Tuesday, January 29, 2019


Are You Making the Right Enemies?
Negotiating with venture capitalists can test your patience if not your pocketbook. But keeping your emotions in check is important, particularly in a world where everyone knows everyone.

Executive director, Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship, Illinois Institute of Technology

It's always risky to ask entrepreneurs what they honestly think about venture capitalists. Entrepreneurs have a tendency to view VCs the way most dogs regard a fire hydrant. It's easy to find fault with these guys, but not always fair. Our opinions are colored by our own experiences-- positive and negative-- and so, as an outsider looking in, you have to take every player's comments with a few grains of salt. Typically, things are never as good or bad as described and, if anything, prudence and reticence generally rule. As Thumper used to say, "if you can't say something nice, don't say nothin' at all." 

The main reason to generally keep your mouth shut is pretty obvious. Since you never know when or where the next deal or critical financing may come from, no one wants to inadvertently burn any bridges or aggravate potential future investors.  If you decide to blow someone off, just be sure to have a really good reason. You should earn your enemies, not make them carelessly or gratuitously; because, while friends come and go, enemies accumulate. And the venture world is really a pretty small pond where everyone talks to each other all the time.

I realize that we take some things very personally and that take-backs and other disappointments sting a lot more than other "business as usual" busts might. It's not essential to forget and forgive these things, but you do need to get through them and get on to the new.  Usually this isn't a huge problem because every good entrepreneur is already looking down the road at what's next and no one suffers more from selective memory than entrepreneurs. Of course, that can be every bit as much a blessing as a curse. You can't water yesterday's crops, but you also want to be sure that you're not being na├»ve, too trusting, or winding up making the same mistakes over and over again.

When a VC reneges and changes the long-agreed-upon terms of a deal, they do it knowingly and with a smile. When an entrepreneur says that something isn't the way he or she remembers it, as often as not, that's the absolute truth. It's not a case of chicanery; it's more often a matter of memory and attention (or really lack of attention to the details) than it is of accuracy or honesty.

You would be utterly astonished to learn how little the CEOs in some of the biggest financings around know about the actual nitty-gritty details of the deal itself. Isn't that what the lawyers and bankers are for? Even the smartest entrepreneurs tend to forget that these are usually one-off and infrequent deals for them, but the VCs do them every week and it's their bread and butter to make sure that every dotted "i" and crossed "t" leans in their direction. It's not their fault; it's their nature. Just like the scorpion told the turtle.

VC relationships are complicated at best and, for a variety of reasons, the emotions can run very high from Day One. And the conduct, tone and intensity of the due diligence and investment negotiating processes have a lot to do with where the parties end up mentally as well. Entrepreneurs are proud and prickly people and the truth is that in fundraising-- especially for new businesses-- you've got to kiss a lot of frogs before you find your prince.  In the end, if there are remaining issues or hard feelings, it's usually more about the process than the money.

And, it's not like all the issues and instances of bad behavior are on the VC's side either. Entrepreneurs can be foolish and insistent pigs on valuation and try to drive too hard a bargain on other parts of the deal without appreciating that this is a bad long-term bet for their businesses. Early and growth stage investments are a lot more like marriages than financial transactions and how things begin has a whole lot to do with where they're likely to end up. In most cases, you're going to be living with these folks much longer than you ever imagined and you're also more than likely to need to go back to that very same well down the road.

A good CEO knows that he needs to get what the business requires in the deal, but not so much more that everyone ends up disappointed or disgusted. No one wants to be a 90-day wonder where a few months down the line, everyone is sitting around wondering how the deal ever got done. 

The dream state is that each side gives up something near and dear to them in the end and everyone's just a little bit unhappy about what they left on the table. That's how things get done in the real world.

You take what you need and leave the rest.

Tuesday, January 22, 2019

New INC Magazine Blog Post by Kaplan Institute Exec Director Howard Tullman

The World is Owned by Gatekeepers
Because they have massive amounts of data on what and how we buy, and the ability to manipulate it, the megapowers threaten to overwhelm the competition.

Executive director, Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship, Illinois Institute of Technology

I'd rather have 10% of a watermelon than 100% of a grape. A slice of the price of every purchase in almost any area of commerce adds up to an impressive bundle of bucks in no time-- especially once the underlying businesses begin to take off. Today, the truth is that you can't sell a stand-alone product; you also have to sell connection, support and service and deliver a first-class experience across all those dimensions. As a result, in the "right now" and "always on" economy, everything is, of necessity, transaction-based in one way or another. The only question is, who's getting a piece of the pie and how do you make sure that you get your share? Getting into that game is becoming harder and harder because so much of the process is data-dependent and only a few of the biggest players have access to the answers.

We're starting to see the emergence of large and well-funded gatekeepers and all kinds of other middlemen in almost every industry and everywhere you look on the web.  The companies developing GPS-based mapping software are a great example. Google and Here (formerly part ofNavteq/Nokia) have such a huge edge that the other players talking about creating their own global street and site maps sound seriously deluded. Coinbase jumped miles ahead of the rest of the pack in the cyber currency space and has already become a virtual utility and exchange for the industry. And these tech toll takers are here to stay because many of the markets and the disparate players they serve can't continue to grow and expand without the concentration, centralization and organization that these entities provide.

It's not exactly one-stop shopping yet, but, over and over again, technology channels tend to become two- or three-horse races or even "winner-take-all" configurations. Think about Apple and Android, Uber and Lyft, or even FedEx and UPS. You don't have to be the first; just eventually the best. And, to stay in the race and maintain your position, you also need to have the technology and, most importantly, the data that it increasingly takes to compete at these levels of size and scale.

The new gatekeepers are becoming some of the most valuable businesses on the planet, as we grow ever more connected and reliant on a few key channels to meet our basic and recurring needs. The people who own the pipes (the utilities) may be in decent financial shape, but the ones who are controlling the content and product flows and sitting astride the traffic in, out and through those pipes are much better positioned, further ahead of the game, and far more likely to be highly profitable.

Controlling, delivering and charging for access to the content or products is a lot more appealing than having to handle all the hardware maintenance headaches. Access trumps assets today. Poor AT&T and Comcast still have to pay attention to (and spend millions servicing and keeping up) all those POTS lines, cable boxes and telephone poles while digital content creators and e-commerce providers essentially ride their rails for free. Trump's not entirely wrong about how the e-commerce companies are taking advantage of the U.S. Postal Service, which still has to get all those deliveries over the last mile and into our mailrooms and mailboxes.

It's a good start to know who and where the customers are, but the ultimate giants will be the ones who can track, influence and ultimately dictate our actions, choices and decisions. Companies that can provide invaluable evaluations and interpretations of the vast amounts of user data that are being constantly and exponentially generated will become new market leaders. And you can bet that the best players won't share this data with the world - they will use it exclusively to improve and strengthen their own positions. This is where Amazon once again shines.

Amazon's dream state for its Prime customers is the complete elimination of thought in the purchase process. "One-click" is on the way to being "no clicks" at all. Think of this as "I see, I buy."  I'm not even sure that needs or even desires will enter into this Pavlovian process of pre-conditioned responses for much longer. And, as for commodities and recurring purchases, life is going to be all about automated replenishment. The pantries of Prime subscribers will never be empty again.

But it's Amazon's newest foray into providing free samples to Prime customers on behalf of brands that highlights the beginning of these new data-driven initiatives. No one has more detailed information on every aspect of our past, present and intended purchase intent and behaviors than does Amazon. And no one can do a better job for their brand "partners" than Amazon of putting these offerings directly and painlessly into the hands and the homes of the very best, in-market prospects.

But every rose has its thorns and, in the case of Amazon, it's that (a) the brands hate giving up their direct connection and control of the end customer, which Amazon basically requires and (b) they hate the fact that Amazon keeps adding competitive house brands that are aggressively priced and bundled in ways that the brands can't replicate. And, to make things even worse, as Alexa approaches 150 million households, and voice becomes the key to commerce, it's hard to see how brand identities will even matter any longer to the buyers.

Not a happy prospect, but if you're looking for a way around the juggernaut, you might take a look at what Walmart's trying to do by buying a bunch of the niche names like Bonobos, Modcloth and Moosejaw and hoping that the selective and upscale customers will prefer and seek out these specialty offerings rather than the typical mass market and commoditized goods they associate with Amazon. Try to be sexy, not Sears.

Tuesday, January 15, 2019

New Inc Blog Post by Kaplan Institute Exec Director Howard Tullman

3 Ways to Make Your Business Recession Proof
Because there's one on the way. It's just a matter of how soon that political inanity or the market's volatility will start us downhill. For startups, the traditional rules won't apply.

I'm almost 100% cash and feeling pretty good about it. Whatever you happen to believe about equities appreciating over the long haul, the first half of 2019 is going to be a bumpy ride at best. The days of an explosive and expansive tech sector-- the FAANG stocks that have run the market to such incredible heights-- aren't likely to be seen again for some time. I'm seeing months of volatility ahead, which is going to be great for traders but won't do much for consumer confidence or any sense of stability, especially in a time of insane political instability.

Other than Microsoft, which I expect to continue to creep slowly and steadily upstream, I can't see a single one of the other FAANG-class companies (however you count them and whoever you choose to include) that isn't facing product, market, regulatory or serious competitive issues. These issues are far more likely to drive distractions and detours than any new initiatives or sustained and profitable growth. And, as the politicians gear up for the next election cycle, it's hard to imagine any lower-hanging fruit for the media-sick morons to pick on than the big guys in the tech sector. Unlike the NRA and the big pharma folks--they've long known how to buy off and hold off the pols-- the techies are political babes in the woods. Easy pickings.

So, I'm not looking for much in the way of good news any time soon and frankly, an Uber IPO or an Airbnb buyout isn't gonna really set the markets on fire either. Relative to their crazy and over-inflated private valuations, I'm betting that a public offering in this environment for almost any of these unicorns is going to look like a down round if you actually know the internal investment numbers and prior valuations. And that's before giving any effect to embedded repricing ratchets and other downward pricing protections that were undoubtedly built into these deals. In my general review of these deals, the entrepreneurs were almost entirely focused on keeping ridiculous levels of voting and board control. And, because everyone told them that the sky was the limit in terms of stock prices, they paid very little attention to the prospect and consequences of any decline in the price of their internal shares. They were smart, but not smart enough.

These bad vibes make me pessimistic about the funding future for startups and early-stage growth businesses-- especially those that are still chasing profitability. So my advice is very simple:  get your business ready for the recession. It's coming and it's no longer really a question of "if" but rather "when" and "how bad."  Now's the time to start trimming your sails and re-setting your course for at least a year. In a market and a time as crazy as today, there are far fewer penalties to waiting and hunkering down than you would typically incur. Doubling down on your commitments and speeding up expansion activities when everyone lacks visibility makes no sense. Don't be doing things (especially deals) just to keep busy. Busy-ness is a lot different than taking care of business. Random and reckless activity for activity's sake is a poor antidote for whatever actual anxiety you may be experiencing.

Here are a few suggestions about what needs to be done. But first, I want to modify a few of my own prior pronouncements. Not because they're wrong in the long run, but because they're not right for right now. So, think "yes, but" rather than "yes, and" for a while.

1. Market share expansion occurs mainly in tough times.
Yes, it's definitely easier to grow your piece of the pie when the competition is down-and-out, and you're blessed with a recently-acquired war chest (at the moment) and some pricing flexibility, which lets you take advantage of the situation and make some very attractive offers to clients and customers. Or maybe, because the channels are less crowded and there's less demand, you're able to secure better deals or placements or exposure (or even long-term partnerships) that wouldn't be available to you in happier and healthier, but also more competitive times. These are definitely tantalizing prospects. But cutting your prices to grab customers will almost surely come back to bite you down the line; and there's no guarantee that, if things continue to slow down and get worse, that you may also be looking at some tough times and choices. So, you have my permission to be penny-wise for a while.

2. Don't try to do something cheaply that you shouldn't do at all. 
Yes, I've always been a very strong advocate of avoiding anything that amounts to "putting lipstick on a pig" or "steak sauce on a hot dog." It's usually smarter to just say "No" to these temptations to try to get by with less than your best but, here again, there are always going to be exceptions to the rule. Right now, my motto for your business--whether it's dollars for development, money for marketing, a new ad and branding campaign, or growing the team--is pretty simple. "Go for good for now, great can wait."  Just because you've grown and even if you've got some bucks in the bank, take a breath and a moment to remember the old days when the only options were limited to guerilla, down-and-dirty, and get things done with smarts rather than simply more shekels. Try to get back to those days and those times.

3. You can't save your way to success.
Yes, but saving a few bucks right now may be your path to staying in the game. In a startup, the only sin you can never rebound from is running out of cash. Because then they send you home. So, it's never worth the risk of cutting things too close or not making sure you've got enough for Plans B and C if it comes to that. 

Right now, I'd say that the exact things you want to be doing are pretty clear:
a. Conserve your cash
b. Shorten the length of your commitments
c. Stick with the team you have instead of making a bunch of additional bets on unproven players. Don't let your mouth or your ego write checks that you can't cash or cover.

In the end, it all comes down to money. Money doesn't really care who makes it. Money is always there; it's just the pockets that change. And money does talk. You just want to be sure that it doesn't say, "Goodbye."

Saturday, January 12, 2019


43rd Annual Automotive News World Congress
Held between January 15th and 17th, the 43rd Annual Automotive News World Congress held at the Detroit Marriott is an important event held alongside the NAIAS.
Bringing together industry experts and enthusiasts, this year’s Automotive News World Congress will feature:
·         Mary Barra, Chairman and Chief Executive Officer, General Motors Company
·         Jim Farley, Executive Vice President and President, Global Markets, Ford Motor Company
·         Roger Penske, Founder and Chairman, Penske Corporation
·         Jim Lentz, Chief Executive Officer, Toyota Motor North America, Senior Managing Officer, Toyota Motor Corporation
Howard A. Tullman, Executive Director of the Ed Kaplan Family Institute for Innovation and Tech Entrepreneurship at the Illinois Institute of Technology is scheduled to deliver a keynote speech entitled, “Tech Trends Driving Innovation.”
A noted entrepreneur and futurist, Howard Tullman will offer a unique perspective on the converging opportunities presented by recent technological advancements and innovations.

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