Angel Investment Journal - Angel Investing and Entrepreneur Blog

I found an old post from Mark Cuban via The Great Success blog. The post discusses the idea that Entrepreneurs only have to be right once. Cuban says:

In basketball you have to shoot 50pct. If you make an extra 10 shots per hundred, you are an All-Star. In baseball you have to get a hit 30 pct of the time. If you get an extra 10 hits per hundred at bats, you are on the cover of every magazine, lead off every SportsCenter and make the Hall of Fame.

In Business, the odds are a little different. You don’t have to break the Mendoza line (hitting .200). In fact, it doesn’t matter how many times you strike out. In business, to be a success, you only have to be right once.

One single solitary time and you are set for life. That’s the beauty of the business world.

It is an interesting and accurate post. I think that nearly all Entrepreneurs that have achieved success in a business, have many other business which were not a success. To reach All-Star status in the entrepreneur world, you just need to hit one homer. To get that homer, it helps to have a lot of plate appearances. It also helps if you don’t try to bunt. Dream big.

Marc has a post discussing hiring practices that is pretty insightful. Give it a read if you have time (it is long for a blog post). He discusses three main things to consider when hiring someone:

1) Drive
2) Curiosity
3) Ethics

Drive is obvious.

Curiosity relates to identifying if the position is something that the person would enjoy doing. For example, if you are hiring for a programmer position, does the candidate stay updated on related news and topics? Does he read industry blogs, magazines, forums? Does she have opinions and ideas on trends in the industry?

When testing for ethics, he suggests:

Test for how someone reacts when they don’t know something. Pick a topic you know intimately and ask the candidate increasingly esoteric questions until they don’t know the answer. They’ll either say they don’t know, or they’ll try to bullshit you.

Guess what. If they bullshit you during the hiring process, they’ll bullshit you once they’re onboard.

I like to see what other people do. I don’t think we have a great hiring process, even though we are constantly in hiring mode. We give short intelligence tests at all our companies for all new hires. We are not looking for the brightest people, instead we are just trying to weed out the ones that are clearly lacking in the intelligence department. We only have 17 questions. From experience, the difference in performance between someone that gets 13 right and 17 right is not a big deal in performance. But if someone does not get 11 or more right, it is a telling sign.

When we decided to start giving the test to candidates, we gave it to existing employees.  It was surprisingly accurate in helping predict people with potential and the people that would be better off in another position. Every person that was in the top 30% of our company scored above a certain threshold. Whereas the bottom 30% of the people almost all scored below a certain mark.

It is not an amazing test nor is it extremely accurate at predicting just how well a person will do. But it is one tool that helps us in identifying people we should avoid hiring. That alone is a great help because one bad employee is a drain on any company.

In Austin Powers, Dr. Evil plans to “hold the world ransom for… 1 MILLION dollars!” He is laughed at because the amount is so small. He later increases his demand, but you could take a lesson from this. Don’t try to request too much money when you are starting.

I see many entrepreneur’s seeking seed investments that want to get enough funding that will take them to profitability. There may be reasons why you need to get all of the money up-front, but I would highly advise entrepreneur’s to consider seeking a smaller amount of money from the beginning. Why?

1) Your estimation on the amount of time and money it will take before you are profitable is likely much lower than it will actually take. You will likely need to get additional funding in the future even if you think you will have enough. So trying to only require one round of funding may be pointless anyway.

2) It will be much harder to raise the amount of capital you seek if it is too high. First, most angels (or angel networks) prefer to invest in deals under $1 million. Plus, the less you seek, the more likely you are to find the sweet spot of more investors, which can only create a better situation for you in terms of speed in which you can get funding, deal terms, etc.

3) Related to #2, getting the funding quicker will allow you to begin work on the business and spend your time on what actually matters. Wasting your valuable time trying to raise a million dollars when you could actually get 6 months out of $150,000 may not be the best idea.

4) One of two things will happen once you get started. You will start seeing some success and you will have evidence that your idea is valid and has big potential. The other option is that you won’t see this success. If you can’t prove the idea has potential fairly quickly, then you are likely going to have problems with your entire business, not just when it comes to getting investments. If you can show your idea has potential, getting additional funding is not likely going to be a problem. People are much more willing to invest in a proven concept than a simple idea. In addition, you will probably be able to retain more equity since you will be able to increase the valuation of your company. If you had received all of the money at the beginning, your valuation would have been lower and the equity would have been more expensive for you.

LifeHacks has a great post on the dangers of being fearful of failure. This topic has been discussed countless times and deserves discussions because the concept is so vital. Regardless of whether it relates to an Entrepreneur starting a new venture or an existing business trying new things, the fear of failure is a major thing that prevents most people from trying new things.

People say there is no better way than to learn from your mistakes. I agree that there is not much that will drive home a lesson better than a failure. However, you should also strive to learn from other’s mistakes since it is a much cheaper method. The only problem is that many times it is also less effective.

The GoBigNetwork had an interesting post today about bailing on at least one of your ideas. Coming up with new ideas and taking the initiative to carry them out is hugely important in whatever it is that you are doing. The post claims it is equally important to bail on certain ideas.

This could be for an idea that you feel is good, but if you actually thought about it and were able to carry it through, it would not likely result in a large rewards. I think this concept has merit, especially because you never want to get spread too thin. You should focus on the things that are the most valuable to you. If you are 100% dedicated to something compared to trying to go after 2 things at 80%, the 100% dedication will likely increase your chances for success, even though you are less diversified.

This definitely does not mean you shouldn’t go after new ideas or new concepts. Trying new ideas is of extreme importance and is required to achieve success. And even going after an idea that turns out to be bad may not necessarily be a negative because you are likely to learn something or may even find a new niche as a result. But you do need to be mindful of how you dedicate your limited resources.

VentureHacks has a good post discussing ideas to consider when you are determining whether you should raise debt or equity for your company.

Paul Graham has a great piece called The Hacker’s Guide to Investors. He makes a lot of great points, but a very interesting point is this:

“A high valuation can be a bad thing. If you take funding at a premoney valuation of $10 million, you won’t be selling the company for 20. You’ll have to sell for over 50 for the VCs to get even a 5x return, which is low to them. More likely they’ll want you to hold out for 100. But needing to get a high price decreases the chance of getting bought at all; many companies can buy you for $10 million, but only a handful for 100. And since a startup is like a pass/fail course for the founders, what you want to optimize is your chance of a good outcome, not the percentage of the company you keep.“

In addition, a valuation that may be too high may make it difficult if you need additional funding. Mainly because the initial investors want to see that their investment has increased, so they will expect the next round to be higher. However, if you increase the valuation too much, it makes the investment less attractive to the potential investors in the next round.

I student taught (in the second grade) and one day I had the class lined up and ready to leave, but we had about 2 minutes before the bell rang to let them out to the bus. As you probably know, 26 second graders standing in line is an eternity. So I asked them a simple question. “What are 5 things you learned today?”

Every hand shot up and we got to the fifth thing right before the bell rang. The interesting thing was that we had a quiz a few days later. One of the questions on the quiz was something one of the kids brought up when talking about the 5 things they learned that day (it was a coincidence, I didn’t plan it). EVERY kid got that question right. I like to think it was because I was such an awesome teacher, but in reality, it was more likely a result of the kids reflecting a little on their day and about what they learned.

As many people will tell you, experiencing something is probably the best way to learn something (and that is usually done in the form of a mistake). But one problem some people have is that they don’t learn from their experiences or mistakes. That is likely because they do not take time to reflect on it. Without reflecting, hopefully you will learn something subconsciously, but taking time to think about what it is you learned and defining it is a much more effective way to learn.

You probably have the chance to learn 50 things every day, whether they are new or just reinforcements of what you already know. The problem is that most people don’t actually get as much from the day as they could since they don’t reflect. Everyday at 4:45pm, I have a reminder that pops up reminding me to “Reflect” for the day. So I try to think about what it is I learned that day and I write these things down in a file. Some are from reading (blogs, books, magazines or something else), some are concepts I come up with as a result of something that happened that day, and others things come out by accident (maybe while driving).

But even though I take the time and effort to reflect, define what it is I learned, and write it down, I still have the challenge to get myself to go back and read what it is I have learned for some reinforcement.

I decided to do this post as a result of a post on Brad Feld’s Blog - I’ll Never Do An Investment In That Kind of Thing Again.

The Business Plan Archive has a nice post about lessons that should be learned from the Dot Com Meltdown.

Technomagic tells you why you should make something people want.

GoBigNetwork, a resource connecting entrepreneurs seeking and investors, has a post talking about what start-up offices look like.

Redeye VC discusses the concept of failing cheaply.

Congress is discussing passing legislation that would give tax breaks for angel investments. Tax breaks are given to corporations for a variety of things and they get tax breaks for moving (or keeping) a factory in a certain city, state or even the country. But how much does keeping factory jobs in the US actually help the economy? Companies that are pursuing new ideas and innovation are things that have grown this country (and others) and encouraging that type of activity is a fantastic way to continue economic development.