Up and Running:

Sabrina Parsons posted For the best customer service: TWEET! on her MommyCEO blog earlier this month. She’d called customer service repeatedly, left messages and gotten no response. Then she tweeted about it, and this (the photo below) is what she got: a new, replacement pair of shoes for her son.

This could seem like a good story of a good company, but there’s that dark side to it, the bad service first, followed by good service after it appeared on Twitter. She said:

Here is a company that produces an excellent product and seems to care about customers. But their customer service process is broken. If only those of us who tweet can get good customer care–then they need to fix their process. Don’t get me wrong, though–I love the personal attention I can get from companies via Twitter. But I know those days are numbered. At some point there will be too many people doing the same thing, and Twitter won’t be a good communication vehicle. So companies like this need to fix their customer service issues NOW.

I agree with her conclusion. Twitter is new and exciting, a classic shiny new thing that we can all play with. But mind the telephone in the meantime.

I received an email over the weekend from a reader of my 3 Weeks to Startup book, asking me this:

I have recently secured a business name (I’m not including the real name. Call it ACME). I’ve done some research and it looks like it has not been taken in my hometown. However, it is being used in a neighboring state, and I did read that each state has different laws. Can I be “ACME” in my home state where it has not been used, and changed to “ACME of Florida” where it has been used already?

My answer: That’s a really bad idea. If you grow, or want to grow, with that name that somebody in the neighboring state already has, that company can stunt your growth completely by objecting to the confusion. And if the other business had it first, you’re out of luck.

Don’t be fooled by being able to legally register a name in one place or another. That doesn’t mean you won’t get in trouble later on. Legally there could be an ACME corporation in every state in the union, but as soon as one of them starts to bump into the other in the same type of business, then the second business in the market or state loses.

Important note: I am not an attorney. This is not legal advice. When in doubt, see an attorney.

For additional information, you might try this article at bplans.com and particularly this name game disaster story from a couple of months ago on this same blog.

(Photo credit: By Rob Byron via Shutterstock.com)

Once upon a time (1997) there was a friendly Internet programming company in Portland, Ore., named “emedia.” My company, Palo Alto Software in Eugene, Ore., was a client. Emedia hosted our sites for a while, helped us get started with Cold Fusion and gave us advice about getting our software available for immediate download online.

Emedia was a great name for a Web-based company, right? I mean e-mail and e-this and e-that, and it was emedia, at emedia.com. (And I checked; that’s not the company there now. Please don’t bother the real rightful owners of that site because of this post.)

Late that year emedia changed its name. They changed it to something way less memorable.

“Why?” I asked.

“Because we had to,” they answered. “A company in Texas had the same name. We couldn’t prove we had it first, so we had to give it up.”

That was 12 years ago. Today I can’t find any evidence that the Portland emedia ever existed. Maybe I just imagined it?

Changing your company name is really hard to do. Don’t get trapped into having to do it.

Understand how business names work:

1. Technically, there could be an emedia corporation in Oregon and another in Texas, and one in fact in every state. There could be emedia companies in most counties in most states. The naming organizations don’t care.
2. What happens, though, is that as soon as any two of them seem to be reaching the same customers, doing similar things, then the first one can legally make the second one stop it.

Another example, also a true story: It’s 17 years ago now since we moved Palo Alto Software, Inc. from Palo Alto, Calif., to Eugene, Ore. That many years later, we’re so completely integrated into Eugene that it hurts to have that other city’s name for the company. Eugene Software, Cascade Software, Willamette Software or McKenzie Software would have been nice; Cascade was my favorite because Eugene is due west of the Oregon Cascades.  But it’s still Palo Alto Software because it had lived with that name for seven years before we moved. And it would have been really hard, and bad for business, to change a name after seven years.

Think of this: If your grandfather was named McDonald and he started a burger shop 75 years ago, and you could prove it, you’d be able to keep the name McDonald’s Hamburgers. But even if your name is McDonald’s, you still wouldn’t be able to start a new business with that name today.

Conclusion: Check the name out well before you name your company. Unless you’re satisfied with living inside a fence, it has to be exclusive, not just legal.

Today I want to answer another question from email, on another subject that comes up a lot. Here’s the question, as I received it:

I’ve read many times how investors would rather invest in a quality “A” team with a “B” level product than with a “B” team and an “A” product.  According to most, I have what would be coined as an “A” product and business model. However I only have me. I am looking to apply for formal Angel investment and the team part is an integral part. I am listing that I do in fact want to find a CEO who can run the company. I am listing CEDO (Commission for Economic Development) as a team of advisors. I am listing legal as on retainer. Please share with me what I should do at this point to make the team viable in the eyes of the angel investors.

My answer:

Fill in the team first.

Find that CEO, and let him or her help you find somebody to run either the marketing or the product development, whichever of those two functions you’re not going to do. Look for somebody who’s been down the road, done a startup, made it successful, and sold it. And while you’re looking, keep an eye out for a finance/admin person as well.

What you’re looking for most is experience. Credentials are nice too, but in a pinch, experience trumps credentials, and if you possible can, get both.

Compatibility is a big deal too. You’re going to want people you can work with, who share the same values, who believe in what your company is going to do. Compatibility doesn’t mean sameness, either; same values maybe, but diversity broadens a company. Look for people who have skills and experience that you don’t. Fill gaps.

I assume what you’re thinking is that the investors can help you fill in the team, and that having people they know and trust on the team might seem to be an advantage. But the problem with that idea is that the team is so much of what they’re investing in that it’s like trying to sell a car without tires or an engine.

Investors don’t want to do it themselves. They want you to do it. That’s where the value comes.

Core problem: valuation. Divide how much money you want by how much of your company you’re offering, and that’s valuation. So for example if you want $500K for 33 percent of your company, you’re valuing your company at $1.5 million. Not having a management team really kills your valuation.

(Illustration: istockphoto.com. The point? an individual playing a team game.)

Kelly Spors had a nice story in The New York Times the other day, called “A Small Player Breaks Into Starbucks”. It’s a good story.

It’s also accurate. I know, because in my early days of Palo Alto Software, we broke into the office stores, computer stores and superstores retail channels. And it was hard to do.

Many entrepreneurs dream of placing their products with major retailers. But it can be a tough sell for small companies without a well-known brand name.

That’s putting it mildly. A lot of retail is under siege right now, threatened by a bad economy and changing business landscape. The last thing retailers need is new products (What? Did I just write that? Is that as bad as it sounds?). And even 15 or so years ago, when we managed to get in, it took a lot of calling, new packaging and a knowledgeable sales professional.

“The primary motivation of any big retailer is to get more dollars per square foot,” says H. David Hennessey, a marketing professor at Babson College in Wellesley, Mass. “You have to show them very clearly and effectively how you can achieve that for them.”

Big product makers have a clear advantage, Professor Hennessey says, because they can usually offer multiple product lines at lower prices and already have inventory management systems in place. Smaller companies must compete on price with major brands but also be unusual enough to make them worth the retailer’s investment.

Just getting that first meeting can be a challenge. In 2003, Tom Szaky, co-founder of a startup, TerraCycle, which sells fertilizer made from worm excrement, dialed up Wal-Mart’s fertilizer buyer every day for three weeks straight until the buyer finally answered his phone.

Knowing he had just a few seconds to win him over, he told the buyer he had developed an ecologically friendly fertilizer that is cheaper to produce than the major brands. Intrigued, the buyer invited him to Wal-Mart headquarters in Bentonville, Ark., where the buyer agreed to give TerraCycle a shot.

Actually, it’s not that retailers don’t want new products. It’s that taking on a new product is a lot of risk in a business that measures every variable it can find on sales performance on the shelf. There is very little room for error and not much incentive for experimentation.

With the products they now sell, stores have already established distribution systems, relationships, flow, warehousing, and–most important–customers.

And then there’s the packaging. Ah yes, packaging. Critical for retail. Dull, unattractive packaging on the retail shelves nearly killed our company in 1993.

(Image from Flickr cc license by Asuroca)

Good advice I got a few years back:

If you have to make a decision and there is no penalty for waiting, wait. More information may come.

If you have to make a decision now, or soon, then make it clean and mark it in your mind with the time and date that you made it. Better still, mark it in your business plan, with the key assumptions that drive the decision, so you can go back and review. Don’t blame yourself later for what you didn’t know when you had to decide.

Lots of good decisions have bad outcomes. That doesn’t make them bad decisions. The issue is what you knew when you had to decide. What assumptions you used.

If you made a decision before you had to, and it turned out later that you would have had more information if you’d waited, then think about penalties for waiting. Some decisions carry penalties, and some don’t.

For the opposite point of view, try Seth Godin’s I Need More Time.

Many years ago, while I was working for Larry Wells at Creative Strategies International, one of our clients asked me to be president of his startup robotics company. For very little money. For some stock and a seat on the board of directors.

I was flattered. And I was young. And the company was one of those incredible genius companies that can’t get past the founder doing amazing things with technology. He was always tweaking things, always tinkering and never actually finishing a product. He lived off service contracts and custom stuff for chip manufacturers.

Larry, who later became a venture capitalist, was a true leader. He advised me to take the job in the mornings only, part-time, and to keep the job with Creative Strategies for a few months. He offered to help make that work by giving me special flexibility.

“Work with them for a while, and see how it goes,” he suggested. Good man.

I never got to see the books. My founder entrepreneur friend was offended every time I asked. He would reassure me, “Don’t worry, we’re OK, we’re making it.” And in the meantime, unbeknownst to me, he kept thinking he could cut corners with payroll taxes and make it up when he hit big.

He never hit it big. The company went under. I went back to Creative Strategies, very grateful for Larry’s vision. A bullet dodged.

A year later I was subpoenaed by the IRS for a tax case. I discovered that my friend the founder was being sued by the IRS for $90K in unpaid payroll taxes. The company was bankrupt, but he was still personally liable because he signed the checks.

So I had to testify. It turned out that the IRS could have held me and the other directors liable as well–another bullet dodged–except the founder made it clear that he had been lying to us. And I guessed they checked into the bookkeeping and who signed checks, and decided not to pursue it.

Good lessons. Larry did me a favor and I have reason to believe that I repaid it afterward by staying loyal to my original job with his company. And my friend teaches us all to never, never borrow from payroll taxes by not paying them.

I get asked frequently what’s the deal with friends and family, as in funding your startup with people who aren’t sophisticated investors as defined by securities and exchange laws. What that means, in a nutshell, is that it can be illegal to take money in exchange for stock from someone who doesn’t have the income or net worth as defined by the government as the minimum that makes that person a “sophisticated investor.”

I was browsing for an explanation of why not, yesterday, when I came up with this one: The Trouble with Raising Money from Non-Accredited Investors on The Startup Lawyer. That looks to me like a very good summary.

Let’s just say that six years ago, when you started your own company, your former employer sued you. And that two years ago you, had to sue a partner to get him out of the business.

If that’s true, and you’re the innocent victim, then even so, when talking to investors, be quiet about it. Don’t ever lie: When you are asked a specific question, tell the truth. Don’t ever hide it when it’s time for the details. But don’t bring it up first. No matter how well you explain it, it’s not going to make you look good.

Once, maybe, but twice? Well, maybe you had bad luck. Nevertheless, it looks bad.

Yesterday somebody asked me to look at his executive summary on SlideShare. He’s a Twitter friend; I like him, but I’ve never actually met him. And the request may have been aimed at having me invest in his company, but possibly just asking advice. I’m not sure.

It seems like it might be useful to share my reaction. Leaving out specifics, of course, because that wouldn’t be fair. I hope he doesn’t get mad at me.

I looked at his slides. He does a reasonably good job making the major point about why his business is different, particularly when we consider that he’s doing it just in slides, without the voice narration.

Problem one: the communication vehicle

Most of his slides look pretty good, title and picture, but a few use those annoying “wordart” signs that PowerPoint does automatically. It might just be me, but I’m picky about PowerPoint slides. I don’t like bullet points. I don’t think PowerPoint without narration is a good way to present information. Sure, there are exceptions to the rule, but I think PowerPoint is best as background images while somebody talks.

I would have preferred a summary memo.

Problem two: scenarios

The biggest problem by far is that he is sharing three scenarios. His business needs either $52K or $1.5 million to start. Or, third scenario, he’ll sell the content and not do the business.

One problem with that is commitment: Are you going to build a business or not? What if you change your mind? If you want to build a business, why offer just to sell the content? Somebody invests with you under one scenario, and then an alternative scenario comes up . . . what happens to the investor?

Another problem is that these are very different animals: the bootstrapped business and the $1.5 million initial investment business are night and day different.

Last week I posted here five steps to determining an initial valuation. The first three steps resulted in a specific estimate (just an estimate, but still, specific) of how much money the startup needs. I think you’re supposed to build that kind of estimate. We all know it’s just an estimate, but it’s hard to deal with the ifs and maybes from an investor’s point of view.

One of my absolute favorite people in the whole world was asked by a major VC firm to present his award-winning business. He wasn’t sure how much money it would take, so he decided to ask them what they preferred. Deal killer, for sure.

Everybody knows you have scenarios in your head, on your computer, in the real world. Go to investors with only one plan. Please.

On top of a fence is a very uncomfortable place to sit.

Problem three: Match your strategy to what’s needed

I think it’s very hard to raise $52K in small pieces from strangers. That’s a bootstrapping or friends and family amount. Technically, lots of angels invest in small chunks, but mainly in groups, because there are strength and comfort in numbers. To write a check for $1K or $5K or $10K or $20K or so to somebody you haven’t known for years without a lot of lawyering, and a group, is to have a lot of faith in mankind and the future. You have very little control.

It’s tough, I know, but the smaller amounts don’t work into somebody’s investment strategy. You almost have to know a person well.

Problem four: Ask the right question

Don’t just ask a potential small-time investor to invest. Instead, ask who he or she knows who might be interested. It’s a trick question, easier to ask and easier to answer, but with the same ultimate impact. If s/he is interested in investing, s/he’ll say so. If not, s/he’ll either suggest somebody who might be–still a positive step–or not know anybody. You have something to win, nothing to lose, by asking in this around-the-corner way.

By the way, to my friend:

1. Finish a single-scenario plan. The $1.5 million one is the only one that investors will care about. If you decide on the $52K plan, revise it to be completely bootstrapped. The $52K isn’t worth having to share ownership. Or revise it to be $250K
2. If you are looking at $1.5 million, or $250K, then get on angelsoft.net. Register there, look at the content they have, including tutorials, poke around, see how it would apply to you. Then start looking for local angel investor groups in your area.

I got another e-mail today about a new business that’s a lot like some other business; sort of a “me-too” for something.

This is a tough topic for me, because I firmly believe you don’t have to be first in a business to succeed. The second, third, fourths and so on often do better than the first. One advantage of being second, just as an example, is that it’s easier for customers and investors to understand what you’re doing. Still, despite that general sense, not being first is different from just straight copying something.

Hence, the distinction: slipstreaming is strategic and usually innovative. Breathing exhaust is just copying, imitating; not innovating.

Slipstreaming is a racing term, from auto racing I’m sure, and from bicycle racing I suspect. With autos, one driver slips in right behind another, which reduces the aerodynamic drag on both. Both cars go faster, both cars save fuel. The one in front worries about when the one behind him is going to make a push to pass and take the lead.

With cars it’s a very dangerous tactic. Sometimes you’ll see them driving 200 or more miles per hour just a few feet apart.

Slipstreaming is also a business tactic, in some cases even a strategy. If you’re old enough you’ll remember when Avis rental cars advertised “We’re Number Two. We try harder.” More recently, I think LinkedIn and Facebook have been slipstreaming–although in that case it’s hard to tell who’s leading and who’s right behind. I think Google slipstreamed Yahoo! during its first few years. I think Yahoo! Messenger slipstreamed AOL’s AIM.

Breathing exhaust, however, is an entirely different matter, quite different from slipstreaming. It’s just imitation.

Since this is hard to explain, perhaps examples will help. There was somebody in e-mail the other day wanting to create a “Facebook for business.” I wanted to suggest naming it either LinkedIn or Plaxo, but I decided it was better just not to answer the e-mail. Today I have somebody asking how to start an online stock trading site. Call that one eTrade, please, or maybe Charles Schwab. Just as the prospects of Elvis imitators are limited, so, too, are the prospects of a project management web app that’s just like Basecamp.

I’m not trying to say you have to be first; in fact you can be different from the first, and better . . . and sometimes just different. But you can’t just follow behind the leader on the blind faith that people will buy from you instead of the leader, for no good reason.

Of course you can follow. Often the second and third entrants in a market win. VisiCalc was the first spreadsheet, followed by SuperCalc, Microcalc and Multiplan … but when Lotus 1-2-3 came along and swept the market, it wasn’t just another spreadsheet. It was the first so-called “integrated” spreadsheet (charts and databases, I think). And then Excel trumped Lotus 1-2-3 because (I think. Maybe) it brought the advantages of a Mac-like interface to the spreadsheet, even if that meant Windows on a PC.

Innovation is slipstreaming. Imitation is breathing exhaust.

I was visiting Portland, Oregon last weekend and noted one particularly interesting location that seems to be changing owners and businesses every 12 to 18 months. There’s a new restaurant there now, new to me at least, and it’s the third one since 2003.

I found a story about this location and its changing face in a local newspaper. It had lasted more than 30 years as a single successful restaurant, then fell into disfavor. The worker-at-lunch customer base changed as the area changed. Several businesses that supplied the restaurant with customers moved.

There were 20 years of next to nothing in that location. But in the 1990s, the neighborhood came back. It became trendy (think of Soho in New York or the area east of Market Street in San Francisco). Traffic patterns changed, and local businesses changed. Now it seems like a good location.

Or so it seemed to the people who put a new restaurant there in 2003, the ones who put a different restaurant there in 2006 and, again, the ones who found it vacant this year and have just established another new restaurant there.

I don’t claim to know the restaurant business, but I wonder . . . do certain locations work, or not work, regardless of updates and traffic and parking? Is it a bad idea to establish were others have failed?