It's Pronounced Chookshaw

The semi-professional blog of Albert Ciuksza Jr.

Month: October 2009 (page 1 of 2)

But Wait… There HAS to Be More

It was reported today (via PopCity) that eighteen Pittsburgh companies raised $78.27 million in venture capital in the third quarter of 2009. This is obviously very good and echoes what my hunch was in my post about the feelings of optimism at AlphaLab’s Demo Day. The more money we can get across the continuum, the better, especially in the very early- to early-stage funding categories.

However, this is only part of the story. If you look at the PricewaterhouseCoopers (my spell check believes this word should be ‘slaughterhouses’, by the way) MoneyTree report (the source of the VC funding data point), you’ll find that a lot of critical investment money isn’t included in their research, including angel investment (see the criteria summary here). Obviously, the report is invaluable in allowing us to track what kind of investment activity is happening across the country, but I feel like there are some gaping holes in really being able to assess how much entrepreneurial funding activity is happening in a given area.

I suppose this is because it is very difficult to track this type of investment. For instance, a business plan project on which I worked will likely be funded within the next three weeks at about $50,000 (obviously a very early-stage investment). The individuals involved aren’t what I would consider part of the “entrepreneurial community” in the region, so no one will know about it. This also goes for another project on which I worked, which secured $500,000 in its first round; there were no trumpets sounded or press releases written, yet the company opened the offices in the heart of Pittsburgh with six new jobs within city limits.

Is the nature of angel investment such that tracking it just doesn’t work? Are angels usually uncomfortable having their investments publicly discussed? Or do many people in the realm simply not care about having this type of investment counted? While there are good arguments to be made that Pittsburgh needs more risk capital than it has available, I believe the picture has to be better than even what the PWC report says.

So, how do we keep better track of this information? How do we make it easier to brag about Pittsburgh’s entrepreneurial community?

Great Presentation on Social Media Measurment

I don’t have much to add; pretty much explains itself…

Dunbar’s Number vs. Ambient Awareness

In February 2005, I was in the dining room of a friend’s house anxiously awaiting the last few seconds of the game clock to expire before I could celebrate my first Steelers Super Bowl. As soon as Coach Cowher lifted his arms in celebration, the fifty or so people gathered at the house party started to yell, cheer, hug and, in some instances, cry. While this didn’t surprise me much – as a faithful member of Steelers nation, I’ve shed a few tears myself – I was taken by the number of text messages I received from friends all over the country, many of whom I had barely spoken to since last time the Steelers were in the Super Bowl (1996). For about twenty minutes, my phone constantly buzzed with ‘Congrats’ messages. I was embarrassed by the number of replies that I sent that said, “Thanks! Who is this?”

This story came to mind when I happened upon a post by Seth Godin (thanks Twitter@paulfuriga), who had written about Dunbar’s number, a theoretical mental limit (150) to the number of people that can maintain a cohesive unit. Using the theory to reinforce his concept of tribes, he says the following:

Some people online are trying to flout Dunbar’s number, to become connected and actual friends with tens of thousands of people at once. And guess what? It doesn’t scale. You might be able to stretch to 200 or 400, but no, you can’t effectively engage at a tribal level with a thousand people. You get the politician’s glassy-eyed gaze or the celebrity’s empty stare. And then the nature of the relationship is changed.

As a result, he seems to suggest (but never says) that social media can’t really build a tribe because you/your company/your brand have to be pretty special to take the place of a friend/family member/colleague in someone’s life.

I thought about how this contradicted the concept of ambient awareness, a concept to which I was introduced in a New York Times Magazine article titled Brave New World of Digital Intimacy. The author, Clive Thompson, says:

But where their sociality had truly exploded was in their “weak ties” — loose acquaintances, people they knew less well. It might be someone they met at a conference, or someone from high school who recently “friended” them on Facebook, or somebody from last year’s holiday party. In their pre-Internet lives, these sorts of acquaintances would have quickly faded from their attention. But when one of these far-flung people suddenly posts a personal note to your feed, it is essentially a reminder that they exist. I have noticed this effect myself. In the last few months, dozens of old work colleagues I knew from 10 years ago in Toronto have friended me on Facebook, such that I’m now suddenly reading their stray comments and updates and falling into oblique, funny conversations with them. My overall Dunbar number is thus 301: Facebook (254) + Twitter (47), double what it would be without technology. Yet only 20 are family or people I’d consider close friends. The rest are weak ties — maintained via technology.

The author covers Dunbar’s number in the paragraph before, also saying that it is absolutely a limiting factor and that, in his interviews, he found that folks who are using ambient awareness tools to maintain weak ties are still living in that 150-person limit because, as he says, “deep relationships are still predicated on face time, and there are only so many hours in the day for that.”

This is where the Steelers story comes in — you build a brand and, because of the weak tie you build with the consumer, they take the effort to engage you (in my case, tracking my number down on Facebook to send me a text message). They didn’t need to know where I went to college or where I was living or what relationship I happened to be in at the time. All they knew was that I was probably pretty excited about the win and that they’d take the time to acknowledge that fact.

When I was consulting with a collision repair company, the general manager described his marketing challenge like this — you have advertise and market yourself enough for people to be aware of you in the not-so-good event that they need your services. Otherwise, who really wants to think about auto collision repair? As long as people had enough knowledge about the shop tucked in the back of their head, he figured, they would come to him when they needed his service.

Frankly, I think Seth Godin’s invocation of Dunbar’s number (despite what he says in his post, it is not a law), is misguided with respect to social media. No, I don’t think it is easy to develop that tribe  and yes, in order to do so, you have to fill one of those Dunbar circle spots in someone’s awareness. But, I believe social media works because of Dunbar’s theory, not at the expense of it. Those weak ties are exactly what makes it a killer app. No, your company might not be able to build a tribe, but few products can survive by selling to only 150 people. If you’re more worried about establishing a tribe than building awareness, you’re likely to fail. However, if you focus on building valuable ambient awareness (Paul Furiga and his team at Twitter@wordwritepr are a great example), you’re able to position yourself when someone has to think about needing your product or service.

Financial Projections Made Easy (Well, Easier)

Something that seems to scare most entrepreneurs is figuring out how to do pro forma financial projections. It’s scary stuff — you really don’t know what the costs are going to be, what your sales are or how exactly you’re going to have the cash flow to make payroll even before you start. All you know is that you have a product idea, and maybe costs or the right price point. Beyond that, you’re really not sure.

I’m not a finance wizard, but I’ve pulled several pro forma financials together for various businesses. The long and short of it is, every investor/bank wants to see the same stuff — sales, cost of goods sold, expenses, net profit, etc. It’s not altogether difficult, but the process can be very intimidating.

I have some things that I’ve followed along the way below the fold . However, to get you started, I’ve developed a starter template that I’ve used on several projects (albeit with some significant edits) that you’re free to download (FinancialsTemplate.xls – 118kb). This should help get you started, but realize that it’s only a template and I don’t take responsibility for your final version.

Thoughts and tips are below the fold… Continue reading

The $100 Identity Start Up Kit

I don’t need to delve into the importance of a good marketing plan — it’s been said a thousand times by people far more talented than I. However, tactical implementation gets tough on a very limited budget. Folks in startups often believe that people (potential funders, customers, etc.) will look beyond design/collateral because the product/service is so superior, so they decide that creating a professional image is very low on the to-do list. However, the short-term cost savings can severely cost them in terms of funding and sales.

Having worked in a startup environment with very few resources, I was able to create some identity pieces and collateral that looked very professional for not a lot of money. I have incredibly high standards with respect to graphic design and print quality (true story: I will use a magnifying glass to look at how a piece is printed), so I have experimented with many solutions in order to maximize look on a dime (or penny, even). Here are my thoughts and some do’s and don’ts… Continue reading

The Entrepreneurial Test

This is a cool quiz written by Northwestern Mutual that’s based upon research they and others conducted regarding the traits of entrepreneurs. I highly suggest that you take a look:

http://marriottschool.byu.edu/cet/startingout/test.cfm

While I’m not surprised by my overall score (37, which puts me two over the line for an entrepreneur), I was surprised by the scoring of a couple of the questions. For instance:

Entrepreneurs are not especially enthusiastic about participating in group activities in school. If you enjoyed group activities—clubs, team sports, double dates—subtract one. If not, add one.

I was pretty active in clubs and organizations in school (band, football, theater, and spending time with different cliques), which I would expect to breed the type of leadership skills that help foster an entrepreneurial mindset. Another:

Do you believe being an entrepreneur is risky? If yes, subtract two. If no, add two.

This really confuses me — doesn’t everyone consider being an entrepreneur risky? I obviously believe that it’s a risk worth taking, but I’m still surprised by the scoring on the question.

Has anyone else taken this survey before? What are your thoughts?

Reactions to AlphaLab Demo Day

AlphaLab

AlphaLab Logo

Instead of a summary of each company (Alan Veeck (twitter-feed-icon-12x12 @aveeck ) at Meakem Becker Venture Capital and author of Pittsburgh Ventures blog did a fantastic live blog roundup of the companies here), I’d like to toss out some gut reactions to the companies, presentations and the feel of the environment overall.

  • In monitoring local media, it seems like there has been a lot of funding activity in the region recently, from early stage angel investments to larger acquisitions of Pittsburgh-based startups. That feeling of optimism was present at the event today as well, and from the folks I was able to speak with, there might be more good news coming down the pike.
  • It was great to hear about some of the success stories coming out of AlphaLab. One of my personal favorites is a company called The Resumator, led by Don Charlton (twitter-feed-icon-12x12 @TheResumator). They’ve gotten some serious press and some seed funding post-AlphaLab, which is helping them to expand their feature set.
  • Social is everywhere. Absolutely everywhere. It’s hard not to get sick of hearing about it, but it really doesn’t make it any less important. I’m reminded of when everyone was talking about the internet being game-changer in the late 90’s-to-early-’00s — while it was so annoying to hear, the folks saying it were absolutely right.
  • The actual design of the various PowerPoint presentations was pretty good. I know it sounds superficial, but a stylish presentation makes a company look much more “together”. Great job, everyone.
  • Loved the presentation by Nick Pinkston, CEO of CloudFab (twitter-feed-icon-12x12 @cloudfab). I continue to believe that storytelling and metaphor are the best way to connect with an audience, and I think Nick did a very good job of doing just that. Speaking with him afterward (both about his company and about using his technology to develop some components for a project on which I’m working), it was evident that he sees this as a product customization revolution rather than simply a sourcing opportunity. I love the vision.
  • Fooala has developed a site called CollegeBite (twitter-feed-icon-12x12 @collegebite), a very cool open ordering platform that enables restaurants to create/expand an online presence using mobile and the web. One of the things I loved about it is that I’ve already used the site! While the presentation was a bit difficult to follow at times, I did find the team to be very, very strong. Finally, they’re classic Gen Yers —  smart, mobile, experienced, passionate, hungry and making a difference. Two of the guys are from Duke, one of whom met one of the CMU founders while in Sydney, Australia. What a story.
  • Brian at NavPrescience has a compelling pitch — a software package that is integrated into GPS functionality that learns your driving habits and adjusts routing and point-of-interest suggestions accordingly. One of my favorite lines of the day was Brian’s deadpan delivery of “[GPS] devices are pretty stupid”, referring to the dictionary definition of  “slow to learn and understand”. As a recent owner of a BlackBerry Tour with GPS capability, I’ve found how dead wrong TeleNav can be with even the simplest of directions (he cited that only 35% of GPS routes are actually ‘fastest’, confirming my experience). Brian’s use of a scenario in his presentation (there’s that storytelling again) was very engaging. Things that I disliked are mostly brand-oriented — I’m not a fan of the name (I keep wanting to say NavPresence and the word ‘prescience’ is a bit SATish) and the logo is a rough (use of Verdana, complicated design and the invocation of magic when the system is built on three years of solid R&D at CMU). I know that the company isn’t looking to sell to consumers, but it’s still something that could be improved.

While it’s a tough time for everyone in this economy, I’m really optimistic about the entrepreneurial community here in Pittsburgh. Being named the second-best place to start a small business in the U.S. doesn’t hurt, either. All-in-all, I have to commend AlphaLab Class #3 on a job well done.

Pittsburgh Named Second-Best Place to Launch a Small Business

This is just great news for the region. The more people realize how economically viable this region is for small businesses, the more robust the entrepreneurial community will be. While the challenges this region faces are pretty well documented, this type of press is really important.

http://money.cnn.com/smallbusiness/best_places_launch/2009/snapshot/258.html

Update: For those who don’t want to click through…

Greater Pittsburgh is home to a workforce with hard-won manufacturing skills from the city’s steelmaking past. Need machinists? They’re here — and that’s a draw for small businesses.

The region combines that talent pool with a mix of highly educated students from the University of Pittsburgh, Carnegie-Mellon University and Duquesne University. Those institutions helped make Pittsburgh a leader in robotics, healthcare, and artificial intelligence. Locals cite the city’s culture as one of its biggest selling points: There are tight-knit neighborhoods, many built around eastern European communities that prize a strong work ethic.

Most of the city’s small businesses are family-owned concerns that have morphed to serve new markets. Resources like the Institute for Entrepreneurial Excellence help both startups and generations-old companies get the skills they need. Pittsburgh’s location on major North-South and East-West interstates connects companies with distant markets and suppliers.

State taxes aren’t low, and the recession-fueled tax shortfall hurts: The state may have to take over Pittsburgh’s pension system. But small businesses say the local workforce is resilient, and with valuable, transferrable skills.

To Offshore Or Not To Offshore…

I was discussing with a couple of folks who work with entrepreneurs and startup companies a rough design and production plan my team was planning to use in a venture we’re in the process of launching. One of the strengths of our plan, I said, was the use offshore design and production, which will allow us to sell our product at a beyond-competitive price (more than half than our next competitor). One of the people with whom I was having lunch turned to me and asked, “do you really feel comfortable with using foreign labor?” He was making a significant point with a simple question. I justified the decision, saying that I knew the people involved in managing the manufacturing facility and was aware that each employee was paid well, was provided with health care for themselves and their families, worked reasonable schedules, and worked in a safe environment. However, no matter how well the employees are treated, the fact remains that production isn’t happening in the U.S.

On one of my first major projects, I had fought for using for domestic manufacturers to produce some of our components. While the management team believed that we couldn’t get a competitive price in the U.S., I insisted that we price all of our parts domestically. The result? Most everything we priced was four-to-10 times more expensive in the U.S. than through our international suppliers. While there were arguments to be made that the savings weren’t worth the opportunity cost (time between ordering and getting the product in the door, for instance), it was almost universally impossible to make our margins work using domestic suppliers.

Since those early fights, I hadn’t really thought about domestic vs. offshore supply chain. Every project in which I’ve been involved has used an offshore provider in order to be price-competitive. I realized that I had moved on from the ‘Buy American’ value that had been passed down from my grandfather, a foreman in the famous Homestead Steel Works.

It’s not just in physical product development. At a presentation I attended at AlphaLab last year, one of the portfolio companies, a social networking web site geared toward a specific audience, openly discussed their use of Indian programmers. It struck me at the time — for a city like Pittsburgh that is so rich in IT talent, it still made sense to offshore the work.

I’m truly conflicted about this issue. On one hand, I think it’s important to support U.S. jobs in order to maintain a robust economy. On the other hand, few startups can raise the type of capital, and make workable margins, using domestic labor and suppliers. How can entrepreneurs pass on the opportunity to increase their product margins, which will make their companies more likely to be funded, financially successful, and viable? Is this an ethics issue or values issue? Do entrepreneurs really have a choice?

Inventors Should Learn From The Green M&M

Green M&M

Green M&M

During the Spanish Civil War, Forrest Mars, Sr. saw some soldiers eating little chocolate pellets surrounded by a sugar shell, preventing the little pieces of chocolate from melting. He perfected the process, patented it and, along with Bruce Murrie, began production in 1941 exclusively for the military. The candy hooked thousands of GIs and the company began selling to the general public after the World War II ended, establishing M&M’s (Mars & Murrie) as one of the best-selling chocolates in history.

In nearly 70 years, the product has grown from a treat for soldiers to one of the most extended products in the world, with multiple fillings, flavors, customization options, colors and sizes that are sold in stores ranging from gas station stop-and-gos to the massive M&M’s Store on the Las Vegas strip.

What can entrepreneurs learn from Mars and Murrie? The customer’s vision (and money) drives product direction, not the entrepreneur. If Mars had stuck with his original product vision, the product would be relegated the memories of those who fought in World War II. There never would have been the addition of peanuts in 1954, peanut butter in 1990, the blue M&M in 1994 or a wall of “My Color” M&M’s anywhere. Certainly, there never would have been a customer-driven rumor that green M&M’s are an aphrodisiac, which has led to product extensions itself (bags of green M&M’s sold on Valentine’s Day, the sultry female M&M character featured in much of the company’s advertising). While there’s market research behind the moves that M&M’s makes, customer demand drives the vision of what the next M&M innovation will be.

One of the greatest challenges that inventors face is internal. Many inventors, who have invested countless hours and dollars perfecting their product, become so closely aligned to their own innovation vision that they lose sight of the customer. They restrict the vision of the market that they’re creating, which turns off potential customers, investors, champions and referrals. This eventually leads to game-changing technologies dying on the vine because the inventor thinks they’re smarter than the market.

Inventors and entrepreneurs must realize that they lose control of their product the minute they develop it. As soon it goes from concept to execution, the customer dictates whether or not the product is viable and what improvements should be made. Customers are smart. Follow their lead. And always remember that it was the customer, not the inventor, that created the green M&M.

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