What Facebook’s IPO Debacle Means for Startup Funding

What Facebooks IPO Debacle Means for Startup Funding

Facebook defied expectations of a boffo IPO. But does its disastrous outcome spell doom for startups seeking funding? Not at all.

Facebook stock has lost 25% of its value since it went public May 18 at $38 a share. Investors took a look at its price/earnings ratio of 104 and decided that since its earnings had fallen 14% in the quarter before and General Motors had decided to pull its $10 million advertising account, Facebook was not worth $104 billion.

If its earnings grow at the 22% forecast over the next five years, the stock is worth $8 a share — at May 29’s $28, that leaves plenty of money for short-sellers to scoop off the table.

And even though Facebook did not soar to $100 on its first day, venture-capital firms that invested early made billions in profit. Top-dog Accel Partners took in an estimated $1.8 billion that day. So there is even more money sloshing around Silicon Valley looking for a home in a rapidly growing start-up with a great chief executive.

Facebook’s busted IPO is at worst a cautionary tale for other companies that would aspire to an IPO. And the lesson is to set the offering price low enough so that investors in the IPO can make money after the first day of trading.

And following the busted Facebook IPO, two companies decided to pull their IPOs but two others are still on track. One of the on-track ones, Palo Alto Networks, offers a winning product in an attractive industry – and that’s what IPO investors want. The ones that postponed their IPOs — Kayak and VKontakte — may have realized that they are not yet ready to meet the higher standards that Facebook’s busted IPO has signaled, meaning a well-developed business model reflected in solid revenue and profit growth. (By the way, VKontakte’s CEO recently delighted in watching people fight over the money-paper airplanes he tossed out his St. Petersberg office window.)

Pricing even a hyped IPO low enough for investors to profit on the first day of trading can be done. In 2004, for example, Google went public at $80 and closed the day at $100. Thanks to triple-digit earnings growth, that was still a low price. Google ended 2004 at $196.

So how can your start-up get a piece of that cash? As I write in my forthcoming book, Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision, you must persuade a VC that your venture targets a market that’s small now but will get big fast. To do that you have to answer these four questions in the affirmative:

  1. Can the start-up offer competitively superior customer value and generate revenues?
  2. Will rapidly growing technologies, business models, or social changes boost demand?
  3. Do potential customers have a big problem that no companies are solving?
  4. Are leading companies and technologists working to solve the problem?

What’s more, you’ll need to show that your company will dominate that market because you are a great CEO. To do that you must persuade the VC that you:

  • Have superior industry knowledge and a compelling vision for your start-up’s future.
  • Have a winning track record and the passion to keep winning.
  • Are smart, curious and a doer of frugal, fast experiments.
  • Can identify and manage business risk.
  • Have charisma, integrity and the ability to attract, hire and motivate top talent.

If you can do this, all you have to do is get a “warm introduction” to the VC — through an intermediary who the VC trusts and who knows you well. Then you need to survive a rigorous screening process that gives you a two in 1,000 chance of winning a share of that VC cash.

 

3 Postures to Boost Productivity Now

3 Postures to Boost Productivity Now

Whether you’re an entrepreneur on a fast-paced schedule or a business leader in a long meeting, powerful postures can help boost your productivity at work.

“Posture affects how we think,” says Sian Beilock, cognitive psychologist and author of Choke: What the Secrets of the Brain Reveal About Getting it Right When You Have To (Free Press, 2010). “One of the ways we shape our thoughts is through our physical movements.”

Beilock is referring to a theory called “embodied cognition,” which says that your brain looks to your face and body to understand how you feel. Are you energetic? Motivated? Bored? Your facial expression and body posture help your mind figure that out.

“Productivity is really about telling your brain: ‘I’m in charge, I feel good, go,’” says Dana Carney, cognitive psychologist and assistant professor at the Haas School of Business, University of California, Berkeley. The easiest way to send that signal is to adjust your body.

Carney’s research has shown that expansive body postures, known as “power poses,” can put us in a productive state of mind. The reason is even more interesting: The postures work by increasing your levels of testosterone.

Testosterone, a dominant hormone, gives your brain the confidence to approach a task and assures you that you can handle it. The amount of testosterone you have doesn’t matter–it’s the relative increase you get from the pose that matters.

“The amount of change that you see in testosterone when power poses are engaged is like when you win a game,” Carney says. “The magnitude of the change is the same.”

In other words, that energy you feel after a big win–the confidence you could do anything–kicks in when you stretch out.

Here are three expansive postures that have this effect, whether you are sitting in a meeting, on the phone, or working on a project alone:

1) Put your hands on your head with your elbows out. This encourages you to sit up straight and open your chest, a position that makes ideas flow more easily. Try it when you’re thinking through a problem.

2) Rest one arm on the chair next to you. This doubles the amount of space your body takes up, which makes you feel more powerful. Try this during a meeting or an important phone call.

3) Extend your legs or prop them on a footrest. Sitting at a computer restricts your body, which makes you less productive, so stretching out your legs is a way to counteract that. Try this when you’re answering email.

Related: A Secret to Creative Problem Solving

Each of the postures allows your body to spread out. Taking up more space tells your brain you’re in a position of power, which increases your testosterone and makes you more productive.

This can be harder for female leaders.

“Women are at a natural disadvantage for power poses because of social norms,” Carney says. But that barrier is easily overcome. Carney suggests women stretch out their arms, straighten their legs (even if they keep them crossed), and wear comfortable clothing that doesn’t restrict their movement. “We have hints to suggest that these poses actually benefit women more than men,” she adds.

 

3 Things You Must Know Before Pitching Investors

Three Things You Must Know Before You Pitch Investors

First impressions are always important in business, especially when you’re approaching investors to secure funding for your startup.

Angel investors and venture capitalists have specific expectations surrounding “the pitch,” that charged moment when you try to sell an investor on you and your company. If you’re heading into this culture for the first time, you’ll need to do more to prepare than just catch a few episodes of “Shark Tank.”

As part of women’s entrepreneurial network Ladies Who Launch, business owners learned “Investor Math 101″ at law firm Chadbourne & Parke in New York on Thursday. The presentation focused on the essentials of pitching investors, including these three tips for startups to consider before making their case.

1. Don’t offer too much equity, too soon. Beware of parting with more than one third of your company in the first funding round (called Series A), warns Lori Hoberman, the head of Chadbourne & Parke’s emerging companies and venture-capital practice. While you may be tempted to give investors a higher percentage of your company in exchange for more cash, she says don’t do it. As your company grows, you may need to raise additional rounds and give away more of your company down the road, so remember to think ahead.

Related: 4 Mistakes to Avoid When Applying for a Bank Loan

2. Know your numbers. You are going to have to impress the investors with your backwards-and-forwards knowledge of your financial projections. If you are intimidated by the math, bring an expert in to help you prepare. But when it’s time to present to investors, you — the entrepreneur — are going to have to talk with confidence about how your company is going to make money, when you will break even, and what your market looks like.

Determining exactly what your company is worth and what your revenues will be in coming years is as imprecise a science as throwing darts, says Hoberman. “All it has to do is pass the straight-face test,” she says, referring to the need for thought-out projections, well-cited research, and reasonable expectations. And at that point, it’s about making the sale: “You’ve got to own those numbers,” she says.

Related: Barbara Corcoran’s Angel Investor Checklist (Video)

3. Pay yourself. When you are calculating expenses, be sure to include a salary for yourself, says Hoberman. “Investors expect it,” she says. There may be months you can’t actually take a salary due to other expenses, but keep track of that and put yourself back on the payroll as soon as you can. If you don’t respect yourself enough to pay yourself, neither will your investors, says Hoberman.

 

What’s Eating Entrepreneurs Today

Whats Eating Entrepreneurs Today

Profitability, passion for the job, balancing work and home life — all are issues taking up the most space in business owners’ minds these days.

The recently released 2012 UPS Store Small Business Survey offers a window into what entrepreneurs are thinking about lately.

Here’s a list of their biggest concerns, according to the survey:

  • Making a profit (50 percent of respondents — no big surprise here)
  • Growing the business (36 percent)
  • Time management (about 30 percent)
  • Meeting customers’ needs (about 30 percent)

(Responses add up to more than 100% because respondents could choose more than one answer.)

In a surprising finding, only one in three respondents said they have successfully turned their personal passion, talent or skill into a business. When you consider the importance many place on doing what we love, this is a sad showing.

Relatedly, about a third of respondents cited a desire to work for themselves as the main motivation for being in business. But another chunk (15 percent) said their incentive for being in business was needing a job.

Is this is the case for you, I encourage you to use your current entrepreneurial endeavor to learn as much as possible about business ownership and then transfer that knowledge to something you enjoy and have a passion for.

 

3 Online Tools To Find Funding

3 Online Tools To Find Funding

Whether you’re trying to grow a business or start one, securing the money to do it can be overwhelming. From traditional bank loans to crowdfunding, there are now many options to consider. To determine which ones are best for you, here are three online tools to consider:

1. Intuit’s Loan Finder. Intuit, the financial software-maker headquartered in Mountain View, Calif., offers a free tool to discover funding options and loan experts to help you through the process.

When to use it: If you’re not sure what your funding options are or how to prepare an application, consider this tool. Intuit will shop around your online loan application to 450 lenders, from banks to credit unions and micro-lenders to more alternative lending options.

How it works: You submit a loan application and receive an instant “pre-approval” from interested lenders with rates and financing details. Loan amounts range from a few thousand dollars to several million. Once you decide on a lender, you have to submit additional information (think tax returns or financial statements) to officially apply for the loan. Final approval comes within 12 and 45 days.

Be aware: You have to at least submit basic financial information before you will get any response as to what kind of loan you are eligible for.

Related: Small Businesses Suffer in States Hardest Hit By Housing Meltdown

2. Multifunding’s Banking Grades. The Broad Axe, Pa.-based business loan advisory firm, Multifunding, offers a free online tool that grades banks based on their small business lending. It calculates the percentage of a bank’s deposits that are going to small businesses. As guidance, Multifunding labels any loan less than $1 million as one that is likely going to a small business. To get an “A,” a bank has to use 25 percent or more of its domestic deposits to make loans to small businesses: there are 2,693 banks that have an “A” grade.

When to use it: If you’re set on applying for a traditional bank loan, this tool can help you identify a bank that has a track record of lending to small businesses.

How it works: You can search for banks by zip code. Other than Texas and California, banks in the midwest reign supreme in small business lending: Minnesota, Iowa, Illinois, Missouri, Nebraska, Wisconsin, Kansas and Oklahoma were eight of the top ten states, ranked for having the most “A” banks.

Be aware: Multifunding’s grading system is determined by the percentage of a banks’ total deposits that go to small businesses. Because of the volume of deposits that they hold, the nation’s largest banks are not predisposed to rank well on this list.

Related: Getting the Big Banks Back into Small-Business Lending (Video)

3. SoMoLend. This Web-based service matches entrepreneurs with investors in the same geographic area. SoMoLend, headquartered in Cincinnati, Ohio, targets small, upstart companies with up to 15 employees that are seeking loans between $100 to $1 million. Investors on SoMoLend run the gamut from banks to individuals. What’s different about these investors is they are focused on businesses in their own communities.

When to use it: If your existing business has a dedicated fanbase in your community, or you primarily serve customers in your neighborhood, this option may suit you.

How It Works: You have to complete an application, including financial information (both personal and business). SoMoLend then ranks your company based on risk – a rating of one to five stars – so investors can weigh their options. Risk is based on your personal credit score, your time in business and with managerial experience, and the amount of debt your company has as a percentage of income. Investors use a GPS location tracking system to identify businesses that are seeking funding nearby with SoMoLend.

Be aware: You’ll have to submit a lot of financials upfront, including personal tax information, credit score, business taxes, a profit and loss statement, and a valid Employer Identification Number. After that, you’ll find out if you’ve been pre-approved for a loan. If you decide to accept a loan, SoMoLend charges a 2-percent fee.

 

Google+ Adds New Local Listings Tab for Businesses

Google Adds New Local Listings Page for Businesses

Google’s fast-growing, if only still nascent, social network Google+ has rolled out a new tab dedicated to providing information on local businesses. Located on the right-hand side of the Google+ page, Google+ Local allows users to search for businesses that are nearby, read reviews and find them using Google Maps.

For instance, if you search for “cheeseburgers” on Google+ Local, it will generate a list of restaurants near your location that serve cheeseburgers. If you click on one of the listings, you’ll be taken to a local Google+ page that includes photos, reviews from people in your Google+ Circles and other information such as address and opening hours from the company’s Google Places for Business listing.

Google Adds New Local Listings Page for Businesses

For business owners, this means that a company’s information on its Google Places for Business listing will now be available to users across Googlesearch, maps, mobile and now Google+. It can be even more important now for business owners to verify their basic listing data, make updates, add photos and respond to customer reviews.

Related: What You Need to Know About the New Google+ Design

Additionally, Google has integrated a business’s Zagat score into its Google+ Local listings. Google purchased the popular business survey rating service last fall for more than $150 million.

“For example, a restaurant that has great food but not great decor might be 4 stars, but with Zagat you’d see a [score of] 26 in Food and an 8 in Decor, and know that it might not be the best place for date night,” Google product management director Avni Shah wrote in a blog post announcing the Google+ Local launch.

The search giant also hinted that it will be further integrating Google+ business pages and Google+ Local listings.

“We know many of you have already created a Google+ Page for your business, and have been hosting hangouts and sharing photos, videos and posts,” Jen Fitzpatrick, Google’s vice president of engineering, wrote in a separate blog post. “We’re excited that we’ll soon extend these social experiences to more Google+ Local pages in the weeks and months ahead.”

 

Will It Always Be Fun and Gamification?

Will It Always Be Fun and Gamification

Whether or not you realize it, “gamification” has been a part of your life since childhood. You might recall, for instance, receiving rewards or prizes from your childhood dentist after each visit. For me, prizes were based on challenge-response behaviors. If I remained cavity-free (the challenge), I got to choose a stuffed animal to take home (the reward).

Gamification, when used online, brings that same element of challenge to an interactive task like downloading a case study or viewing a particular video, and some marketers have come to depend on these rewards to encourage engagement from customers and prospects alike.

If your business can incorporate rewards such as collecting points or badges, leaderboard rankings, receiving discounts and answering quizzes for free gifts and other incentives, you may be able increase engagement and drive action on your site, thus improving brand recognition and subsequently, your bottom line.

A question posed by a recent Pew Internet & American Life Project and Elon University’s Imagining the Internet Center study asks: What is the future for gamification? Will game mechanics and rewards programs that boost engagement continue to be a factor in consumer’s digital existence through 2020?

The survey’s participants included 1,021 “highly engaged” technology stakeholders and critics. In all, 53 percent believe gamification will continue to be widespread — with some limits. These respondents said gamification would be heavily used not only in marketing and business but in education, health and other aspects of users’ lives by the next decade.

Still, 42 percent of respondents — while admitting game use would remain an important part of communications — believe it will not be important in everyday online activities for most people. In fact, these respondents said the concept probably wouldn’t advance except in some areas, and certainly not on an everyday basis.

Some proponents predict gamification will become part entertainment, part learning and part training. Two fun terms for this evolution come from the managing editor of the Cyborgologyblog: “playbor” (play plus labor) and “weisure,” (work plus leisure).

Where do you think gamification is headed? Share your thoughts and respond to other readers in the comments below.

 

A Secret to Creative Problem Solving

A Creative Secret to Problem Solving

Ever find yourself going over and over a problem in your business, only to hit a dead end or draw a blank?

Find an innovative solution with one simple technique: re-describe the problem.

“The whole idea behind creative problem solving is the assumption that you know something that will help solve this problem, but you’re not thinking of it right now,” explains Art Markman, cognitive psychologist and author of “Smart Thinking.” Put another way, your memory hasn’t found the right cue to retrieve the information you need.

Changing the description tells your mind that you’re in a different situation, which unlocks a new set of memories. “The more different ways you describe the problem you’re trying to solve, the more different things you know about that you will call to mind,” says Markman.

Ask yourself two questions:

1. What type of problem is this?
Most of the time, we get stuck on a problem because our focus is too narrow. When you think specifically, you limit your memory and stifle creativity.

Instead, think more abstractly. Find the essence of the problem.

Take vacuum cleaner filters, for example. Vacuums used to have bags that were constantly getting clogged, so innovators focused on how to make a better filter.

James Dyson realized that the problem was actually about separation, or separating the dirt from the air, which doesn’t always require a filter. “That freed him to try lots of different methods of separation,” says Markman. Hence: the Dual Cyclone vacuum that led Dyson to fame and fortune.

Related Video: Dermalogica’s Jane Wurwand on the Creative Process

2. Who else has faced this type of problem?
When you think about your problem abstractly, you realize that other people have solved the same type of problem in radically different ways. One of their solutions may hold the key to yours.

For example, Dyson realized sawmills use an industrial cyclone to separate sawdust from air and modified that technology to create the first filter-free vacuum.

“When you begin to realize that the problem you’re trying to solve has been solved over and over again by people in other areas, you can look at the solutions they came up with to help you solve your own,” Markman says.

You may not use one of their solutions exactly, but you free your memory to retrieve more information, making that elusive “aha” moment easier to reach.

By re-describing the problem, you’re much more likely to find inspiration for a truly creative innovation

 

3 Rules for Successful Crowdfunding

All Successful Crowdfunding Projects Have These 3 Points In Common

For an increasing number of startups, crowdfunding is a way to get their companies off the ground when traditional avenues, such as a bank loan, are not an option.

Crowd funding is a way to raise money by getting small donations from a large number of people, and sometimes the end result is big. For example, thePebble watch that synchs with your smartphone raised over $10 million on crowdfunding platform Kickstarter.

Wondering if your business idea would be backed by a crowd of investors? Consider these three traits of successful crowdfunders, according to by Brian Meece, the CEO and co-founder ofRocketHub.com, a New York City-based crowdfunding platform.

1. An intriguing, clear story. One reason that people give you money is because your story touches people, so you need to be able to express very clearly what you are trying to do and why it is significant.

“Crowdfunding is built around relationships,” says Meece. “It is a very human phenomenon.”

Related: 7 Ways Entrepreneurs Will Ride Crowdfunding’s Ripple Effect

You have to be willing and prepared to put yourself in front of the crowd of investors and connect with them directly, through a video or photos. Meece says potential investors need to see enough of your passion to think, “Wow, I want to be a part of it.”

2. An existing network. The process of crowdfunding depends on trust and reputation, so you’ll need a core inner group to vouch for you and and help spread the word.

“Every successful crowdfunding campaign has an immediate first-degree network that jumps into that campaign,” Meece says.

But this doesn’t mean you need to have thousands of Facebook friends, you just need at least a small group that is willing to step out on your behalf to get it going.

Related: Shaping Crowdfunding 2.0

“No one wants to be the first one dancing on the floor in middle school,” says Meece. And investors have the same sense of hesitation: they feel better donating their own money when others have already, too.

3. Cool perks. In exchange for their money, you’ll need to offer investors a reward, whether it’s a sample, the ability to vote on how a product is designed, or an opportunity to get early access to a product or service before it hits the regular markets.

Also, you’ll want to offer multiple levels of perks to provide an incentive for a broader range of contributions. RocketHub’s most popular donation level is $20, but the average is about $75. And then there are the once-in-a-lifetime donations: “We have had strangers give $10,000 to campaigns. Crazy, absolutely crazy,” Meece says. “You have to have those higher price points there.”

 

Small Businesses Suffer in States Hardest Hit By Housing Meltdown

Small Businesses Suffer in States Hardest Hit By Housing Meltdown

Small businesses in states that were hit hardest by the collapse of the housing market – including Nevada, New Mexico and Florida – are having an especially hard time getting access to the capital they need to grow and hire.

“Many small business owners look to home equity as a potential source of financing,” says Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and Associate Professor of Finance at the University’s Graziadio School of Business and Management. Therefore, in states where home values really cratered and individuals lost a lot of wealth, “it is really creating some headwinds on their growth opportunities,” says Paglia.

Small Businesses Suffer in States Hardest Hit By Housing Meltdown

Pepperdine University, in partnership with Dun & Bradstreet Credibility Corp., surveyed almost 6,000 small businesses in early April about their success in accessing capital.

In addition to knocking out business owners’ wealth, the housing market bust took a toll on the banks that serve those regions. In turn, “to the extent that they still hold portfolios of real estate assets, they are having a difficult time feeling comfortable with the risk that small businesses typically pose,” says Paglia.

Related: Bank Lending to Small Business Slips, Crowdfunding on the Rise

Meanwhile, states that have come through the housing market collapse more robustly are seeing far fewer small business owners complain that credit conditions are hampering their growth. For example, Nebraska, which has a healthy and competitive housing market, had only 37.5 percent of small business owners report that the current financing environment was restricting growth opportunities. And in South Dakota, another state with a stable real estate market, 43.8 percent reported struggles.

The smallest businesses are being held back the most. Two thirds (64 percent) of those businesses with revenues under $5 million said that the current finance environment was restricting growth – and more than half (55 percent) said it was restricting their ability to hire. For those with revenues between $5 million and $100 million, 47 percent reported that the finance environment was preventing their expansion.

Related: 4 Mistakes to Avoid When Applying for a Bank Loan

As a result, more and more of those especially small small businesses are having to turn to their own personal assets. Almost half (46 percent) of the businesses with less than $5 million in revenues used personal assets (savings accounts or investments) in the past six months. And 25 percent of businesses with between $5 million and $100 million in revenues tapped their personal assets. “The bootstrapping is going to be here for some time,” says Paglia.

Another reason that businesses are dipping into savings is to fill the gap in cash flow created by slow-paying customers. More than one third (36 percent) of all respondents said they are being paid from customers slower than they were three months ago. A slowdown in the payment schedule trickles down: it “causes them, themselves, to delay their payments to their suppliers,” says Paglia.