that bowling leagues were that third space. People at the bar. Cheers. We want IN2 to be that third space in people’s lives.”

“Look at the ceiling. Look at the lights. Do you see the pattern?

IN2 – Symbolism in Architecture

It’s that intersection of outside and inside. Community coming together to make this a real learning laboratory experience. We want to come in and work on real-world problems and opportunities.

“People can bring problems and opportunities to us and say, let’s figure out how we can work together. Like the State of Illinois with the hackathon we just did—finding solutions to childhood lead poisoning.

“Think about all the things kids are doing that are not helping. Here’s a great place. I hope IN2 can be a third space in people’s lives.”

[The grandness of the idea and the imaginative scope hit home, but ask Britta how IN2 will implement it.]

.

Innovation

“We can’t stand still. Education—if it’s doing the same thing over and over and over—is not moving ahead—it’s falling behind.

“IN2 is the intersection of what we do at IMSA and the community. We’re partnering with Invest Aurora, the Woman’s Business Development Center, the Fox Valley Entrepreneurship Center—they are all resources to help what we’re doing here grow and scale.

Business Mentor

[Britta anticipates my next question and gets even more specific.]

“We’ve opened up a cohort of LINKubators 2 These are actual startup companies.  We have three working in the space as a pilot.  Our students intern with them and our network can help them grow.  Our MENTORS, our IDEA BARISTAS, our SUBJECT MATTER EXPERTS can all help them grow. 

“Next fall we hope to have ten LINKubator startups working in the IN2 space during the day when the kids are in class. We’re trying to see what we’re good at and get a rhythm to the space.

“So whether it’s somebody in the community with an idea or a problem—whether it’s students that want to accomplish something new—whether it’s mentors from the community coming here to help the next generation of learners—whether it’s subject matter experts helping a non-profit grow—we want IN2 to inspire students and community to go on and be entrepreneurs and develop their ideas.

“Our goal at IN2 is to blend in with IMSA and be that resource for students and community beyond the classroom. That’s what this is all about.”

Student Entrepreneur

Inquiry

“I think one of our signature programs is our STUDENT INQUIRY AND RESEARCH program or SIR. That really distinguishes us because we don’t have class on ‘I-DAYS.’ Those are inquiry days—that happens most every Wednesday. Traditional class shuts down. We have class Monday, Tuesday, Thursday, and Friday.

“‘I-DAYS are meant for independent exploration—inquiry or research. On ‘I-DAYS, student go down to 1871 and other locations to intern for startups. Now, with the new IN2 facility, our students can work with entrepreneurs right here as well. Either way, through the SIR program, they’re doing research with mentors and business teams.”

Sue Fricano & Tami Armstrong

[I’m joined by Sue Fricano—IN2 site coordinator, Tami Armstrong—Director of Public Affairs]

Sue – “MONDAY NIGHT LIVE is an event put on by Dr. Carl Heine each week. He brings in speakers and he develops programs for entrepreneurs.

Carl Heine

“He puts external students on his TALENT board—entrepreneurial students coming in to learn the different stages of building a business and different skills used in building businesses.”

Tami – “A lot of the students here are part of that as well as members of the community that come to learn more about entrepreneurship.”

Sue – “At IN2 we are trying to give them the expertise to go out and make the initial steps of developing.”

.

[Betty Hart is the Innovation Center Program Manager.]

Betty – “We have girls in the STEM program, which is a mentoring peer-to-peer program for girls in 6th to 12th grade.  We have events such as IMSA DAY OF CYBER, which focuses on encouraging students to seek cyber security careers.” 

Betty Hart

Betty – “We have TEAM STEM CAFE, which is a network of local high school students who host quarterly events focused on STEM related topics. And we have THINK CAFE, which is a community initiative that invites organizations to come in and pitch a problem or an idea.”

Britta – “Our charges really are this: The first is to be a STEM teaching/learning laboratory for our best and brightest students across the state. Then we have the FUSION programs.3 These are after-school programs at schools, grade 4-8, all around the state. And we also have the charge of educating the educators. We bring the teachers in and give them professional development, which helps them in science and math.”

.

Bring Back Socrates

[I pose a thorny question:  Why teach entrepreneurship at such an early age, rather than prepare the students for college or jobs?]

Tami – “What we’re doing is launching the students so when they leave here, they’re prepared. There’s a big demand for ideas and innovation. Innovation is valuable, and very coveted. We’re supplying that to the workforce.

“We’re also launching research. How can students advance the human condition and solve the world’s grandest challenges?

“That’s what comes from IN2—the ability to make very difficult innovations. When you can harness them, bring them to a place like this, and connect the students with business and industry, dream and idea become reality.”

[Suddenly I get it. I asked the wrong question and now realize the goal is really quite straightforward—to encourage students to think for themselves—to let them discover how to learn. IMSA does it the same way it was done almost 2,500 years ago—self-directed inquiry and innovation—the Socratic Method.]

Student Entrepreneur

Possibilities

Britta – “People think we’re just this gifted school for 650 sophomores, juniors, and seniors from around the state, but we’re not. And people think we’re a private school and we’re not—we’re public. We don’t want to be the best-kept secret in Illinois.”

“And we have a student team called IMSA ELEMENT that teaches the lean startup methodology. Build—measure—learn. Students developed a whole curriculum and teach it to each other. We’re entertaining possibilities.”

  • “We need to be open to ideas, be able to move quickly, and say YES.”
  • “And have FAST FAILS.”
  • “And move toward SUCCESS and ITERATE.”

“We’re not afraid to do that here. In a world where you’re dealing with high-caliber students who don’t fail often, failure is a difficult concept. But once they get the hang of it, they actually become quite good at fast fails.”

Entrepreneur with a solution

The 17%

Britta – “We’re not looking for the vast majority to really understand this space, because we can’t hold everybody. But about 17% in the world are innovators. That’s who we’re looking for—that 17%. Once we get a few of those, they bring their networks. Those are the early adopters, innovators, and they see things much earlier.”

Those are the people IN2 was built to serve.

.

This is the final article in this series.

Go to Part 1 – THE NAME IS IN2

Go to Part 2 – POWER PITCH

 

References

  1. BOWLING ALONE – Robert Putnam
  2. IN2 Launches LINKubator for Fox Valley Startups
  3. IMSA FUSION

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IN2 Contact Info

Address – 1500 Sullivan Rd. Aurora, IL 60506

Website – https://www.imsa.edu/

Carl Heine – heine@imsa.edu

Britta McKenna – bmckenna@imsa.edu

Tami Armstrong – tarmstrong@imsa.edu

 

Chicago Venture Magazine is a publication of Nathaniel Press www.ChicagoVentureMagazine.com Comments and re-posts in full or in part are welcomed and encouraged if accompanied by attribution and a web link. This is not investment advice. We do not guarantee accuracy. It’s not our fault if you lose money.
.Copyright © 2017 John Jonelis – All Rights Reserved
.
.

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