Strategy has always held a specific interest for me.  In my past life, while climbing the corporate ladder, I was exposed to a strategic management process called The Balanced Scorecard.  In the early 1990's, two researchers, Drs. Robert Kaplan and David Norton, realized that simply using financial measures to determine the effectiveness of a firm's management team tended to focus more on short term tactical thinking and overlooked long term strategic success.  The result was a report in the 1992 Harvard Business Review called the Balanced Scorecard which was later published into a series of books.  There is a quote from Balanced Scorecard: Translating Strategy Into Action that explains why companies fail.  It's not from a failure to plan or to develop a good strategy.  It's usually because the management team failed to execute the strategy, despite the fact they measured financial performance.

This was all very interesting stuff but it seemed more appropriate for larger companies.  In fact, when I began working with startups, I kind of forgot all about The Balanced Scorecard.  My Kaplan and Norton books still have a prominent place in my library but it seemed that the problems of entrepreneurs were much more real time and fluid; more improvisational like a jazz musician than the formally trained classical virtuoso.

So today...., I am Googling the Entrepreneurial Scorecard looking for when the new Michigan study will be available and there......

...there it was.....

"Entrepreneurs use Balanced Scorecard..." 

I just had to go for a swim.  And sure enough, it was deep.  The article is very well written but it is an 18 page white paper written by Robert Lussier and published in The Journal of Small Business Management.  Here is a link: Entrepreneurs and the BSC  For those who are really into the strategic planning process, it is well worth the read.  BUT FOR THE REST OF YOU....

The four basic perspectives of the Balanced Scorecard are worth your consideration, even if you are the only employee in your company right now.  One day you will be managing a group of people and eventually, they will be managing groups of people.  By that time you will need a good tool to keep things on track and it won't hurt to begin thinking about that now.  Besides, the framework applies to any size company.

1. Financial Perspective- This is the one we are familiar with.  This is the shareholder's perspective and it is still just as relevant.  Even though you may be floating your company month to month on your credit card, you still need to keep careful track of your revenues and costs.  Your investors will evaluate your company's value based on your financial statements.  They will hold you to the financial goals you set.
2. Customer Perspective- What measures should you have in place to determine whether or not you are meeting your customer's needs and expectations?  The CEG training programs stress the importance of understanding customer pain and what translates the features of your product or service into customer value drivers.  Later when you have hundreds of customers, you can measure satisfaction, repeat business and so on. But what delivers value to your first customers and how can you measure that? 
3. Internal Perspective- This is a measure of the processes that run your company...things like quality, on-time delivery, sales cycle, cash receivables, etc.  But right now, it's just you , your accountant and a few service providers you outsource to.  You still have to make sure things don't fall into a crack and the bills have to get paid sometime.
4. Learning and Growth - This is the perspective of the company employees, making sure they stay motivated with the right incentives.  In short, it is your company culture.  Begin thinking now about the culture you want to have and how you are going to attract the right people who will be productive while fitting into that culture.  Perhaps you will share some equity in lieu of big salaries for your key first employees.

I realize I'm asking questions instead of giving answers but the point here is to introduce you to a strategic management process that will help you manage your growth as you achieve sustainability.  The article above has three good case histories of small companies who are successfully deploying the Balanced Scorecard as a way to ensure they stay on track with the most important things to their business.  You may even get some ideas you can implement sooner than later.

While trying to decide how to post something profound to start the year, I came across this post from Ben Dyer at TechDrawl:

http://techdrawl.com/pushing-a-rope-the-entrepreneurs-dilemma/

Ben talks about a few relevant things.  He is an angel investor and he mentions the fact he looked at over 1000 deals in 2009.  WOW!, that's 5 a day and the point is that in the Southeast, we have done a good job on the quantity of deals.  But, now the focus has to turn to the quality of the deals.

Looking at more than 1000 deals sheds some great insight into those comapnies that are likely to make it and those that are not.  Ben challenges us to think about when it's time to move on to the next opportunity.

I'll leave you to ponder your existential thoughts and share them with Ben on his blog post.  It's the "quality" thing that caught my attention.

Ben is right about the need to focus on becoming more sustainable, even while you are raising capital and the point I'd like to add is this: Don't develop the perfect product.  Rather, develop the product that delivers the basic value proposition your customers are looking for to solve their pain.  This approach does a few things for you:

1. It brings focus to the customer's pain
2. It gets your product in the hands of users so the real feedback process can begin
3. You don't spend time (and your precious capital) developing features that won't make a difference
4. IT"S ABOUT THE CASH!!!!  You get to the market earlier, which brings in revenue and captures market share, which builds value, which differentiates you among the other 999 deals Ben will look at in 2010.

Don't develop the product you want customers to have.  Develop one that solves their problems and there is only one way to find that out....ask them....before you give them your solution.  Once you know what they need, get it in their hands as soon as possible and sell, sell, sell!

If your solution does not solve a problem at a price customers are willing to pay, perhaps you are "dogfood.com" and that's how to tell when it's time to move on.  (a nod to Guy Kawasaki...)

Bottom Line:  2009 was a tough year to raise capital. You still have to do it in 2010 but make sure you are focusing as well on getting into the market as soon as possible.  That is the pathway to sustainability.

We added a new page to OOTG to start the new year.  Check out Entrepreneurial Quotes. We put a few up there already but the great thing is, you can add your own.  You ever know... we may put one on a tee shirt soon...

Have fun...

Be inspired...

Anytime you get into negotiations, things can get heated; and anytime things get heated, you tend to hear this popular phrase.

What a CROCK!!!

It IS just business but it's personal too because it's YOUR business.

So you've met three times with an investor who seems interested but each time, he needs more information.  He hasn't said "no" but he isn't getting to "yes" either.  And now he is challenging you over assumptions you thought were made clear in the first meeting.  It seems you are circling back and rehashing your value proposition for the tenth time; and if he makes you explain your business model one more time, your head will explode.

"Is this guy an idiot?" 

"Does he think I'm lying?" 

"I already answered this question....ten times."

"That's NOT what I said."

So what do you do?  You get through it.  That's why they say it's just business.  There's no way you can get inside the head of the person with whom you are negotiating.  Therefore, you can't really know why they are delaying or asking the same question over and over.  Typically, they will have their reasons.  Here are some things that might help you get through this process.  These are more aimed at preserving your sanity rather than negotiating tips but they may work there too.

Have a mentor or advisor in the wings - This is someone you can call after the meeting and unload.  This person will listen to you rant, which gives you the chance to hear yourself say the things you bottled up inside your head.  "Getting it out" is part of your own way of processing the situation.  This person will also be the one to remind you of the bigger picture here and keep you focused on the end game.

"Seek first to understand, then be understood" - Steven Covey was right.  If the same question keeps coming up, there's a reason.  There is often a question behind the question and you need to get to it.  You may not get there but you have to try.  Be direct, "Help me understand why you are asking that question."  Or, rephrase in your own words to make sure you understand, "what I hear you saying is...."

Bring a friend - Maybe it's your partner or your key advisor.  This person's role is to watch, listen and take notes.  When you're in the spot light, you can't watch everyone in the room.  It's hard to stay focused on your message and read body language at the same time.  If your friend is really good, they can read you when things get heated and they can interject with a key question from "Seek first to understand..."

Summarize the meeting - make sure you know specifically what they are asking for and how they want to see your answer.  If they are asking for a pro forma financial projection, understand if they want to see 3 or 5 years; quarterly or monthly breakdowns, etc.

Exceed their expectations - Once you understand the questions, think about why they were asked.  There are always questions behind the questions.  For example, if your business model is questioned, find examples of other successful companies that have employed a similar model.  Provide their company links.

Get the next meeting - Get them to commit to a time frame.  If it's a week, you may be challenged but do it.  If it's two months, there's cause for concern.  If it's "we'll call you..." make sure you have a second investor lined up.

Keep a cool head - Your frustration will show through so keep this in mind: If you have a meeting with absolutely NO questions, that's a bad sign.  The fact they are beginning to dig into your business means they are interested but they have questions or concerns.  The better you understand these questions, the more you learn about your value proposition and how to communicate your business model.  You may not get this deal but you will have learned something about your company and about yourself.

Getting a deal is tough, even under more promising economic circumstances than now.   Investors  manage risk by their due diligence process. More risky times, means more rigorous due diligence.  It can be a delay tactic meaning they like your company but they can't invest right now.  Our experience has shown that an entrepreneur will pitch his or her company more than 25 times before they close an investment.  Less than 10% of the companies seeking an investment get a deal.  That's a lot of rejection.  But... this is also great feedback... for your presentation, your business plan and model, your strategy and your value proposition.  In a strange way, negotiations with potential partners and investors is part of your market research and these experiences will help you validate your business model. 

So, take it personally but deal with it.   Channel your passion into action.

The Small Business and Entrepreneurship Concil (SBE Council) has released it's 2009 Small Business Survival Index and Tennessee ranks 13th in the US.  The Index measures over 36 trends that indicate the costs of each state's public policy that affect entrepreneruship and small business.  These measures include taxes, government spending, property rights and various regulatory costs.  This is the 14th installment of the SBE Council's annual report.  South Dakota has a perfect record in the last five years of placing 1st.

For a link to the full report: http://www.sbecouncil.org/uploads/SBSI2009.pdf

Are you an Inventor or Entrepreneur?

 Same thing you say...

I don’t agree.  Sure, some inventors can be good entrepreneurs just like some entrepreneurs are inventors. But, inventors need to do some soul searching before they embark on a journey to commercialize (bring to market) their invention.

Take the case of Terry.  He was a great inventor.  He could spot a common everyday problem a mile away and then come up with a solution.  He loved solving these problems and building a product to solve them. He had a garage full of prototypes, molds for plastic parts, tools to make parts out of wood, metal, and plastic.  He had tried to market these new fangled solutions too. He even received a couple of patents. The problem is that he only sold a few of the products.  He’s not sure why. He had paid for a web site and listed the solutions that he designed there.  Why didn’t people beat down his door to buy them?

Now he was broke.  That last product really cost a lot for the injection molds.  When he tried his bank for funding they just laughed at him.  The local angel investor group was no help either.  They said he needed a business plan.  Well, he created one.  It took him two days.  Ten full pages of technical descriptions, drawings, and pictures of his prototype.  Oh, he had a paragraph on marketing and sales too.  Still, they weren’t interested.  They said something about a value proposition, whatever that was. Now he doesn’t know what to do.  No sales, no money, and no prospects to get any.

Tom was an inventor too.  He could also see problems and solutions.  Tom was pragmatic though.  If the problem wasn’t big enough, for a large potential base of customers, he wouldn’t waste his time on it. When he did spot a problem that looked like it affected a lot of people, he would work on it.  He would also, investigate the people it affected.  How did it affect them?  Was it likely that they would pay for a solution?   If so, how much?  Was the group large enough to support a business? Could the solution become a technology that could spin off other applications, thus increasing the size of the business and lowering manufacturing and development costs? Did his solution bring value to the people who had the problem (the value proposition)?

If Tom believed that he could actually make a business from the solution to this problem, he would start to socialize the business model (what the company would do to make money).  At first, it would be with trusted friends, colleagues, and other experienced entrepreneurs that had worked with him and invested in his businesses in the past.  He would see if they got the idea.  If their eyes lit up and they got excited, he knew that it just wasn’t wishful thinking on his part. He may actually have something.
So now Tom would make a prototype, keeping it simple and not gearing up for factory tooling.  Not yet. He would also start putting together a business plan.  He would start with the problem and quickly describe the customers that the problem affected.  He knew a lot about the ideal customers for his product. He could see them in his sleep and he described them in the plan. He also knew how to reach them in the marketplace. So his marketing plan and sales plan came together quickly. When he got stuck on a section he asked for help from his friends and colleagues. They could see the plan come together and offered to join Tom in his business. Needless to say, early funding to get several prototypes completed and tested with some of his ideal customers was not too difficult.  Tom and his team learned a lot from those tests and made several key changes that would make the product much more successful.

Tom never did get a patent.  He knew that he could bring the product to the market fast, keep improving it, and spin off several other products before his competition could react.  And that is just what he did.

Terry and Tom are both inventors, but only Tom is the entrepreneur.

Todd Fisher is a Director with the Center For Entrepreneurial Growth

Our friend Bob Parker contributed this brief piece about managing your cash.

Cash Is King

Being a business owner in these economic times, you’ve most likely already experienced the importance of cash and cash management.  A large portion of businesses and start-ups fail due to the lack of proper cash management and having the available cash to meet commitments.

A tendency of many business owners is to manage their cash by using only the bank account and check register information.  This is good information in that it tells you the amount of cash in your account at that point in time and what checks have been written or what deposits have been made.  However, in managing your cash this information is limited and only a starting point.

Another common tendency is to look at the income statement of your company’s performance and assume the bottom line net income tells you whether you’ve increased or decreased your cash balance.  Because this can be misleading, don’t rely solely on the income statement to budget.  To project cash, you must consider other balance sheet aspects as well.

When using your income statement, keep a few cash related items in mind and this will help you better understand how to manage your cash in a more effective way: 

• The income statement records sale/revenues and expenses, but in most cases, you may have a sale that you get paid for at a later date. 
• The same with expenses, you may have an expense now, but pay the bill at a later date. 
• The balance of accounts receivable shows the cumulative sales made for which you’ve not been paid. 
• Likewise, accounts payable show the cumulative bills for which you’ve recorded expense and have not cut a check for.  These balances are shown on the balance sheet.  So, there can be considerable time between the transaction occurring and the time you receive or make payment.

There are other items reflected in the income statement that make it unreliable by itself in reflecting cash flow.  A big one is debt payments.  The amount of principle paid does not show up anywhere on the income statement.  Neither do equipment purchases or purchases of other assets.  And don’t forget depreciation, it is a non-cash expense that does show up.

Reviewing your income statement and budgeting are great functions to perform.  Yet do so in conjunction with your balance sheet to improve the management of your cash. 

Cash is King and it’s one of the primary factors determining the future of your enterprise.

Bob Parker, President

Parker Business and Accounting, PC

www.parkerbusinessconsulting.com 

The Art of Accessing Venture Capital panel continues as Grady asks the panel about common deal breakers and mistakes entrepreneurs make that can cause problems for due diligence.  Chuck Witkowski responds to the question, "What would you do over?"

A great quote from Paul Grim: "A good lawyer is worth their weight in gold... a bad lawyer is worth their weight in something else..."

The Art of Accessing Venture Capital panel continues when Grady Vanderhoofven of Meritus Ventures asks the panel how agressive investors are to make investments in the current economy.  There are sone great comments about risk and valuation.

As a reminder, the panel is:

• Kathy Harris - Noro Moseley, Atlanta
• Steve Dauphin - Murphree Venture Partners, Houston
• Paul Grim - Sunbridge Partners, Sunnyvale CA
• Roddy Bailey - Miller and Martin
• Chuck Witkowski - Protein Discovery, Knoxville
• Grandy Vanderhoofven, Moderator - Meritus Ventures, Oak Ridge

For a video of the panel and their biographies, please follow this link:

The Art of Accessing Venture Capital - Panel Introductions

A stellar panel was assembled for the 2009 Innovation Imperative to discuss accessing capital in today's economy.  The panel included three venture capitalists, a business attorney and an experienced entrepreneur who has raised three rounds of equity capital.  Here is the panel roster:

• Kathy Harris - Noro Moseley, Atlanta
• Steve Dauphin - Murphree Venture Partners, Houston
• Paul Grim - Sunbridge Partners, Sunnyvale CA
• Roddy Bailey - Miller and Martin
• Chuck Witkowski - Protein Discovery, Knoxville
• Grandy Vanderhoofven, Moderator - Meritus Ventures, Oak Ridge

In part one, the panel was asked what business trends they are observing and what is driving the economy.  Topics range from the government stimulus to health care to timing of the recovery.

For a video of the panel and their biographies, please follow this link:

The Art of Accessing Venture Capital - Panel Introductions

 Here's the panel video: 

The ThrottleUp 2009 Pitch Competition was held on October 22, 2009 as part of the Innovation Imperative in Knoxville, Tennessee.  You can now view all six finalist presentations at the ThrottleUp 2009 website.

 Here is a quick link:  ThrottleUp 2009 Presentations

ThrottleUp 2009 a is a venture pitch competition made up of seed stage companies.  The event was part of the Innovation Imperative, held in Knoxville, TN October 21-22, 2009.

The winner of ThrottleUp 2009 was TrakLok Corporation, Eric Dobson, CEO.  TrakLok is a product and service company deploying a solution to secure and globally track high value and hazardous cargo in intermodal shipping containers.  The initial two products released by the company are GeoLok (TM) and TrakLog (TM) and they set the foundations for an end-to-end security and management system that will dramatically increase the security of containers while maximizing the efficiency of their movement and storage.

The TrakLok website is:  www.traklok.net

Here is the winning pitch delivered by Mr. Dobson:

Here is a link to the article that appeared in the Knoxville News Sentinal: TrakLok - Knox News 

Technology 2020 announces the finalists for the 2009 Tennessee Valley Venture Forum and ThrottleUp.  Both events will be held October 22 the Innovation Imperative conference.  

This is the 13^th installment of the Tennessee Valley Venture Forum.  The presenters include companies across the Innovation Valley and reach into North and South Carolina.  “We are excited about quality and diversity of these companies” said John Morris, Executive Director of the Center For Entrepreneurial Growth and coordinator for this year’s event.  Morris went on to say “These growth stage companies each have the opportunity to provide a significant contribution to our region.  Many of them are raising their second and third rounds of equity capital.”  The finalists for the 2009 Tennessee Valley Venture Forum are:

• Aldis - Oak Ridge
• Zipit-Greenville, SC
• Wazoo-London, KY
• Knetwits-Chattanooga, TN
• Signix-Chattanooga, TN
• FLS Energy-Asheville, NC 

ThrottleUp 2009 is a pitch competition aimed at seed stage startups.  Many of these companies are raising their first series of equity funding.  This event is also being coordinated by the Center for Entrepreneurial Growth and is co-sponsored by OutOfTheGarage.com and Knoxville Overground.  Shawn Carson, Director of Entrepreneurial Education said, “ ThrottleUp is in part a traditional pitch competition but it is also a great education platform for companies who are new to the process of raising equity based capital.”  These presenters will also receive valuable feedback on their pitch from a stellar panel of judges during a Round Robin feedback session.  “The Round Robin is a unique spin,” said Carson,” After their pitch, each CEO will sit with 6 pairs of judges who will evaluate their pitch and their value proposition.  We think it will be fun and educational.”  The finalists are all from the surrounding Knox Metro region and they are: 

• TrakLok Corporation
• Simple Control Inc.
• InstallerPool.com
• OpenURmic
• MedInteract
• Orion Laboratories, LLC 

Innovation Imperative is a three-day conference featuring national and regional leaders talking about entrepreneurship, innovation and economic trends. The event is scheduled for Oct. 20-22 at the Knoxville Convention Center.

ABT Molecular Imaging has raised a $9 million Series A round of funding led by Intersouth Partners.  Based in Knoxville TN, ABT Molecular imaging has developed a platform to generate unit doses of molecular imaging drugs for use in positron emission tomography or PET scanning. 

The company was founded by Ron Nutt, Ph.D. in 2006.  Dr. Nutt was a founder of CTi and was CEO at the time they were acquired by Siemens. 

This new platform enables local production of molecular imaging drugs.  Currently, these drugs are manufactured by very large, expensive machinery which limits their use to larger hospitals in limited geographic locations.  ABT’s Biomarker Generator reduces the cost and complexity of generating these drugs. 

Other Links:

PEHub

The Medical News

Knoxville based Team Health has filed a proposal for a $100 million IPO with the SEC.  The Blackstone Group holds a 92% interest in the company.  Team Health supplies outsourced health care professional staffing and administrative services to hospitals and other health care providers in the US.  Here are some key statistics from the Team Health S-1 filing:

• 550 hospitals served in 46 states
• 6000 health care professionals
• 7.6 million patients served
• 2008 revenues - $1.33 billion
• 2008 net earnings - $44.7 million

Other Links:

AOL Money and Finance

BloggingStocks