Startup-CEO.com (Eli Portnoy)

Continued from previous post…

In July of 2005 I was 24, I knew nothing about the startup space or building a business, and I had already left my job. I would wake up in the morning and take long walks trying to develop an idea around which to build a company. At that point I had already decided that my next venture would revolve around the Hispanic community. I was also fascinated by the emergence of Craigslist, not so much by its meteoric rise, but by the democratization of information that it was allowing. I also loved the network effect that essentially allows Craigslist to operate in a monopolistic bubble. And so it is not shocking that the first idea that I began to contemplate was to shape a craigslist style marketplace for the Hispanic community.

The idea had merit, primarily because the Hispanic demographic in the US is organized around pre-existing social networks; the family and the Church. Providing a fluid platform by which these institutions could leverage their existing social connections would be very powerful. Secondly, these communities tend to be very insular and as such are perfect for a local classified type system. Finally, as most marketers are figuring out now, the only way to truly engage this community is through grass roots marketing campaigns – thus the platform I envisioned would be significantly valuable real estate and could allow for some interesting monetization strategies as well as serve as a springboard for other businesses.

There were significant hurdles that would need to be overcome, primarily the lack of internet penetration in the communities I was hoping to serve and the English fluency issue. Even though internet penetration was gaining quickly, it was still much more significant of an issue than what the data suggested. Many people in these communities that are being counted as internet enabled, had and still have very limited internet access, usually checking their email 1-2 times a week via public libraries, friends, or internet cafes. As for the English fluency issue, a bi-lingual site could have solved the problem, though as I would later find out it just wasn’t going to be that easy.

The idea that I conceived was to create a hybrid online-offline system that would allow posters to submit classifieds via the internet, which could then be searched online or in a weekly newspaper I would publish. I also wanted to add a simple translation engine to the site that would allow employers to post online in English, and for the posting to be printed in Spanish. Not a very elegant business model, but a quick and easy way to overcome some of the obstacles challenging my end goal of becoming the craigslist of the Hispanic community.

My first order of business was to begin the development of the website. I spoke to about 50 web development companies and got quotes that ranged from one thousand dollars to fifty thousand dollars. I contacted local printers and found a company that could print our newspaper. I interviewed over 30 freelance print designers to come up with a standard format for our newspaper. I ran around the city forging connections, learning more about the community and generating some interest in what I was doing.

I then ran into a really big problem, how was I going to distribute the newspaper. For some reason I had totally overlooked this seemingly obvious and indispensible part of the business. I racked my brain trying to figure out a quick and dirty way of getting the newspaper in front of as many people as possible. I tried a couple of different ideas, including hiring a professional company, until I realized that I was going to have to create my own distribution network. I forged agreements with close to 1,000 retail distribution points and hired 4 drivers to each deliver papers to 250 locations over a 2 day window.

The business was getting ready for launch, and I had spent under 10k at that point. I was excited, I was ready and I was going to take over the world.

Next week, how the idea performed…reality hits.

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I was working on another mundane consulting project, doing nothing more productive than rearranging a power point document for the eleventh hundred times, when I decided I had enough. This was not work that was challenging me, these were not the type of people I could learn from, and this is not how I wanted to spend my time. I know this doesn’t sound PC, but as I recount the story of how I became an entrepreneur and built an internet recruitment site for non-internet users, I am going to be as real as possible.

So anyway, back to the story. I was working on a strategy project for a pretty large firm. I can’t get into too many details on what we were doing, but you can trust me in that it pretty boring stuff. We were staying in the office until 11-12 at night for no good reason other than the senior manager had some sort of complex, whereby he thought that the longer he could keep us in the office the more likely he was to be promoted. So there we were reworking the same exact slide. Changing the colors, adjusting the font, spending hour upon hour on the details, and only spending a couple of minutes and a few guesses on the actual numbers and recommendations. I wanted to challenge myself, learn, be exposed to new concepts, isn’t that why I decided to do consulting?

That night I had an epiphany: I was going to leave my job and start a business. I was going to abandon the consulting world and venture out on my own. I always had the entrepreneurial bug, and I was going to live the dream. Problem was, although I had an idea of the space I wanted to be in, I really didn’t have a clear cut vision of what I was going to build.

Being originally from Mexico, speaking a fluent Spanish, and having a pretty good understanding of the US Hispanic culture I decided my business would revolve around the fastest growing demographic in the United States. That was my starting point and from there I decided on the name Emerging Demographics Inc. and our company mission: “to level the cultural, technological and linguistic barriers that impeded Hispanic progress through innovative and profitable ventures.” That was the entire idea and from there I took the giant leap of faith that I could take a concept and a direction and develop a business around it.

• Next week, how the idea became a business…the first few months.

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This is why I don’t like reading Guy Kawasaki. Here is a guy who was great for Apple, but has no experience building a company, yet loves to distill terrible startup advice. His book is a compilation of startup clichés and his blog is a rehash of the same.

Truemors, is his latest project, and Guy is running around hyping how amazing it is that he built it for 12k. I am happy for him that he is getting some hands on experience, and on the whole he is a pretty smart guy. My problem with him shouting and screaming about how little it costs to start a business is that he is giving false hope to thousands of people out there who think they can build a Google with that kind of money.

Forget about whether Truemors is a good site or not, the point is those 12 thousand dollars were entirely spent on developing the software and legal fees. That’s not a business. Heck, there are countless high school kids who could build the same thing for 2k. How do they then get distribution? How do they generate revenue? How do they put together a sales team?

A little website is nothing but a little website. Guy is maybe one of a handful of people who can get the kind of exposure he did. Almost no one else can, and so they will need to spend tens of thousands of dollars on PR, Marketing, Business Development deals to get the traction he did.

I have made a lot of these points before, as have some other people. It’s just irresponsible of Guy to misinform and misdirect aspiring entrepreneurs this way. If someone has 15k saved up, they shouldn’t start a business thinking that will be enough…don’t encourage that kind of very dangerous behavior, because this is why the startup failure rate is so high.

Stop evangelizing yourself and let us use the power of blogs to disseminate real, from the trenches, information that is actually helpful.

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I remember vividly the day I left my job as a management consultant and began the entrepreneurial journey that ultimately resulted in Emerging Demographics. One of the most satisfying feelings was a sense of ownership – I would live and die by my own work.

Entrepreneurs often talk about the extreme highs and lows of starting a business; we feel it so much more than any other profession in the world because our companies are just an extension of us. They are our vision, our labor, our hopes and our dreams.

The first few days of the business were incredible, I was running around getting incorporated, interviewing developers, researching the market, writing a preliminary business plan…and just basically running around like a wild chicken without a head. There was so much to do – and I was on such a high. I was the king of a company and finally all of my ideas would be implemented. No more fighting bureaucracies, hierarchies, and Sr. managers. I was finally going to prove that I had it in me to build a company. Like I said, there are some really extreme highs in starting a business.

But there are also incredible lows. A few days later I ran into my first problem. I spoke to seasoned business professional and he asked me how I was going to distribute my product. I told him some of my thoughts, but he ripped them apart. He told me to go back and find a job. I felt crushed, maybe I didn’t know everything, and maybe I was taking on a stupid, crazy risk before I was ready. Maybe my brilliant idea wasn’t so incredible.

These highs and lows happen just about every day in business, but the way to level them out and build a business while maintaining emotional sanity is to surround yourself with loved ones who will help you and guide you no matter what. One of these key people in my life taught me a very valuable lesson during those early days. He said that there is a common denominator that all successful entrepreneurs share – a willingness to accept criticism and failure, learn from it, and overcome it. He told me I had a choice, I could get knocked down by every failure that I was going to encounter or I could analyze it and figure out a way to knock it back and be stronger because of it.

So I did just that, I thought about distribution, I put together a plan and I continued forward. I fought my inexperience, I challenged myself by my future failures and I continued forward.

Being an entrepreneur is a great feeling, but be weary of those highs and lows. Don’t get too caught up in the highs to think that you or your business are brilliant or a sure thing, and don’t let the lows make you doubt your ability to overcome or circumvent the challenges that will present themselves.

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Yesterday I received a comment to my previous post on amnesty. The author did not even enter his own email address so I will have to respond via the blog. I have attached his comment below as well as my response. I love that the internet and blogs allows us to have an open dialogue about these issues. If anyone else wants to chime in, please feel free to email me or post a comment below.

The comment:

There’s too much wrong above to try to correct. If many IllegalAliens went home we’d invent machines to replace them, or “industries” like strawberry production would move offshore, both of which would be better for us. Second, the option isn’t between amnesty and MassDeportations; that’s a standard FalseChoice that hacks constantly use. The alternative is to start enforcing our laws. Third, “we” didn’t “ask” IllegalAliens to come here: they were only able to come here because of massive PoliticalCorruption.

Much, much, much more education on this topic is needed.

My Response:

Firstly, thank you for reading and commenting. What makes our country great is the open dialogue we can have on the issues that affect our lives. That being said, I must disagree with your comment.

1 - “If many IllegalAliens went home we’d invent machines to replace them”

Capitalism is a system of greed, where the most productive and inexpensive resources are used first. If we could invent machines to replace workers and it was more cost effective than using labor, we would have. The point is we haven’t because it is less expensive and more productive to use labor. Hence, by forcing us to invent and build these more expensive machines we would be causing ourselves an economic disservice.

2 - “or “industries” like strawberry production would move offshore”

Firstly, if your point is true, then illegal immigrants are not taking anyone’s jobs – because as per your logic the industries would cease to exist if there were no illegal immigrants. Secondly, why would we want to move these industries off-shore? By keeping the industries here we are assuring that a large percentage of the income generated from these activities is being spent in our borders. Now, I agree that we need to be able to collect taxes on these activities and make sure that workers pay their share of healthcare and what not…but that’s why we need to provide them with some form of workers permits. The solution isn’t to kick them out, it is to legitimize what they do and enforce applicable laws.

3 –“ Second, the option isn’t between amnesty and MassDeportations; that’s a standard FalseChoice that hacks constantly use. The alternative is to start enforcing our laws.”

I agree that mass deportation is an extreme, but “enforcing our laws” is essentially deportation. At least that’s what our law says now. If someone is not authorized to be here they need to be deported. If we change our laws to where undocumented workers have the ability to work and provide the many services they do in a legitimate manner then yes, I agree, enforcing the law is a good idea. Otherwise, there is no middle ground. We either provide them with a legal way to make a living or we deport them according to our current laws.

4 – “Third, “we” didn’t “ask” IllegalAliens to come here: they were only able to come here because of massive PoliticalCorruption.”

You might not have asked them to come, but tens of thousands of businesses did and still do. Look around you, our economy functions because they are here. There isn’t a single politician, corrupt or not, who asked businesses to hire undocumented workers. Businesses and consumers wanted foreign workers because it lets business compete in an increasingly global world, and consumers wanted inexpensive goods and services. So whether we directly asked them to come or not doesn’t matter because we DEFINTILY wanted them here and let them know it. Accept it or not, but blaming this on corrupt politicians is a cop-out excuse.

5- “Much, much, much more education on this topic is needed.”

I agree that much, much, much education is needed on this subject – we can all learn more about the issues that affect our country. But listening to extremist views on the radio helps no one. Stop and think about the issues and understand the logic and ramifications of your arguments. Undocumented workers have only been good for us and the economy and we need to legitimize what they do, and provide them with a way of contributing to our society the same way every other immigrant group to the United States has improved our country.

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At some point, and usually pretty early on in the life of a startup, a founder needs to put together a financial projection model. By this I mean they need to build an analysis of the expected costs and anticipated revenue of their budding business.

I usually suggest doing this as early on in the planning stages of the business, even before any other part of the business plan; because this can more easily help you differentiate a good business from a bad business, and will also allow you to understand your financial needs. As with the rest of the business plan, this is a forever changing document that must be consistently updated and reworked.

So how does one balance the need for detail and thoroughness that is essential to functional projections and the very real lack of information that will plague all and every startup?

I am not sure, but having built a few models already I can tell you that for each case it was different. For DVA (sold minor league advertising in the booklets and programs they hand out at the entrance) we had a one tab spreadsheet that outlined our printing costs, our distribution costs, and our overhead, and allowed us to plug in advertising pricing and understand our income from the business. It was really simple and it did the job. We probably couldn’t scale with it, and if we ever needed funding that document wouldn’t have been laughed out of the room, but it served its purpose.

Our current financial model for Emerging Demographics is much more complicated and intricate. It has several business lines, multiple websites driven by different assumptions, costs separated into over 40 very specific drivers, it is broken out into multiple locations, and we align our model to market trends. All in all, it is about a 20 something tab spreadsheet that that took an unfathomable time to build, but which we can update very easily and gives us a very thorough analysis of what our business looks like. Also, because it is so broken out, we are able to constantly update any assumption for which we get better information.

So which is better? I don’t really have a clearly defined opinion on this only that it depends on the business and the founder. I liked keeping the model simple the first time around, because it saved a lot of time that we were able to spend on other parts of the business, and most projections are completely wrong anyway. But building such a detailed model was incredibly insightful into the business and definitely made us smarter as to how the business needs to be structured.

If I was doing it again, I probably would go full out and build the projection model as detailed as possible, keeping in mind that a lot of it will be wrong, but using it as a tool for understanding my business.

Does anyone have any thoughts on this?

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