Startup-CEO.com (Eli Portnoy)

Early Stage VC has an incredible post about the number 1 mistake almost every entrepreneur makes. We come up with an idea – and too often we build, build, build without thinking of the customer and their pain points…and how we are actually easing it. 

I must have made this same mistake over and over and over. Amazing how simple it is, but how almost every entrepreneur I have spoken to has missed the point too - technology isn’t about the wow-factor, but about the easiest way of simplifying  pain points.

So if you are building something, stop and talk to your users and potential users. Really talk to them, set up a focus group, survey them, interview them, and make sure you ask the right questions…this will make life a hell lot of easier for you

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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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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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If you read last week’s cover story in the BusinessWeek, you probably felt sick to your stomach over the exploitation of the poor.

Growing up in Mexico, I routinely came across devastating examples of poverty. I witnessed a scary and growing divide between those with money and those without. There was hardly a middle class. If you didn’t have money you were stuck without any way up.

When I arrived to the United States I quickly recognized that the middle class is why the US is the land of opportunity. It didn’t matter where in life you were, with a little hard work one could join the middle class…and from there it was only a little more work to reach the upper class. There was always something to strive for.

The tables have turned.

Mexico now has a huge and emerging middle class, developments are booming, and there is a new sense of hope and possibility.

The US meanwhile is in the process of eliminating their middle class. In the age of unprecedented wealth, we are seeing the continued expansion of the wealth gap.

In the building of Emerging Demographics, I have had firsthand experience with thousands of jobseekers at the edge of despair. I can tell you that life is not fair. These are hard working and very smart people who have never had a chance in life. They want to do what they can to help themselves, but at every turn they are taken advantage of. Whether it is the money they have to borrow at 25% a year, or the check cashing store that takes 10% of their money, or even Western Union that charges about 15% to send a payment. It just isn’t fair.

But the worst of it are the companies that sell promises of a brighter future while raping the victims they claim to help. Institutions like University of Phoenix that charge thousands and thousands of dollars for half-backed courses that do little or nothing to advance the careers of the people taking them. I recently spoke to a single mother of two who was taking some of these courses. She was working a full-time job and raising her children. She was exhausted and she kept going because she felt this was her way out of poverty…but in the end the education she will gain is probably worthless and the 15 or 20 thousand dollars in debt she will find herself after graduation will probably only dig her deeper into the never ending rat race of despair.

This can still be the land of opportunity, but we need to make education - real education – more accessible and less expensive.

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As I mentioned yesterday, the economic and social reality of the United States today is that we need and want the 12 million illegal immigrants. We require the labor they provide, and even if we didn’t, there is absolutely no way the country can round up 12 million people and deport them. Not only is it impractical and immoral, but it would be economic suicide. That being said, the loudest opposition war cry is that o f Amnesty. For some reason, the country has been swept up in the notion that allowing immigrants to stay in the country, with a defined (albeit incredibly difficult) path to citizenship is paramount to forgiving someone for committing murder. There is so much heat regarding the amnesty issue, that the current bill being debated requires illegal immigrants to go back to their country of origin before they can become citizens here. That is just an impractical, stupid, and very costly requirement that is totally out of place and accomplishes nothing.

Let’s talk about amnesty. Firstly, what crime was committed? Illegal immigrants entered into the US without proper papers. Good point, but is that it?

What about the businesses that hired illegal immigrants?

What about the businesses that didn’t pay overtime?

What about the businesses that paid below minimum wage?

What about the country that stood by and allowed the exploitation of immigrants?

What about the social conscience of the nation that mistreated them?

On the one hand you have a dedicated, hard working person, who crosses the border because there are readily available jobs. He pays taxes, he lives in terrible conditions. He works hard. He is exploited. On the other hand you have illegal activity happening every single day by the 10s of thousands of businesses that hired illegal immigrants.

Shouldn’t we allow someone who has been exploited by our country, who has served us so well, and who only came because we asked him to, allowed the chance to become citizens?

This isn’t amnesty, its fairness!

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The views expressed in this post are my own, and do not represent the views or opinions of Emerging Demographics Inc.

Immigration reform has overtaken the country once again. 12,000,000 people are here in the United States illegally. As a Hispanic American myself, and a recognized expert on the issue of Hispanic immigration, I thought it would be interesting to do a couple of posts on the issue.

Our borders are broken – and our policies are screwed up

The US / Mexico border is easy to penetrate. A very, very large percentage of all illegal immigration comes through this border. Some people find it harder than others, but in general, it might be one of the easiest borders in the world to cross.

At the same time, the United States finds itself in a serious and possibly catastrophic labor crunch. There was a film that came out about 3 years ago called “A Day Without a Mexican” that asked what would happen to the economy if all Mexicans disappeared…you can imagine that the situation would not be pretty. And that is exactly the point; the US economy needs and depends on illegal immigrants because we are in the midst of serious labor shortage.

Understanding the situation from the vantage point of these two issues, one can understand how we arrived at the situation we find ourselves in. There is a porous border and tons of available jobs…well of course we would have a tremendous influx of immigrants.

For years we stood by in silence, never glancing in the direction of the border. We needed more workers, they needed us, let’s keep quiet and let the market resolve the issue on its own. However, over the last few years a couple of things changed.

1 – Terrorism emerged as a very serious threat and we realized that we simply could not allow such a gaping hole in our front-line defense. We have a right to protect and secure our border, and failure to do so is wrong, irresponsible, and dangerous.

2- We no longer need new immigrants. 12 million workers later, and we have satisfied our hunger for the labor they provide. Most of the jobs they fill are in the service industry, and at a certain point we realized we had as many as we needed.

As soon as these two things happened, we started to notice other problems: Undocumented workers were leading a very hard life; they weren’t being paid enough and were being mistreated. Payroll taxes weren’t being paid. Some of the immigrants where competing for better jobs with legal citizens. Our borders are a security threat…and before we knew it, the country was divided on the issue of immigration.

In the next post I will discuss the current situation and some of the proposals being discussed, as well as the question regarding “Amnesty”.

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Our Google Adwords account today had a little new message introducing us to Google Radio Ads. After playing around with the functionality, I am excited to have this option in my marketing arsenal, but I am weary of trying it out just yet.

The brilliance of using adwords is that it makes it dead simple to optimize campaigns and track the results. I would have assumed that if Google was venturing into the Radio ad world they would have taken a page from their previous success and let you target ads based on all sorts of demographic data. This is not the case, though that it is probably more because of a lack of radio inventory than anything else. Right now the only way to slice and dice the delivery of your ads is based on day of the week, time of day, gender, and age. That is just not enough to develop working and successful radio advertising.

That being said, Google does have a very neat feature called “Call Reporting”, which helps track the performance of radio ads by giving you temporary numbers to play on air, and which are routed back to your number. Google then provides you with a detailed report of how many calls you received to each of these temporary numbers, which makes it easy to segment the performance of your ads.Amazing that Radio and TV (with Spot Runner) are now fully accessible marketing platforms for small businesses. Even though these mediums are available, doesn’t mean they make a lot of sense for all businesses. My own experiences are that with radio and TV, and even print, repetition is the name of the game. Otherwise, they just don’t work. My hunch is that most small businesses will only realize this after spending enormous sums and getting little in return. Unless Google, Spot Runner, and anyone else entering this market, do a good job of educating us on TV and Radio advertising best practices, they will probably end up with few repeat users.

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Starting a business is like assembling giant mechanical watch in that there are hundreds of moving parts that must be timed to interact perfectly. Much like a watch has a face which is the external component that the world sees; an early stage startup has “the pitch” – the one facet of the business that must beautifully communicate everything that is going on in the background.

The difference between a good pitch and bad pitch not only can determine whether you get meetings with investors, but also how well you are able to hire, establish partnerships, build buzz, and generate excitement.

I am no expert on the pitch, but these are my thoughts:

A pitch is like a minimalist business plan, you need to get to the bottom of the issue very quickly.

1 - Hook your audience:
Propose a big problem. Think of a heavy hitting sentence that you can use to catch your listeners attention with the sheer magnitude of the problem you are trying to solve.

2- Solve the problem:
Explain the elegant solution you are developing to solve this devastating problem.

3 - Bring it home
Knock em dead with a real world example of how your solution will solve the problem.

Do:
Keep it short: The goal is to generate interest so that you are asked further questions.

Make it a conversation: A lot of entrepreneurs memorize the pitch and spit it back out word for word, try to keep it light and easy on the ears.

Show excitement: The more into it you get, the more people will feed of your energy and share your passion

Don’t:
Quote numbers: These numbers are great in presentations and models, not in pitches. If you must, then keep it to just the market size.

Use words you can’t qualify: Saying your product is the best will get you nowhere.

Explain features: If you have to resort to explaining features, your pitch won’t work. The pitch is all about the big idea not the details. Save those for later.

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