How To Keep Your Startup From Acting Like a Big Company

By Matt Heinz

The kind of big-company behavior we all hate – bureaucracy, slow decision-making, politics, stifled innovation – doesn’t just happen at big companies. It creeps into new businesses as well, with just a handful of people. If you don’t actively watch for it, proactively keep it out, and eject it immediately when you see the first signs, it can infect the organization with little chance of turning back.

It’s incredible how quickly big-company culture can take hold, but there are several things leaders can do to combat big-company behavior in their start-ups. Here are a few I’ve seen work most frequently and successfully.

Encourage a culture of innovation and failure

You’ve started or are working at a new business because it, inherently, is offering something new and innovative to the market. The way you build that product or service, the way it’s marketed and sold, the way it’s supported and grown – these processes often require innovative thinking as well. Risk-adverse behavior will stifle the kind of innovation that’s going to help you find new ways of accelerating success.

Of course, finding those new innovations by definition requires failure. You, your team and your business will fail often before innovation is discovered and capitalized. Encourage that failure. Encourage measured experimentation. Celebrate the learning and innovation that results.

Hire people with a proven track record of “doing”

We’ve all worked with really smart people who talk, think, question, write fantastic PowerPoint decks to prove it – but get little done. Many of these people appear highly attractive to start-ups. They think outside the box, and speak of highly innovative, disruptive ideas.

But in a new business, talk is cheap. Execution is what matters. And people with great ideas who can’t execute aren’t going to help you make money. Great thinkers need to be part of your organization. But consider them as advisors, not employees.

Build processes but avoid bureaucracy

Process has a bad reputation in the startup world. We like to be free-spirited, experiment, move quickly and be reactive to opportunity. That’s all fine and good, but once you identify something that works you’re going to want to do it again and again and again. That requires process.

Even innovation itself requires a process. Do you really want all of your developers writing code for different ideas all at the same time? How do you prioritize that? When you execute new sales or marketing experiments, how are you measuring success? How are you attributing causality of success back to isolated variables in the execution? This requires process. Bureaucracy slows you down. Effective processes make you faster, better, more efficient. You’ll know the difference.

Find business-oriented legal and HR support

Big company legal and HR people can be about as risk-adverse as you get. For many, their job (or what they perceive as their job) is to avoid as much risk to the organization as possible. That’s a fine objective on its own, but if unchecked it can kill innovation, speed and opportunity.

Among the world-class legal and HR individuals (and firms) available to start-ups today are plenty who can successfully balance their legal and HR responsibilities with the objectives and needs of the business. Their job is still to mitigate risk and help you grow, but they know it’s a balancing act, not a black and white game of winners and losers.

Measure everything, but focus on a small set of key metrics
There’s a big difference between the volume of business metrics you should capture, and those you should obsess about. Your marketing team may focus on natural search volume, cost per qualified lead, awareness growth, and so on. But the last thing you want to do, as a management team, is review dozens if not hundreds of metrics on a daily and weekly basis on an intimidating, size-6-font dashboard.

Mandate measurement across all departments, but focus on what matters most. Identify and obsess about the metrics that are truly driving and defining your business. These metrics will vary by opportunity – market share, customer satisfaction, customer growth, margin – but make them your primary focus and empower your managers and front-line staff to obsess about the sub-level measures that help get you there. A model of distributed ownership of metrics across the organization ensures everyone is focused on the right level of analysis and improvement.

Think thrice before hiring from big companies

The pedigree, education and experience of big-company employees – leaders and contributors alike – are highly attractive. And there are many, many individuals with big-company experience who are wired to excel at startups.

But we all know this isn’t true for everybody. People who worked in a big company may have no idea how to match that success in a smaller organization. Their skills may not be as transferable as you think. They may have been responsible for a set of success metrics, but what was their direct role in making that happen? Big company experience can mask this. Buyer beware.

Except when regulated by the SEC, set your employees free

If you’re hiring the right people to begin with, there’s no reason you shouldn’t be able to trust them to represent your brand externally. Your employees are one of your biggest and most important marketing assets. Their ability to evangelize what you’re doing to customers, prospective new hires, and new market opportunities that haven’t yet come to you is enormous.

If you want to give them guidelines for how to share and evangelize company information through their networks, fine. Give them tools and encouragement to do so, even better. The companies that do this best not only allow and empower their employees to share information and opinions. They also hire for it, and learn from it.

Empower more people to make decisions

More than anything on this list, centralized decision-making can slow down the best of companies. Founders, unwittingly, are often the biggest culprit. It’s your baby, you know what you want, you know what’s best, and you want it your way.

That may have worked in the early days, but as you grow it simply doesn’t scale. It’s hard, I know, but you must decentralize decision-making by empowering, encouraging and rewarding those around you to make smart decisions without you. If you can’t do this, you either hired the wrong people or need to rethink whether you’re able to help the business scale.

Reward outcomes, not output

Hard work doesn’t pay the bills. Long nights and weekends don’t directly matter. Email volume, specs written, PowerPoints delivered – none of this matters if you don’t build, ship and sell. The best startups give their organization freedom to do all of the points above, but focus rewards on outcomes. This starts at the top, with policies and examples of a focus on creating output that has a short, direct line to revenue and growth.

I’m sure this list is incomplete. I’m curious to hear in the comments below from those in the startup community who have seen other examples of anti-big business behavior and habits, and also examples of additional bad big-business habits to avoid.

Matt Heinz is the President of Heinz Marketing and the author of the books Sales for Startups and Successful Social Selling.

The opinions and views stated in this post are not intended to be legal advice and do not necessarily reflect that of Joe Wallin or Davis Wright Tremaine.

Posted in Startup Law, Startups | Tagged , , , , | 3 Comments

New Governor, New Legislature, Same Problems

Guest Post by Lewis A. McMurran (@lewismcmurran)

As 2013 unfolds, the U.S. economy appears to be healing.  Good news from the housing sector is giving some hope and upside to the financial markets.  Averting the so-called “fiscal cliff”, albeit only temporarily, has provided some certainty for taxpayers.  Serious economic problems remain, such as the debt situation in Europe, the U.S.’ own budget and debt problems, political uncertainty in the Middle East and a still tenuous employment situation in the U.S.

The Problems

Washington, like most other states, saw tax revenue drop precipitously after 2008 in the wake of the banking/housing bust and subsequent deep recession.  Washington, like most other states, was unprepared for such a deep recession not holding enough cash reserves that are needed when unemployment goes up and more people seek social services to make ends meet.

Washington state government brought some of this upon itself.  The legislature and outgoing governor spent almost every penny of tax revenue that came in during the boom times.  They expanded eligibility for state-paid health care and social services programs when unemployment was under six percent—exactly the wrong prescription for good economic times.  Granted, much of that money was also spent on improving K-12 and expanding access to higher education—both critical public policies that need to be priorities.

The result since the recession hit in full in 2008 has been major cuts to higher education, health care, social services, environment and natural resources.  The state parks are now almost completely fee-based, getting minimal state support.  Class sizes in some K-12 schools are way too big.  The state now only funds about 36% of the cost of a college education down from over 70% two decades ago.  Tuition has risen dramatically at the state’s universities.  To be fair, a public college education in Washington is still a good deal compared to some other states that have also cut support for higher education.

While K-12 gets the bulk of state funds, approximately 44% of the state operating budget, the state Supreme Court found in the McCleary decision that the legislature had shirked its “paramount duty” by not providing for a “basic education” for all students in the state.  Essentially this means spending more on K-12.  It has been obvious for a long time that just throwing money at schools does not yield better results, whether the focus is high school graduation rates, the percentage of students going to college or teacher and principal effectiveness.

Luckily the legislature had taken major steps in the 2009-10 sessions to bring real education reform to the state’s K-12 schools.  The Court cited legislative efforts to create “prototypical” schools and gave the legislature a timeline to fund the new education model.  Recently the Court chided the legislature for not making more progress in complying with the McCleary decision.

With a new year, a new governor, a new legislature and a recovering economy, state lawmakers have a little breathing room to address the state budget.  They are under pressure to spend at least $1 billion in new money on K-12 to comply with the McCleary decision.

But the demands on the state’s resource always outstrip the supply of tax revenue coming in and this next two year budget cycle will be no different.  Washington, again like other states, is in the process of implementing the federal “Affordable” Care Act (which will be anything but).  This requires expanding Medicaid to childless adults and other mandates that increase cost to the state and must be budgeted for.  Long term care costs continue to rise.  More people are seeking higher education to increase their skills and employability.  All of these cost money.

This means there will be lots of discussions in Olympia about raising taxes, closing tax “loopholes” and other creative ways to increase tax revenue.

Solutions

The state’s technology industries, particularly information and communications technology or ICT for short, are doing quite well overall.  The software, web and IT sectors all grew during the economic downturn.  From tech titans such as Amazon and Microsoft to mid-sized companies like f5, Isilon and Concur to smaller companies like SEOMoz and Tableau Software, all expanded by hiring engineers, marketers, product developers and the like.  In fact, the difficulty of finding top tech talent is the number one pain point for just about everyone in the ICT industries.

The tech industry’s priorities revolve around two key areas:  workforce development/higher education and business/tax climate certainty.  As stated above, the need for computer scientists and engineers goes unabated.  While schools like UW, WSU and WWU do an excellent job of educating those types of folks, the quantity of them is simply too low.  The tech industry will again seek to prevent cuts to the higher education budget and push for more computer science and engineering graduates.  The marketplace continues to validate that those with science, technology, engineering and mathematics [is that what the acronym stands for?] (“STEM”) degrees get jobs—and usually at good salaries and benefits.

Filling the “pipeline” with qualified students in STEM fields is critical for both Washington and the nation.  There is simply no downside in having many more people better educated in math and science.  The demand for technology and technology products is not likely to stop anytime soon.  Therefore, we will need those who understand technology, can innovate using technology and create new technologies.  This is why the tech industry gets involved in improving K-12, especially around math and science standards, curriculum and teaching.

On the business/tax front, the big issue is renewal of tax incentives for research and development (R&D).  The state offers a business and occupation tax credit for R&D spending and a sales tax deferral for building R&D facilities.  Both of these incentives have been wildly successful, used by hundreds of companies doing R&D in Washington since 1995.  Both tax incentives expire Jan. 1, 2015.  The ICT and life sciences industries use these incentives extensively to keep R&D costs down, expand new products and markets and remain competitive in a brutally competitive global economic environment.

However, those who desire more tax revenue will gear up their grassroots efforts to prevent renewal of the R&D tax credit.  The ICT industries are girding for a battle.  The state cannot afford to be less competitive vis a vis Washington’s  competitor states.  While Washington is clearly a leading tech state, many other states want what we have and are willing to do a lot to get it.  There is certainly a case to be made for more tax revenue but getting it at the expense of family wage jobs with good benefits is not worth it.

Now It Comes Down To You

The reality is that the legislature will do its best to satisfy the spending desires across a wide range of constituencies.  The other reality is all those desires will not be satisfied due to limited resources.  Businesses of all types across every industry will be targeted for higher taxes.

Balancing one interest against the other is what legislators are elected to do.  It is not an easy job when there are real consequences and competing interests.  Our lawmakers need to hear from you to help them make good decisions.  Without citizen input and feedback, legislators rely on the interest groups that help them get elected. Often these are the same groups looking for more tax revenue.  Get to know your two state Representatives and state Senator.  Write them an email thanking them for serving and letting them know what you are concerned about.

If you would like to dive more deeply into the state’s budget and revenue picture, here are some links for your reference:

Gov. Gregoire’s final budget and related documents

State Senate Ways and Means Committee budget briefing (Nov. 2012)

Descriptive Statistics on Tax Incentives (Chapters 6 and 11 for high-tech incentives specifically.)

WA State Tax Collections, 2008-2012

State Legislator/Legislature information

Posted in Public Policy | 5 Comments

Fiscal Cliff Bill Would Renew 100% Exclusion for QSB Stock Investments

QSB CliffThe fiscal cliff bill has a surprise few expected. It would renew through the end of 2013 the 100% exclusion from tax gain on qualified small business stock held for at least 5 years (there is a cap on the exclusion, but it is a substantial one).

This tax benefit, which expired at the end of 2011, would be extended for investments made through the end of calendar year 2013. Section 324 of the fiscal cliff bill states as follows:

SEC. 324. EXTENSION OF TEMPORARY EXCLUSION OF 100 PERCENT OF GAIN ON CERTAIN SMALL BUSINESS STOCK.

(a) IN GENERAL.—Paragraph (4) of section 1202(a) is amended—

(1) by striking ‘‘January 1, 2012’’ and inserting ‘‘January 1, 2014’’, and

(2) by striking ‘‘AND 2011’’ and inserting ‘‘, 2011, 2012, AND 2013’’ in the heading thereof.

****

Paragraph (4) currently reads as follows:

(4) 100 percent exclusion for stock acquired during certain periods in 2010 and 2011

In the case of qualified small business stock acquired after the date of the enactment of the Creating Small Business Jobs Act of 2010 and before January 1, 2012—

(A) paragraph (1) shall be applied by substituting “100 percent” for “50 percent”,

(B) paragraph (2) shall not apply, and

(C) paragraph (7) of section 57 (a) shall not apply.

****

Therefore, as amended, Paragraph (4) will read as follows:

(4) 100 percent exclusion for stock acquired during certain periods in 2010, 2011, 2012, and 2013

In the case of qualified small business stock acquired after the date of the enactment of the Creating Small Business Jobs Act of 2010 and before January 1, 2014—

(A) paragraph (1) shall be applied by substituting “100 percent” for “50 percent”,

(B) paragraph (2) shall not apply, and

(C) paragraph (7) of section 57 (a) shall not apply.

****

There were also technical amendments included. I’ve quoted them below.

(b) TECHNICAL AMENDMENTS.—

 (1) SPECIAL RULE FOR 2009 AND CERTAIN PERIOD IN 2010.—Paragraph (3) of section 1202(a) is amended by adding at the end the following new flush sentence:

‘‘In the case of any stock which would be described in the preceding sentence (but for this sentence), the acquisition date for purposes of this subsection shall be the first day on which such stock was held by the taxpayer determined after the application of section 1223.’’.

(2) 100 PERCENT EXCLUSION.—Paragraph (4) of section 1202(a) is amended by adding at the end the following new flush sentence:

‘‘In the case of any stock which would be described in the preceding sentence (but for this sentence), the acquisition date for purposes of this subsection shall be the first day on which such stock was held by the taxpayer determined after the application of section 1223.’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by subsection (a) shall apply to stock acquired after December 31, 2011.

(2) SUBSECTION (b)(1).—The amendment

made by subsection (b)(1) shall take effect as if included in section 1241(a) of division B of the American Recovery and Reinvestment Act of 2009.

(3) SUBSECTION (b)(2).—The amendment made by subsection (b)(2) shall take effect as if included in section 2011(a) of the Creating Small Business Jobs Act of 2010.

Posted in Federal Law & Regulation, Financings, Startup Law, Startups, Taxes | 21 Comments

My Holiday Wish List for Startups, 2013 Edition

Wish List for StartupsWhat Congress Can Do To Make 2013 a Great Year For Startups

By Joe Wallin

Now that 2012 is winding down, it is worth considering what Congress can do in 2013 to make it a great year for startups. I put together the following short list in hopes of starting the conversation. I have a longer list on quora.com, if you are interested. (See http://qr.ae/1ANtH.)

Idea Number 1–Make Equity Crowdfunding A Reality

How about making equity crowdfunding real? The JOBS Act crowdfunding provisions are ridiculously complex. Labrythine. Startups are going to have to spend fortunes to comply with them. All for a capped fund raise. As I’ve written, the benefits of the law as passed are capped, but the costs are not. Plus, we are probably going to have to wait the entirety of calendar year 2013 for the SEC to issue rules that still will be only draft rules. We need a simpler law.

Here is an idea, Congress!: Pass a new law. Make this one simple. Here is how you do it. Simply exempt small transactions from federal securities law entirely! Pass a law that says that investments of less than $500 per person and $500,000 in the aggregate are not covered by federal securities laws, and state securities laws are expressly preempted. OK, and maybe the investor cannot invest more than 10% of his or her net worth. Simple! No SEC regulations required. Let’s make it happen.

Idea Number 2–Make General Solicitation in All-Accredited Offerings a Reality

The SEC and the states should make general solicitation in all-accredited investor offerings under Rule 506 a reality. Again, the SEC has hung us up, refusing to enact regulations by the statutory deadline. Congress, pass an amendment to the law that repeals the ban on general solicitation without requiring any SEC regulations.

Idea Number 3–Re-Enact the 100% Capital Gains Tax Exclusion for Startup Investments

Congress should re-enact the 100% tax exclusion for gains on qualified small business stock held for more than 5 years under Section 1202. President Obama brilliantly pushed for this, and it became law–for a brief period of time–but then expired. Let’s renew it and make it permanent.

Idea Number 4–Fix the High-Tech Worker Immigration Problem

Don’t hold up immigration reform for high-tech workers pending comprehensive immigration reform. Fix the problems for high-tech workers now. A global immigration bill would be great to pass. But don’t wait for it to remove the barriers for high-tech workers immigrating to work in our U.S. technology industry.

Conclusion and My Letter to Congress

Dear Congress,

You have it in your authority to make 2013 a spectacular year for startups. Please don’t get hung up in bickering. Pass some good law for startups. Make us all proud.

Respectfully yours,

Joe

[The views expressed in this blog are those of the author.]

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Startup Sales Growth: Six Tips for a Bigger 2013

startup sales growthBy Matt Heinz

Most sales teams are busy right now finishing the last month and quarter of their year, which means they’ll hit January 2nd by hitting the reset button but behind when it comes to strategically preparing for improvements in the New Year.

There’s no excuse for taking your eye off the ball before December 31st, but here are six specific focus areas to ensure 2013 not only gets off to the right start, but improves upon the results and momentum you may have built leaving the past fiscal month, quarter and year.

1. Review 2012′s lessons & implications

Do a quick post-mortem on the year. What went well? What would you have done differently? What should you have anticipated, and what do all of those lessons & observations tell you about how to prepare for and execute in the New Year? Pull your sales managers and a few key reps into a room (for lunch or beers if you don’t want to disrupt selling hours), or at minimum lock yourself in a room for a couple hours for reflection.

Do this right, and it’ll be difficult not to come up with insights and ideas you can use to put your team on a better track in January.

2. Set clear goals (but be realistic)

What does success look like? What top-line sales numbers are you expected to hit, sure, but how will you get there? What’s your target cost per new customer acquisition, for example? How will you define and measure sales team productivity and satisfaction?

You can make a spreadsheet say anything, and no sales leader is solely responsible for coming up with sales goals. But as you work with your management peers, ensure sales goals are aggressive but based in realistic expectations.

3. Inventory and secure the resources you need

So, about that sales number you’re expected to hit. Do you have enough reps? Do they have the tools they need? What’s required from your marketing team (in terms of leads, tools, training, market intelligence, etc.) to succeed?

This isn’t about setting up excuses and scapegoats when your numbers don’t reflect expectations at the end of January, but rather ensuring there’s forethought into how you’ll execute.

4. Plan and execute a kick-ass sales year kick-off meeting

In some organizations, the beginning-of-year sales kick-off meeting is a dying breed. But take a closer look at the most consistently successful sales teams across industries and you’ll find a dedication and focus to starting the year with everyone on the same page.

Get other executives involved, mix in plenty of training and role-playing, and ensure there’s also time for the team to gel, get to know each other, and have a little fun. Here are several additional best practices for your 2013 sales kick-off meeting.

5. Reserve time throughout the year for training & reinforcement

Successful sales managers know that training isn’t a one-and-done exercise. It’s not something reserved for the annual kick-off meeting. It’s a weekly if not daily discipline and practice. It’s done both formally and informally across the sales floor.

Good training is constantly revisited and reinforced. It’s celebrated and rewarded. It’s a requirement if you want your team at the top of their game, especially when the rest of your market and selling conditions are constantly changing.

6. Dedicate time for regular review & optimization

Don’t want until this time next year to reflect on what’s working and not working. Take time – on your own and with your managers – to review your metrics as well as the “soft” factors impacting sales performance and results. Take input from customers, prospects, competitors and those from other departments to constantly adjust strategies and tactics.

These tips are easier said than done, but talk to successful sales managers and learn more about their they’re second-nature habits. Worth considering and incorporating as the clock ticks closer to 2013.

Matt Heinz is the President of Heinz Marketing and the author of the books Sales for Startups and Successful Social Selling.

The opinions and views stated in this post are not intended to be legal advice and do not necessarily reflect that of Joe Wallin or Davis Wright Tremaine.

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