Toll-free numbers are de rigeur for most incoming sales and customer service lines. This used to make a lot of sense, say 20 years ago, when people actually paid for an outbound call. You did not want to throw up a barrier.
Now, though, nobody I know pays any differently for a toll-free number versus a normal toll number. Indeed, the very concept of long distance is mostly dead as well. I don't know what the stats are, but I would guess that most people have an all-inclusive plan either on their mobile and/or their landline.
So, toll-free is a great money maker for the phone companies. The caller is paying the same as they would anyway, and the receiver is paying extra for the privilege. With SMS slowly on its way out, the phone companies need a new high margin cash cow.
For the companies themselves, it seems like they could drop it unless they cater to those with lower incomes or no clue.
Monday, January 30, 2012
Friday, January 27, 2012
How much money should I raise?
I get this question a lot. The answer is easy--take as much as you can get.
Why? Let's think this through.
Entrepreneurs resist raising more than they think they need because they are worried about dilution. There are two fallacies here. (A) They need more than they think they will. (B) Dilution is an illusion.
The result of this behavior is that entrepreneurs radically improve their chances of failure. Instead of optimizing for how much of the company you own, you should optimize for the company's success. This is the old saw of owning a small piece of a big pie instead of a large piece of a small one. The additional corollary for startups is that, usually, there is no pie when the music stops.
Let's talk about the fallacies. You will need more money than you think. Entropy is the most powerful force in the universe, and it guarantees that most surprises are unhappy. Also, your business plan is wrong, almost certainly to the downside, because as an entrepreneur, you are blind to risk and more enamored of your baby than others. If you weren't, you would never embark on such an adventure.
Most of the software companies I know do not hit their milestones as quickly as projected. That is not to say that they will not ultimately be successful. But shit happens, and many companies raised money assuming merely imperfect execution, as opposed to one or two complete shitstorms along the way. They run out of money just at the point where there is some visibility that they are getting traction. But, they do not have enough traction to convince a Series A investor to take the risk.
This will get even tougher in the current funding environment, where there is a glut of seed financed companies chasing a shrinking pool of Series A investors. This makes the Series A process longer, and you are competing against a lot more companies for that money, some of whom will have better evidence of traction. You end up trying to do an inside round, which is tough at the seed stage.
Taking less money because you are worried about dilution is just dumb. Very few startups succeed to achieve significant returns to founders and investors. You should do whatever it takes to maximize your company's chances of success. That means choosing the right investors, even if it means a lower valuation. That means taking as much money as you can get with a reasonable amount of effort--there are declining marginal returns here as you divert time to raising money instead of executing.
In the current environment, where seed is relatively easy to get and Series A is hard, it means getting as much as you can in the seed round. You generally don't get a second chance to do more seed funding, because most seed investors will not re-up for an inside round.
So, if you did not raise enough and are running dry before hitting real milestones, you are toast. If you did execute like a rock star and hit the plan, there is good news. You have more money in the bank than you thought you would need. That means putting off the A round for a few months, during which time you will continue to improve and your Series A valuation will be higher as a result, countering some of the "extra" dilution you took in the seed round.
Most importantly, your company still exists, and you still have a chance at eating some pie.
Why? Let's think this through.
Entrepreneurs resist raising more than they think they need because they are worried about dilution. There are two fallacies here. (A) They need more than they think they will. (B) Dilution is an illusion.
The result of this behavior is that entrepreneurs radically improve their chances of failure. Instead of optimizing for how much of the company you own, you should optimize for the company's success. This is the old saw of owning a small piece of a big pie instead of a large piece of a small one. The additional corollary for startups is that, usually, there is no pie when the music stops.
Let's talk about the fallacies. You will need more money than you think. Entropy is the most powerful force in the universe, and it guarantees that most surprises are unhappy. Also, your business plan is wrong, almost certainly to the downside, because as an entrepreneur, you are blind to risk and more enamored of your baby than others. If you weren't, you would never embark on such an adventure.
Most of the software companies I know do not hit their milestones as quickly as projected. That is not to say that they will not ultimately be successful. But shit happens, and many companies raised money assuming merely imperfect execution, as opposed to one or two complete shitstorms along the way. They run out of money just at the point where there is some visibility that they are getting traction. But, they do not have enough traction to convince a Series A investor to take the risk.
This will get even tougher in the current funding environment, where there is a glut of seed financed companies chasing a shrinking pool of Series A investors. This makes the Series A process longer, and you are competing against a lot more companies for that money, some of whom will have better evidence of traction. You end up trying to do an inside round, which is tough at the seed stage.
Taking less money because you are worried about dilution is just dumb. Very few startups succeed to achieve significant returns to founders and investors. You should do whatever it takes to maximize your company's chances of success. That means choosing the right investors, even if it means a lower valuation. That means taking as much money as you can get with a reasonable amount of effort--there are declining marginal returns here as you divert time to raising money instead of executing.
In the current environment, where seed is relatively easy to get and Series A is hard, it means getting as much as you can in the seed round. You generally don't get a second chance to do more seed funding, because most seed investors will not re-up for an inside round.
So, if you did not raise enough and are running dry before hitting real milestones, you are toast. If you did execute like a rock star and hit the plan, there is good news. You have more money in the bank than you thought you would need. That means putting off the A round for a few months, during which time you will continue to improve and your Series A valuation will be higher as a result, countering some of the "extra" dilution you took in the seed round.
Most importantly, your company still exists, and you still have a chance at eating some pie.
Wednesday, January 25, 2012
Is innovation dead?
I have been meaning to write this post for a while, and listening to
Mike Maples of Floodgate rant about the issue tonight at the Founder
Showcase finally got me off the stick.
As an investor I hear a lot of pitches. A disturbing trend in the last 18 months is that most companies can succinctly describe themselves as the [insert hot company] of [insert underserved enormous market]. That almost always means that they are just an iterative solution as opposed to something revolutionary.
The really big ideas are ones that seem like madness. Things that you could not even imagine a few years ago. You could not describe Facebook or Twitter as the X for Y market. They were enabling new behaviours.
Investors are somewhat to blame for this explosion of me too companies. An area gets hot, and investors pile in and fund copycats and "inspired by" companies hoping for an easy hit. But the big money is made by staring into the abyss.
Where this model works consistently well is in foreign markets. There are companies dedicated to cloning business models that work well in the US and applying them in other locales, and then selling them to the US company when they are ready to expand abroad.
Someone told me that the companies to invest in are the ones doing things you could not even have imagined 3 years ago--I like that filter.
As an investor I hear a lot of pitches. A disturbing trend in the last 18 months is that most companies can succinctly describe themselves as the [insert hot company] of [insert underserved enormous market]. That almost always means that they are just an iterative solution as opposed to something revolutionary.
The really big ideas are ones that seem like madness. Things that you could not even imagine a few years ago. You could not describe Facebook or Twitter as the X for Y market. They were enabling new behaviours.
Investors are somewhat to blame for this explosion of me too companies. An area gets hot, and investors pile in and fund copycats and "inspired by" companies hoping for an easy hit. But the big money is made by staring into the abyss.
Where this model works consistently well is in foreign markets. There are companies dedicated to cloning business models that work well in the US and applying them in other locales, and then selling them to the US company when they are ready to expand abroad.
Someone told me that the companies to invest in are the ones doing things you could not even have imagined 3 years ago--I like that filter.
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