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    Friday, March 6, 2009

    @ Rise Austin Annual Event

    This is a compilation of several thoughts from the Rise Austin even hosted over the last 4 days some of which I was able to attend. For those that don't know Rise is a non-profit organization founded here in Austin that fosters Entrepreneurship through free conferences and other things. Check them out at, great organization.

    1. Is bootstrapping a practicable method for start ups delivering goods or commodities? Boot-strapping clearly works in an IT space where the major input pre-sales is sweat equity to create the website and whatever else you are offering on the back end, this is what Build A Sign did. Bootstrapping also clearly works with service industry businesses where the primary thing your are selling is a service, again time is the major component. However, if you want to sell a product or commodity is it really workable. In some cases the answer is clearly yes, if you run a typical demo-sell-build model then boot strapping works fine. Getting a demo produced is usually relatively cheap and if you can simply get orders off your demo THEN produce your inventory it works a lot better. But what if your making wine, you can't really make a demo and go around and try to sell said demo then when you get purchase orders produce the wine, growing seasons don't work like that. You have a several month period in which you have to produce a majority if not all of your inventory for the entire year, thus upfront costs and the saying it takes money to make money in wine.

    2. Is it time for new VCs? The bootstrap Austin group talks about three different types of Entrepreneurship: Cookie cutter, VC funding driven, and bootstrap. No certainly there are differences between what is happening in a bootstrap business and a funding driven business, however, would it not be beneficial for VC funded start ups to take on a bootstrap mentality of right action right time? I think in this day and age the bootstrap mentality of constant innovation and evolving business is the way to stay ahead of the game. Competitors gain access to information and technology at an alarming rate, its only a matter of time till you are copied, so you have to keep changing it up, whether your are VC funded or bootstrapped as I see it. So what is it about VC funded ventures that keep them from being bootstrapped? The constrains placed on them by VCs I believe. VCs want to see a clearly laid out plan of action and growth before they invest in a business, but how can I know what the right action to take for my business is going to be 4 years from now today? VC funding locks people into a rigid business model that denies right action right time thinking, the core of bootstrapping. Perhaps it is time for a new VC that allows more freedom.

    3. Conscious Capitalism and the rest of the world. The founder of Whole Foods gave the keynote address at the end of the conference and spoke about the need for what he has named Conscious Capitalism. The main shift in Conscious Capitalism as compared to the current system is a move from shareholder value optimization to stake holder value optimization. Meaning its not just about the people invested in you directly, but the indirect investors meaning your employees, your customers, your suppliers, your community and everyone else who you effect... probably the world at large if this idea is expanded to its truest form. How on earth does this relate to the world we live in? Mackey stresses that this will in the end lead to higher profits, and I believe him, whether is due to a cosmic feed back loop of karma or simply because taking care of your employees makes them happy so they do better work and your customer gets better served, I just think he's right on this. But again, I think its time we call for a new VC. If I pitched to a VC and said, yeah maximize profits isn't really going to be my goal, it will happen, but I am going to focus on maximizing value created for the world in and around my business, I would get shown the door in most cases. There are some VC firms out there who are beginning to look at "socially responsible investing" but they certainly are not the norm. So how in business like wine, where it takes money to make money are new entrepreneurs supposed to start a socially conscious and innovative business? Pick a different business maybe, but I don't want to do that, and its just a bad answer. It is time for a new kind of investment group!

    4. The NEW school of funding! What would this new VC I am calling for look like, and would it work? Its great to call for the destruction of the old guard but unless you have a better solution is just yelling at the wind, so here are what I see as the key points to a new VC.
    A. Team not business plan. Now this is an old idea and one that current VCs incorporate. There are hundreds of great business ideas out there, but only a few great teams. Current VCs though still heavily rely on business plans to evaluate viability, then after the plan passes the evaluate the team to see if they are capable and passionate enough to make it happen. The new VC will do away with this and focus on teams and people, sure the idea will be important, but if you talk to a true entrepreneur your going to find out what their idea is because its all they want to talk about. They don't need to have every detail worked out, just a passion and drive to make it work, they do whatever it takes spirit of the great founders of the world. To use a classic example of the failure of B-plans, the Fed-Ex business plan was given a failing grade by a B-school professor.
    B. Right Action Right Time. The goal of the new VC team should be to help determine the right action for the current time for any investment. With the removal of rigid business plans there will have to be much more hands on direction to help entrepreneurs keep on track and do what is right at every turn.
    C. Recognition that stake-holder value = shareholder value. It is a direct relationship thus maximizing the stake-holder value will correspond to the maximization of the shareholder value. Sure this is a long term view, but it is what is require to build the businesses that will lead the world into a better future. THIS and only THIS after-all should be the goal of VC to build GREAT businesses, NOT great profits. Great profits follow great businesses, but great profits can not lead great business.

    If you want to form the new VC, let me know, the time is upon us and I would love to help!

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