Ten Things Every Startup Entrepreneur Should Know

1. It will seem as if nothing you do or try is working... until something does.
2. Bills due for payment will always arrive on time, but client payments hardly ever.
3. If you employ people, not all employee contributions can be quantified - as in, expressed in dollar value - requiring you to learn and understand the value of people, their skills, and the different talents that they might offer your business.
4. Your business goals, idea and/or mission - or all of these - will evolve over time. If they do not, you will soon fail... or simply go out of business eventually.
5. You will never have enough money, or resources. Get used to it.
6. There are probably a dozen regulations that you are required to comply with, including some that your business is required to comply with today, and that you might not even know about (yet). Depending on where your business is domiciled; these may include federal, state, county, city business compliance (tax) requirements. Find out what they are... 'everyone' wants a piece of what you're building!
7. Your subcontractors and/or suppliers will always be tardy... whether in delivery of services to your business, responding to requests for information and/or proposals, returning your calls and/or emails (never!), etc. No-one will respond in a manner that matches your expectations. Remember this for when someone requests information from your business, or expresses a desire to do business with you!
8. You might be convinced that you need to spend money on marketing. The good news is - if you decide to advertise - at least 10% of our ad spend might result in some traction, or boost your revenue. The bad news is, you will generally not know which 10%. While on this topic - generally speaking - no social media marketing spend will deliver desired results; not FaceBook (and it's suite of products), Google, LinkedIn, nor Twitter. These companies will show you impressions and clicks, and in return... you will be able to show them your empty, cashless pockets.
9. There are very few substitutes for face-to-face meetings with prospective clients. Connection via email or telephone works best when following a warm introduction, or meeting. And there is absolutely zero substitute for a new prospect who reaches out to you, and who had been referred by an existing client. Do not send people an email requesting a few minutes of their time. This is disingenuous, and a misrepresentation of 'your ask.'
10. And finally, most importantly... SALES FIXES EVERYTHING!

Startup Investing Guide

Follow the Leader

One of the easiest ways to evaluate a Deal on our platform is to look at the top investors in the round. The investors in the Deal are critical because it creates social proof that the Deal is worth checking out and potentially investing in. Furthermore, this means that the lead investor has performed their due diligence on the Deal and they believed that the team, idea and traction to date equate to a winning recipe.

Following on at the same Deal terms as the lead investor also validates the valuation of the company and the price of the round. Determining the Deal terms can be a long arduous process so it can make investing in startups much simpler to just follow-on at the same terms as the lead investor.

Management Team

We recently did an investor survey and the results showed that over 70% of investors agreed that a strong management is one of the most important points that they consider when deciding to invest.

A company’s management team tells a lot about the future trajectory of the company. Legendary venture capitalist, Paul Graham, wrote an excellent article describing the qualities he looks for in a company’s founders when evaluating a startup. 

The qualities are as follows:

- Determination: Do the founder’s learn from their mistakes? Startups will face hundreds of obstacles, the one’s that deal with each obstacle with strength and determination are often the most successful.

- Flexibility: Do they know how to pivot and accept changes? Often times founders can be extremely stubborn, the ones that are able to make quick changes are the ones to keep an eye out for.

- Imagination: Do the founders think outside of the box? Make sure that you see a unique idea, something that hasn’t been thought of before.

- Naughtiness: Do they follow all the rules? Founder’s who do not follow the status quo of society often find better solutions to problems.

- Friendship: Does the team work well together? Co-founders are like married couples, they need to be compatible and show long term potential.

Something more tangible to look at when evaluating a Deal is the founders past experience. You’ll want to know whether the founders are uniquely qualified to execute on this idea. Another great indicator is if they have a track record for scaling businesses and have shown returns to investors in their previous businesses.

Traction

A company’s traction is very important as it gives investors a way to gauge the startup’s growth and execution to date. You’ll always want to see steady and potentially exponential Month-Over-Month growth in their core metrics.

Snapchat is a recent example of a startup with incredible growth metrics. Since launched in 2011, Snapchat has amassed roughly 200 million monthly active users who send 400 million snaps per day. This shows the exponential growth of the company and the numbers would certainly excite any investor.

Here are the main things to look for when evaluating a company’s traction:

- Revenue:  Are they pre revenue? Have the reached cash flow positive? What’s their annual run rate?

- Growth: How many users or customers do they currently have? Are they showing steady MOM growth?

- IP: Does the company have any patents? Have the created something that is not easily replicable?

- Customers/Partners: Do they have any notable customers or partners that use their service?

- Investors/Advisors: Do they have any notable investors or advisors?

- PR: Have they done anything innovative on the PR front to help scale their metrics?

- Influencers: Are there any notable influencers involved with the company to help them expand their reach or help them build a recognizable brand?

Industry Trends

Another thing you will want to analyze when evaluating a startup is the industry that they’re in. You’ll want to know the size of the market and if it is showing growth every year. Only once you have this information, you will be able to determine whether they will be able to grab market share and what owning a percentage of the market would equate to.

One example of an industry that is large and growing significantly every year is Financial Technology. The FinTech industry has now grown to $4.7 Trillion and is showing no signs of slowing down. Also Investments into FinTech startups recently quadrupled, growing from $3 billion in 2013 to over $12 billion in 2014. These are the types of trends to look for when analyzing an industry.

We’ve also found that investors often invest in industries that they know or are passionate about. If you have a deep understanding about an industry, it makes you much more qualified to evaluate the opportunity and if the team is executing at a high level and showing the growth expected in that particular industry.

You will also know the competitive landscape much better if you have experience in that industry. You will instantly be able to match them up against other startups that are in the industry and be able to determine if they are the right team to bet on.

Deal Terms

There’s no proven formula for evaluating Deal terms since pricing a startup is more of an art than a science. A mixture of the company’s traction, industry size, management team and even location in certain instances will determine the company’s valuation.

This is why following the lead investor can make startup investing much more manageable because the lead investor has already set the terms of the Deal allowing you to simply follow-on at the same terms.

If you haven’t already, be sure to self-verify your investor status to get access to trending Deals on Crowdfunder. Once verified, be sure to connect with other investors and entrepreneurs within our network to get notified of all the activity.

via Crowdfunder - 11/30/2015

10 Incredible Solutions to Poverty You Might Be Ignoring

(Image: Juhan Kuus)

Hunger is a symptom of poverty, not the other way around. Many charitable organizations have been fighting hunger for decades, often feeding ‘the same peoples’ over and over again. And a primary goal or mission for some organizations is to enroll as many people as possible onto government social benefit programs, like SNAP (food stamps).

The reason why these solutions above are not sustainable, is because they are focusing on a symptom (hunger) instead of the root cause of that symptom, i.e. poverty.

In our quest for sustainable social impact, Memory Trees offers these 10 solutions:

1. Education

No, not school. Not even books. Education means skills, thought leadership, confidence, an ability to know one’s value, learning how to contribute, and more.

2. Entrepreneurship

Manufacturing and mining jobs are gone. They’re not coming back. The good news is that anyone has the ability to turn stuff (incl. skills) into cash. We teach people how. Maybe you can do the same?

3. Sustainable Food

When we feed someone who is hungry, we solve a near term problem. Usually for a few hours. If we are lucky, maybe for a day. Necessary, but ineffective longer term, definitely not sustainable. Learn about sustainable food. There is an abundance of resources available on this topic.

4. Urban Farming

Look around you. Admire the $$ millions spent on beautification. Open fields with manicured lawns, trees swaying in the breeze. Now imagine all that ‘wasted space’ used for growing something to eat, like fruit trees lining city sidewalks, providing beautification, colors, shade... and food!

5. Micro-Lending

Do you know how little money one needs to start a small business? I am not talking about multi-level marketing scams, or the cost of creating a new social media web application. I am talking about, for example, a cutting board, a chef’s knife, containers, and access to clean water… the micro capital you might need to sell something that you have grown from seed.

6. Food Donations

Emergency relief agencies have this down pat. In fact, some are so well funded and organized that they are building their own little fiefdoms… because he who controls the food, often controls the people. Fortunately, emergency relief agencies do wonderful work. So please keep doing what you’re doing. But, also read # 3 above.

7. Self-sufficiency

Ah, the old “teach people to fish” philosophy. Recently I presented a workshop to nonprofit owners and this was one of my topics. Afterwards, a member of the audience challenged me by saying, “You can teach people to fish, but they still need a rod, reel, tackle and bait…” True. Please see # 5 above.

8. Family Health

I used to call this “Empowerment of Women.” During another workshop, a lady angrily stood up and loudly stated, “Men have a role to play in this too.” Then she walked out. In another session, an irate fundamentalist accused me of supporting "a woman’s right to choose." Both were correct. That is why I changed this header to “Family Health.” This change represents my entire contribution to 'the PC movement.'

The United Nations and other leading research organizations offer studies with facts supporting the direct correlation between female empowerment, and a reduction in poverty levels and/or family income.

For example, Bangladesh was one of the poorest countries on earth. Women of the previous generation had 7-8 kids, on average. Now, their daughters are having 1-2 kids. These mothers and their daughters are learning to become doctors, lawyers, etc. They busy themselves by opening retail stores, or clothing factories where they can employ other women. These employees manufacture the cute clothes you purchase at H&M and Forever 21. It is not perfect, and working conditions are often atrocious… but the ongoing community revitalization efforts are light years away from the previous supressive, patriarchal system where men ruled unequivocally, and with absolute power, before.

9. Social Change

Many people resist education, science, and facts while clinging to long-held beliefs learnt at an early age. Evolution greatly assists in this change management effort, even if superficially viewed as a system that offers humankind “out with the old, in with the new.” Some of our greatest obstacles to embracing change are old adages like, “It's always been this way,” or “That’s not how this works.” Fortunately the earth will ultimately shake off people who resist change... much like a dog might shake off water after a delightful summer frolicking.

10. Public/Private Collaboration

If you really think that your job is done when you have voted for your favorite politician, you might also be surprised “that nothing ever gets done.” No, rather identify and focus on people working for public entities that support your mission. And be persistent in order to get things done. For many people, their primary objectives may include job preservation and recognition. You might not be able to ensure they keep their jobs, but if they help you do yours, you surely will be able to allow them the benefit of receiving (all) the glory and recognition for their great contributions!

At Memory Trees, we are proud of the people who support our efforts... because they get promoted!

Charity vs. The Market

I am responsible for the performance of assets under management (“AUM”) for a few clients and my own, personal investments.

Asset management is not my primary job.

But, I like doing it. My methodology is replicable and simple and my performance has been pretty good since inception. Well, better than the returns posted publicly by many hedge fund managers anyway. No-one really beats 'the market' unless they get lucky. In gambling terms, 'the market' is the 'house.' The house never loses.

I’m not sure whether my achieved returns afford me bragging rights though, because hedge fund managers are often more adept at managing their earnings, rather than client returns. Their objectives can also be referred to as personal Key Performance Indicators, or KPIs.

I have a friend whose father has been managing retail investment portfolios for his clients for many years. He, my friend, recently shared with me that every time the market posts a correction or significant downturn, his father has to spend hours talking his clients ‘off a ledge,’ proverbially speaking.

What does all this have to do with charity?

Well, the thing is this… in general; wealthy people support charities generously. But, the generosity of wealthy people is either limited, or otherwise linked to a large degree, to the performance of ‘the market.’

In a bull market, everyone happens to look like astute and smart investors. Giving is easy when one is receiving (plenty of profit/cash)!

When the market turns negative, as it has been for the last couple of months, charitable generosity is also slowly eroded. Or fast, depending on the severity of the correction!

For example, a local foundation has about $200 million in AUM. This year to date (1/13/16 - at the time of writing the Dow was down 7.5% YTD), their investment portfolio may be down about $15 million. Last year the Dow finished negative overall, meaning that their January losses have exacerbated their investment losses suffered in 2015.

Even if their asset managers placed their portfolio entirely in cash, they would have lost money… at least in inflationary terms, in addition to having to fund their operations from their ever declining cash resources.

When a foundation generates less income (from investments), it needs to reduce costs in order to stay in business, or find new investors. I do apologize if that last bit sounded a little Ponzi-like.

Cost cutting, like letting go of staff, moving to more humble premises, etc. may be viewed as undesirable, especially near term. Not good optics. A less offensive option would be for the foundation to portray everything as ‘business as usual.’ Although they may simply be offering and/or making less grant funding available to the nonprofit agencies that rely on them for financial support, in order for them to do their charitable work.

The above offers at least one sound reason why nonprofit corporations should be managed - just like for-profit corporations - with a focus on financial sustainability, first and foremost.

‘Business as usual’ allows foundations to e.g. host a breakfast at a nominal fee to supporters; and then posting these events and activities to social media sites, or sharing updates via press releases, etc. This presents an opportunity to remain relevant and visible and in the forefront of philanthropy in a respective community. Handing out certificates to large groups of individuals as recognition for community services delivered, also attracts media attention, at very little expense to a foundation.

One of the directors serving on my nonprofit corporation’s board once said, “It’s easy to find a project, but difficult to source funding… manage the business accordingly!”

Being charitable requires a reasonable market return! If you would like to learn how your corporation would be able to achieve a return to profitability, drive net/new (organic) revenue and learn financial sustainability best practices, contact me for a free, no obligation chat.

I do not want to - nor do I have a need to - manage your personal and/or corporate investments… I am simply being charitable!

Top Ten Tips for Buying a House

In my previous post, Top Ten Tips to Building Wealth, I wrote that one should buy a house, preferably paying cash, i.e. without incurring debt. This suggestion generated much discussion.

Yesterday I was having dinner with a friend and we had a brief discussion about purchasing cash vs. taking out a low-interest 30-year mortgage, and briefly the merits (or otherwise) of doing so.

As a follow-up, I thought to post my Top Ten Tips for Buying a House:

1. DO NOT buy a residential home in the absence of Triple D. If you are patient AND plan to purchase a home based on needs rather than wants, you may be able to scoop a cash bargain!
2. If you do your homework, you might even be able to purchase a home for an amount equal to what you have already saved and/or have available as a down payment on a residential property. Meaning, you may be able to buy it outright in a cash deal.
3. Looking to purchase a rental property for investment? You can still buy a house today using a credit card, because there are still thousands of ‘underwater’ properties available after the financial meltdown that was caused by the housing bubble of 2008/9.
4. Accountants will tell you that your home is a (fixed) asset. Albeit correct in accounting terms, it is however, incorrect in investment terms:
• Assets generate active or passive income. If you earn money on a regular basis from residential property (e.g. by renting out a home that you own), that property is an asset.
• Liabilities cost money on a regular basis. If you own a home (whether paid for entirely or not) and you live in it, that home is likely to be a recurring liability, i.e. costing you money e.g. every month.
5. A realtor’s Competitive Market Analysis (CMA) might be interesting, but it has little value beyond “being interesting.” Any house is worth only what a willing buyer is prepared to pay a willing seller... nothing more, nothing less.
6. A realtor is not a financial advisor. In fact, most realtors care very little about your financial health. Realtors are salespeople who care mostly about sales commission (often their only source of income), earned by representing you in a realty deal that closes at the highest price they are able to achieve, period.
7. Any amount of cash required as a down payment represents consideration of ‘opportunity cost’ in relation to other investment/uses that you may have been able to consider for that same amount of cash (awaiting investment)... often better invested elsewhere for a higher return.
8. According to CBS News, for the period 1890-2005, inflation-adjusted home prices rose just 103 percent, or less than 1 percent a year. Comparatively, the historical average performance of the Dow for the period 1899-2012 (a similar period) was approximately 9.4% per year (including reinvested dividends).
9. Many people will disregard costs when discussing their return on investment realized when selling a house. If you purchased a home e.g. 30 years ago for $10,000 and sold it today for e.g. $200,000 your profit does not equal $190,000.
• On the positive side, you can factor tax savings (e.g. mortgage interest deductions), and the fact that you sold the house for more than what you may have paid for it.
• On the negative side, you have to factor in 30 years of costs; like property tax; ongoing repairs and maintenance; realtor’s commission at the time of a sale, opportunity cost of not investing the down payment in 'the market;' adjusting the sales price for inflation over the period of ownership; money spent on unique and/or custom fittings like window coverings; etc.
10. You have to live somewhere, so the cost of a home will always be a liability. This is true in terms of property tax, utilities, maintenance, etc. If unexpected costs (repairs, tax increases, etc.) cause discomfort, then you should rather rent for an amount similar to what it may cost you to make regular payments, for a residential home.

One of the most significant drawbacks to home ownership - especially with debt - is a potential loss of personal mobility. As an entrepreneur, I want to be able to ‘lock up and go’ to wherever business opportunities and/or adventure may present, without worrying too much about the ongoing running costs of owning a residential home.

The suggestions above may help readers to think a little beyond the propaganda that politicians, educators and your parents may have shared in the past: work hard at school, borrow to go to college, get a job, borrow to buy a car, borrow to buy a house… and live happily ever after with a lifetime of debt. This is also affectionately referred to as "The American Dream."

Or... you could simply decide to build personal wealth instead.

Top 10 Tips To Building Wealth

Although people sometimes get lucky (e.g. winning a lottery), most people don’t. That is just a fact of life. So, if we ignore luck, how can anyone ever have an opportunity to get rich?

‘Rich’ is of course relative. Relative to where you live, your consumption habits, basic requirements, how you manage your time (especially free time), and more. I prefer ‘building personal wealth’ to ‘getting rich.’

Setting a goal for building personal wealth is a necessary first step:

- An investment goal should be an amount of money that will allow you to maintain existing standards of living when paychecks stop, offering a return commensurate with spending requirements.

- Retirement is not a goal in itself. Retirement is a more likely a figurative concept of not wanting to work for a boss, rather than a desired end state. Ask anyone what he or she plans to do once they retire. A common response may be, “I plan to travel.” If someone says that, ask what he or she plans to do when they return from their travels… and you will notice how quickly their well thought-out retirement dreams dissipate.

Here are my Top 10 Tips To Building Wealth:

1. Never carry debt on a credit card. If possible, never carry debt at all, unless debt generates an income. Wealthy people use borrowed money to create new stuff, expand their businesses, buy machinery, etc. Poor people borrow money to buy stuff (made by rich people) that they don’t need, can’t afford, to impress their imaginary friends… stuff like big-screen TVs, fancy cars, etc.

(a) Rich people call their business debt ‘leverage.’ Because leverage is what they acquire by borrowing, and usually to achieve a projected future return on investment.

(b) Poor people use words like ‘mortgage, credit card balances, car loans, student loans,’ etc. to describe debt.

2. Earn as much money as possible, while you have the ability to work.

3. Never rely on a single paycheck; rather create 3 or more sources of income.

4. Start your own business.

(a) If you cannot figure out how to make yourself rich, others will hire you at the lowest rate possible to work for them, to make them rich.

(b) You cannot get rich by earning a salary from a single source of income (see 3 above).

(c) A business earns money, spends to pay employees, purchase goods, etc. and then pays tax on what’s ‘left over.’ Employed people earn money, pay taxes, and keep whatever is ‘left over’ after deductions. Spot the difference… it’s easy!

5. When you earn money you can buy a house to live in, preferably paying cash. Yes, this is possible. I have personally done it, more than once.

(a) A house needs to fit your requirements, not your emotions.

(b) As soon as you say, “I love this house” while shopping for a home, consider leaving that ‘open house’ immediately. Emotion disrupts logic, common sense and good investment decisions.

(c) Your house may be an asset in accounting terms, but it is actually an ongoing liability. If someone says, ‘My house is my biggest asset,’ ask him or her how much income they generate from their house on a monthly basis. If they look confused, it’s because they misunderstand the relationship between assets (that make you money) and liabilities (that cost you money). Help them!

Also read: Homebuyer Triple D

6. As soon as you are able to do so - e.g. when your kids leave home - sell your house and downsize to something that fits with your needs (see 5a above).

7. Get rid of stuff. And then… stop buying stuff. If you need a new shirt, buy one. When you get home, throw out an old shirt, or preferably two. Stop hoarding trash; it prevents you from breathing clean air. If you buy stuff that you don’t need, with money that you don’t have… soon you will have to sell stuff that you would like to keep, to pay for the things you bought!

8. Open an investment account as soon as possible and invest in diverse (ideally dividend-paying) stocks across multiple industry sectors. Financial, biotech, energy, etc.

(a) Buy ‘cheap stocks’ and keep them. You will ONLY lose money if you sell underperforming stocks at a loss. Don’t do that!

(b) Right now, most energy stocks are ‘on sale.’ Rich people are buying, while poor people are selling energy stocks.

(c) For example, consider Exxon or Chevron: both offer a dividend yield of around 4%. You will therefore earn a 4% return on investment… regardless of the stock price day to day. Try earning 4% interest in a bank savings account!

9. When you have a stock that is performing very well, consider plugging in a trailing stop. For example:

(a) A trailing stop will allow you to sell out of a position if a stock price were to decline, say by 3%.

(b) If an equity that you own has gained e.g. 40% over a few years, you can use this modern technology to instruct your ‘online broker’ to automatically sell that stock, if it drops by e.g. 3%.

(c) Protect hard-earned gains by only selling stocks that offer a positive return on investment (see 8a above). Understand the difference between realized and unrealized gains/losses.

(d) If your online brokerage platform does not support trailing stops, open a new account with one that does, e.g. TD Ameritrade.

Also read: What Is A Trailing Stop?

10. Reinvest all dividends while you are able to do so. For example, while you are earning a salary.

(a) Create an automatic DRIP (dividend reinvestment plan).

(b) This means, that e.g. when Chevron pays out a quarterly dividend, the cash is automatically used to buy more Chevron stock.

(c) A DRIP allows you to adjust your cost basis (your average stock price), ongoing. It offers some protection against market volatility.

Bonus:

11. Don’t be greedy, and invest for the longer term. The market will go up and down. Over the medium to longer term, the market will go up. There are many reasons why the market will always go up, longer term.

The Dow has averaged almost 7% annually, for more than 100 years, despite the Great Depression of the 30’s, dotcom bubble of the 2000’s, 9/11, the 2008/9 financial crisis, and more.

If you don’t know which stocks to invest in, buy any of the 30 stocks that make up the Dow Jones Industrial Index. These great companies are ‘solid’ corporations that offer good dividend yields, have a strong track record of ongoing success, and offer products portfolios and management teams that are reasonably bulletproof in managing adversity, and more.

If you invest in Dow stocks, be sure to diversify. $10,000 invested in equal weighting across 5 or even 10 stocks, is better than $10,000 invested in any one stock. Think Enron, in case you were wondering.

Also read: Should Retirees Buy Stocks?

Here’s the math: At 15% compounded growth, an investment will double every 5 years. So, start investing early, as soon as possible. At the rate above, $10,000 invested at age 25 would be worth over $1 million, at age 60.

Rudi presents investment workshops to groups of investors for a nominal fee. He does not sell any investment products, and he will not offer to invest or manage your personal savings. He teaches self-empowerment and financial sustainability to foundations, families, corporations, and individual investors.

If you are interested in learning about ‘the market,’ your best investment choices, and building personal wealth, contact Rudi for a customized workshop in your area.