Update: Scoble, Fred, and Lance have since commented on it as well.

My views on the pay-to-pitch thing are pretty well known, as I’ve written about it a ton in the past, and we’ve torn the topic to shreds several times on the podcast.  And I think we (the larger community, of which I am but a small part) have done a pretty good job here in Atlanta, at least, of (A) educating the entrepreneurs, and (B) tearing down the walls that allowed that sort of thing to come about in the first place.  Many of the pay-to-pitch groups don’t even bother with Atlanta any more (because they know they’ll get a boot in the face from the community). But I will add a few additional thoughts here …

I think the fact that someone with Jason’s “web-clout” is a bit late in jumping on this bandwagon is illustrative (to me, at least), of how “disconnected” the valley-minded crowd can be from the rest of the country.  Don’t get me wrong – I want Jason to fight the good fight :)  But StartupLounge (and others) have been screaming about this, and fighting against it, for several years.

There is a difference between someone in a place like the Valley paying to pitch, and someone in Des Moines, or Tampa, or Atlanta, et al.

If you are paying to pitch in the Valley, you and/or your idea, must really blow. It’s like the handful of applications for CapitalLounge that we get from startups in California that want to come to Atlanta to find money.  Wow – really? WTF?

If you are paying to pitch in some other part of the country (i.e. an under-served capital region, like Atlanta), you may very well be sitting on the next Google, but you likely don’t have the infrastructure and support system around you to tell you that you are wasting your capital paying to pitch – you may think that you don’t have an alternative. And that is where education comes in play.

Uneducated entrepreneur + desperation = “Gee, I bet I can charge this clown $5K to come ‘pitch’ at my service-provider dry hump fest.”

To me, it is all about supply and demand.  How do you kill the demand, since killing the pay-to-pitch organizers is, well, illegal? We’ve found that making more well-rounded, educated, and agile entrepreneurs is the best antidote for the pay-to-pitch problem.  If I had a nickel for every entrepreneur that we’ve collectively “converted” from the dark side through stuff like StartupLounge/CapitalLounge, PitchCamp, Startup Riot, ATDC, Startup Gauntlet, mentoring, et al, I could fund half the deals in the Southeast at least through Series-D :)

At any rate – good read – Jason’s a firebrand – gotta love it.  Kick ass – take names – peace out.

Cheers.

I’m certainly not an economist, but I will say this: things could certainly be better. The job market sucks, the housing market is nonexistent in many places, and we’re staring $5 gasoline in the face. But how does it really affect the capital-seeking early-stage entrepreneur? It doesn’t sound like this is a particularly compelling time to start a new venture. Possibly, but not necessarily.

I founded my last company in 2000 – unless you were living on a deserted island then, you will remember how nasty the market was. Nevertheless, through persistence and self-funding, I managed to keep the thing going until I could exit (2005 – when the market was more in my favor). Timing is everything, as they say. Granted, the exit wasn’t overly lucrative, but we made money, and no one got hurt in the process.

I do want to point out one thing, though (and Mike and I are going to discuss this a bit in our podcast recording session later today). If you are an entrepreneur that is banking on someone else’s funding to help you to build, launch, and realize your dream – your expectations were probably out of line to begin with, so now it gets doubly hard for you. I see deals like this all the time (as do most investors):

Acme Software provides a world-changing solution to the way consumers shop online! Our cutting-edge, paradoxical approach to e-commerce will drive us to $1B in revenues in just 24 months. Seeking $5M to hire a team, build out the product, and start selling it.

In an underserved market like Atlanta, you are not likely to waltz in and secure a first round of capital with an idea alone (save for the occasional angel that truly gets what you are doing). Even if you have a prototype product, your chances may only marginally better. So guess what? Nothing has really changed for you. However, once people are buying what you’re selling, the opportunity will stand out like a diamond in the rough. This is your challenge.

If Acme came in with this pitch, however, things get interesting:

Acme Software’s beta product currently provides over 50,000 consumers with a very unique way to shop online. For the first 12 months after launch, the company generated revenues of $1M, and we’re now at cash-flow break-even. Seeking $2M to expand our product and to expand our sales efforts.

Good deals get funding … still. They likely always will. But proving yourself to be a “good deal” could be getting a lot harder if you are on the uber-early end of the spectrum. So adjust your expectations if you need to, then get out there, execute, and don’t worry about things you can’t control. Turn a bad market into an opportunity to move forward, while many others sit on the sidelines. If you can’t (or aren’t willing to) do this, you are most likely going to find the next 12 months to be a colossal waste of your time, energy, and precious capital.

Of course, if your venture is already off and running, Matt serves up some pretty good advice to try and insulate yourself. Good reading, for sure.

Cheers.

I was asked if I could suggest some “rockstar” caliber entrepreneurs that they could engage here in Atlanta (or Georgia). Ideally, this would be someone who was currently enjoying a great deal of success, and who also had “name recognition”. Obviously, the combination lends itself to “street cred”, and the ability to draw enough people to fill a venue.

I thought about it for a few minutes, and I must admit, I was a little stuck. I mentally sifted through a few dozen names, but they generally fell into one of the following buckets:

• They satisfied one criteria (are currently enjoying success in a venture), but not the other (they bring name recognition), or vice-versa.
• They are too “new” – they haven’t had a big hit yet, although I’m bullish on them. But they don’t have the street cred yet as a result.
• They had a great deal of success at some time in the past, but are not currently doing much of anything.
• They are ultra successful (cash-wise), and do not currently face the challenges that early-stage entrepreneurs face.
• They are “tired” – everyone has trotted them out over the past 5 or 10 years as a speaker, and thus wouldn’t bring a fresh perspective.
• They are “real estate” moguls, or in some other industry which is driven more by how much cash you can deploy rather than swinging for the fences as a bootstrapping upstart.

If I were to plot this as a distribution curve, there are lots of people on either side of the bell (the long tail!), but not many people inside of the sweet spot (currency/relevant now, street cred, success, etc.)

The only name that really jumped out at me was Mitch Free from MFG.com. MFG went from being bootstrapped from an Excel spreadsheet/sneaker-ware marketplace to an international B2B player backed by Jeff Bezos. And they are still going strong.

Who am I missing?

While I think there may be some gaps now, this won’t always be the case. I think in the next few years we’ll have a new wave of rockstars that will emerge from what is happening here now. But boy, if we were to hold a Woodstock and try to populate it with current Rockstars in Georgia, it wouldn’t be a terribly long show.

Cheers.

Unfortunately, many of these well-intentioned endeavors never get off the ground, or they take forever to gain traction. Why? Bureaucracy. While they all see the benefit from an economic stimulation perspective, they lose sight of what is really important – traction. Let’s face it – they are going to try and encourage tenant entrepreneurs to gain “traction” – ostensibly so they can graduate from the incubator, and become a viable force in the local economy.

It’s time they drink their own medicine. Stop wasting time with steering committees, breakout groups, and herding cats – start executing.

I recently met with one of the local Chambers of Commerce – one in a very affluent part of the city. They are very excited about launching an early-stage incubator, but for a year now, they’ve been “talking” about it.

Here is my easy four step plan for anyone who wants to launch something like this:

1. Forget about “incubators” – think “accelerator”

Incubators imply infrastructure. Not needed. Acceleration implies movement – traction. Much more salient. Forget about creating a building and charging rent from an early-stage company. You will automatically rule out 90% of the ideas that will eventually become viable players in the economy. By its very nature – if a company can already afford to pay your rent, they shouldn’t even need you. They already have traction.

2. Find a kid with a good idea

Imagine that. Jimmy is building a new software company from the ground up. Latch onto him. I was a judge last week for the Georgia Tech Business Plan Competition. Lots of fun. One company in particular actually said in their business plan that they were considering a move to Silicon Valley. Not if I can help it. Grab them before they get desperate.

3. If need be, Give him a place to hang his hat

Got a spare cube laying around? Stick Jimmy in it. Let him use your small conference room. Give him Wi-fi access. Whatever. Just do it. Just don’t charge him. Do it because you give a flip.

4. Help him.

Leverage your network and other resources to help Jimmy on a practical level. If he has a marketing question, set up a coffee with Bill, your longtime college buddy who now runs marketing for a hot tech company. Help Jimmy build his own network. Mentor him. That’s what it is all about. The next thing you know, Jimmy is an ambassador for the cause, and contributing to others.

Yes, Virginia – it’s just that simple.

Forget the bureaucracy. Find a kid with a good idea, stick him in your office, and help him. Acceleration. Good things happen.

On that note, stay tuned for an announcement about the cloud, our (StartupLounge.com’s) new model for early-stage acceleration here in Atlanta.

Cheers.

I learned to play the game of chess as a kid, although I’m certainly no Gary Kasparov. I have always been intrigued by its simultaneous complexity and simple elegance. After running several startups, and going through the exit process more than once, I have come to the conclusion that running a company is very akin to playing chess, although running one effectively is probably closer to mastery of the game. Chess is a great game for entrepreneurs – it is a lot like entrepreneurship at its core.

For starters, consider the pieces. Chess is played with a number of pieces, ranging from the pawn (the lowly foot solder) to the queen, the most powerful piece on the board. Although the various pieces are each equipped with their own unique abilities, they are all critical to winning.

The Opening

There are two sides in chess – black and white. Your company is one side, and your competition is the other. Two armies standing toe-to-toe, each trying to topple the other.

Traditionally, the player playing the white pieces moves first. This is the first-mover advantage. As experienced chess players will tell you, many amateur players lose the game on the first move (the opening move). However, it isn’t enough to simply have an “opening move”. A monkey can make a first move. It is knowing what to do after that first move that really counts. How will you execute once your plan has been set in motion? Unless you have a plan, don’t move. When you move, move with a purpose. As Sun Tzu once merrily quipped “Let your plans be dark and as impenetratable as night, and when you move, fall like a thunderbolt.”

The Pawn

The pawn is the most common piece on the board. Each team controls eight (8) pawns. The pawn is a “soldier”, and while they can only move freely in one direction (forward), and can only attack in one direction (diagonally), they are critical to the game.

For starters, the pawn is the only piece that has a different set of movement rules for their first move. They can move up to two (2) squares forward on their opening move. However, after their opening move, a pawn can only move one square at a time. Just like employees in a startup company – everyone is juiced coming out of the gate, but eventually, they normalize, and don’t move with quite the same fervor as before.

From a strategy standpoint, the concept of pawn chains is an important one in chess. A “pawn chain” consists of two or more of a player’s pawns connected (lined up diagonally), where a rear pawn is protecting a vertically forward pawn one rank forward and in the file to the left or right of the rear pawn. In other words, one pawn is covering the ass of another. With a nice arrangement of pawns, you can really block an opponent. Think about your employees – do they cover each other? Is there sufficient cross-pollination and a team-culture in your ranks?

The Specialty Pieces (Knights, Bishops, and Rooks)

While pawns are cool, the real fun can be had in mastering the various specialty pieces: the knights, bishops, rooks, queen, and king. The specialty pieces are analagous to your management team, each excelling in their own field.

Bishops can move any number of squares, but only diagonally. Rooks have the same freedom of movement, but along the vertical/horizontal axes. Knights have a quirky set of movement restrictions. They can move two squares foward, and then once to the left or right.

Okay, so those rules are fairly easy to understand. However, to effectively win in chess, you have to not only master the movement constraints that accompany each piece, but you have to master the various ways in which the pieces can be used together to accomplish your mission. I don’t think I have to point out that the same can be said of running a company. Unless your rooks, bishops, and knights can work together, the king and queen are dead. The same can be said of marketing, sales, engineering, public relations, and IT.

The Royalty (King and Queen)

The king is the most sacred piece on the board. The King can move in any direction, but only one square at a time. You lose the king, and the game is over. I like to think of the King as your “Chairman of the Board” (or “chairperson”, if you prefer). Powerful, but limited in its ability to affect the game.

The queen, on the other hand, is the most powerful piece on the board. She can move any number of squares, in any direction. This is your CEO. She can kick the ass of any piece on the board, but if you lose your queen in battle, you are sunk (unless you are Gary Kasparov). It is incredibly difficult for the remaining pieces to rally together for a victory if your queen falls.

A Random Thought (Does Size Matter?)

In chess, the pieces are often different heights/sizes. The pawns are the shortest, and the king is the tallest. In theory, they can be arranged from shortest to tallest, in the order of their relative importance to the game. While an argument can be made about the sizes of bishops, knights, and rooks, at the end of the day, the king/queen are taller, and the pawns are the smallest. However, in the world of business, this is where the analogy to chess ends. While the CEO is important, he or she alone cannot win the game. Without the minions in play, the game wouldn’t last very long.

A search on google for “chess business” reveals that I am not alone in my thinking. Here are a few selected entries if you’d like to take a look:

• Kasparov on Business and Chess
• Should Business Managers Learn Chess?
• All The Right Moves (Fast Company)

Food for thought. Have a great holiday season everyone! I’m gonna settle in for a game of Chess Titans, courtesy of Bill Gates. :)

Cheers.

THE BIRTH OF A SHOE COMPANY AS TOLD BY KENNETH COLE
Twenty years ago, I wanted to open a shoe company with limited money. From experience I knew one had to get in quickly because so often new companies run out of cash flow before they get the chance to conduct business. I also knew it was easier to get credit from factories in Europe who needed the business than from American banks that didn’t. So I lined up the factories, went to Europe, designed a collection of shoes, and returned to the states to sell them.

At the time, a shoe company had two options. You could get a room at the Hilton and become 1 of about 1100 shoe companies selling their goods. This didn’t provide the identity or image I felt necessary for a new company, and it cost a lot more money than I had to spend. The other way was to do what the big companies do and get a fancy showroom in Midtown Manhattan not far from the Hilton. More identity, much more money too.

I had an idea.

I called a friend in the trucking business and asked to borrow one of his trucks to park in Midtown Manhattan. He said sure, but good luck getting permission. I went to the Mayor’s office, Koch at the time, and asked how one gets permission to park a 40 foot trailer truck in Midtown Manhattan. He said one doesn’t. The only people the city gives parking permits to are production companies shooting full length motion pictures and utility companies like Con Ed or AT&T. So that day I went to the stationery store and changed our company letterhead from Kenneth Cole, Inc. to Kenneth Cole Productions, Inc. and the next day I applied for a permit to shoot a full length film entitled “The Birth of a Shoe Company.”

With Kenneth Cole Productions painted on the side of the truck, we parked at 1370 6th Avenue, across from the New York Hilton, the day of shoe show. We opened for business with a fully furnished 40 ft trailer, a director (Sometimes there was film in the camera, sometimes there wasn’t), models as actresses, and two of New York’s finest, compliments of Mayor Koch, as our doormen. We sold 40 thousand pairs of shoes in two and a half days (the entire available production) and we were off and running.

To this day the company is still named Kenneth Cole Productions, Inc. and serves as a reminder to the importance of resourcefulness and innovative problem solving.

I have been contemplating writing this post for about 2 years, and have been jotting down various notes for it for at least a year.

There are lots of ways to unethically nudge your fledgling company along. For example, you can artificially inflate your numbers. “You’ll love our site! Millions of other people are already using it!” Faux-Guerilla marketing, is another example (e.g. posting a message on a forum somewhere pretending to be a user in love with your product or service). “Procuring” copies of your competitor’s proposals by pretending to be a customer is also something I’ve seen before. The sky is truly the limit when you operate with little or no regard to ethics.

However, the widespread use of pirated software among startups is probably the most prevalent problem that I’ve seen.

I routinely deal with various early-stage entrepreneurs (increasingly not just here in the Southeast, but all around the world.) Based upon my very non-academic study, I would venture to say that somewhere around 40-60% of the companies I’ve met with over the past few years have used, or are using, pirated software in some part of their organization. That’s a pretty big number, and I’m convinced that number probably goes higher.

How bad is the problem? Well, in many of the cases I see, usually it’s just 1 or 2 people within the organization that are the primary offenders. However, there are companies that are quite literally “powered by pirates”, from the dozens of illegal copies of Windows XP and Microsoft Office to the software running the CRM database, the accounting platform, the software development tools for the engineers, the email servers, and even the phone system.

It’s a big problem, and has been for a while.

I have made a few observations:

1. It comes down to money, at the end of the day. The unethical bootstrapper’s mindset is squarely around this premise: If I have a choice between paying the rent or plopping down $1,000 for desktop publishing software, I’m paying the rent. Bootstrappers are always seeking new ways to save money and hit milestones – while illegal and unethical – using pirated software certainly accomplishes both.
2. Convenience is also a matter, although on a smaller scale. It is much more convenient to download pirated software than it is to buy it and wait a week, or get in the car and visit the computer/office store.
3. Despite the increases in computer security and rights management techniques, stealing software is easier than ever. A cursory search on common file sharing networks revealed current versions of Microsoft Vista (and XP), Oracle Enterprise, Quickbooks Pro, etc.
4. Usually, the piracy stems from the IT shop, not the management team (unless the founder is a particular technology-savvy individual).

I was thinking about the potential impact of this on the due diligence process for a venture raise. I’ve never seen a VC do an audit of software licenses as part of the due diligence process. I have, of course, seen software licenses roll up as “assets” when a company is being dissolved or sold-off. This is the sort of detail that a VC isn’t typically going to explore during due diligence (an exception might be with certain levels of enterprise software) – but they should, as there are tremendous potential liabilities.

According to the SIIA (Software & Information Industry Association):

If unauthorized software is found, the company must license enough copies of the software, pay a fine equal to three times the cost (MSRP) of the software and adopt and implement company-wide software compliance policies.

…

If the company refuses to conduct an audit, SIIA may sue the company for copyright infringement on behalf of its members.

Here is a great resource for companies looking to become compliant.

My advice to you entrepreneurs … continue to budget wisely, but be sure to leverage open source solutions. With open source solutions now available for most any problem, there is really no need to have to pirate a commercial product just to accomplish a task.

My advice to investors – hire someone to do an audit of the venture’s base of software licenses. Make sure they are legitimate, and that there is an audit trail confirming their purchase.

Cheers.

I’d like to take a moment to thank the folks who’ve stepped up to sponsor our non-profit efforts:

• Chrysalis Ventures
• Southern Capitol Ventures
• Web.com
• Adams Capital
• Clements-Walker
• Slingshot
• Angus McRae
• ATDC
• Technology Association of Georgia (TAG)

Without their substantial sponsor dollars and influence behind what we do, we’d have to pay for all of this ourselves (again), and let’s face it, that would suck. Each of these sponsors is behind our efforts because they truly believe in what we are doing – and that makes our relationship with them even sweeter.

Cheers.

Sooner or later, every startup struggles with the issue of how best to offer healthcare benefits to their employees. In a recent StartupLounge.com podcast, we were joined by Angus Mcrae, a guy who does a ton of consulting and brokering for healthcare benefits for Atlanta-area high-tech startups (for companies like N2 Broadband/Tandberg, ViTrue, etc.)

As an added bonus we toss (under the bus) the knuckleheads holding up SB80 (the legislative bill that would allow the Georgia teacher’s pension fund to be invested in private equity). We also provide an update on our upcoming Capital Connections and PitchCamp events (as well as TAG & ATDC’s upcoming CapVenture program) here in Atlanta.

This was another solid show with some great nuts and bolts content for entrepreneurs. How do healthcare benefit brokers work? What are the warning signs of unethical brokers? What about PEOs? How expensive are healthcare benefits for startups? Can they afford to do it? Should they? How big does a company have to be to offer benefits to employees? What are the key considerations in selecting a benefits program for your company?

Cheers.

The next quarterly StartupLounge.com Capital Connections event will be held on August 29th here in Atlanta.

If you are a fast-growth entrepreneur in the Southeast U.S., or an investor who’d like to network among such innovators to scout for new deals, head on over to StartupLounge.com and sign up. If you missed the last event, you can read the wrap up and check out the photo gallery over here. We had about 180 folks last time – we’re estimating 250-300 this go around.

For this next event, there will be some changes to the format:

1. First and foremost, we are opening it up to entrepreneurs across the Southeast United States (not just those located in Georgia). We are doing this because Atlanta really, truly should be the hub of entrepreneurship in the region. Several investors that attended the first event also made this suggestion, and we think this move will benefit investors (more deal flow) and entrepreneurs (more regional connections).
2. We are going to cap attendance at some point, so if you have an interest in attending, it would probably be wise to sign up sooner rather than later.
3. As before, companies will be limited to sending no more than two (2) representatives (investors may send as many representatives as they’d like, though).
4. We’re encouraging more entrepreneurs to bring demos, laptops, etc. (especially on the technology side)
5. We’ll be providing some free coaching for entrepreneurs prior to the event (See “PitchCamp“)
6. We’ve expanded our RSVP form to capture additional information that will help us better serve attendees.
7. If you attended the first event, don’t apply again – you’ll receive the event code in your email very soon.

The cost is still free, of course, and the room will be free of job-seekers and service-providers. However, we are seeking a few more sponsors to augment the sponsors we currently have. If your firm (or someone you know) is interested in helping us sponsor this event each quarter, please have them get in contact with us. Service-providers are welcome sponsors – in fact, it is the only way they can get in the room.

Cheers.