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Why would you do that?

Well, Mark Cuban has just asked people to do just that here. It is his “Open Source Funding” plan to help kick start the US economy by creating jobs.  He says “Rather than trying to be a Venture Capitalist, I was looking for an idea that hopefully could inspire people to create businesses that could quickly become self funding. Businesses that just needed a jump start to get the ball rolling and create jobs. I’m a big believer that entrepreneurs will lead us out of this mess. I just needed a way to help.”

To qualify, businesses need to be cash flow break even within 60 days and be profitable within 90 days. So what sort of business could that be? How about a UK start up with a product ready to be shipped and a business model that could work in the US? Why wouldn’t you want Mark Cuban to help you launch in the US? Did I post our business plan on his blog? Of course I did.

UPDATE (15th Feb): 1,300 comments and counting!

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• cuban will open source fund u if u have email + profitability in 90 days (benbarren.com)
• Entrepreneurs will lead us out of this mess (vator.tv)

The Courvoisier Future 500 was published in yesterday’s Observer magazine. estatecreate.com made it into the 500 and has got me an invite to the launch party this Thursday. I can’t say I have ever tried Courvoisier, but I am looking forward to trying it…

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I have just read a guest post on Techcruch by the CEO of Redfin on how to deal with a downturn. You can read the whole post here. I loved his 9th point, however, I am a little worried it may have resonated maybe a little bit too much…

9. Be a Roman

What disgusted the ancient Romans about barbarians was their lack of discipline. Oxford Professor Peter Heather writes, “As far as a Roman was concerned, you could easily tell a barbarian by how he reacted to fortune. Give him one little stroke of luck, and he would think he had conquered the world. But, equally, the slightest setback would find him in deepest despair…” This is why, 2,000 miles from home, several hundred Romans could slaughter several thousand barbarians.

Startups are founded by barbarians. But to survive the ups and downs, you have to make yourself into a Roman. The most talented entrepreneur I know nearly self-destructs on the 18-month birthday of each of his ventures. By that point a startup isn’t brand-new anymore, and it isn’t Google either. The closer you get to becoming a real company, the less glamorous reality seems: you’re grimy from clawing for money and breathing hard now from exertion, which would be fine if you could convince yourself you’re not the only one struggling. Everyone struggles. Keep fighting.

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Against my better judgement, last week I signed up to The Midas Touch Dragon’s Den Style pitching event at the Business Startup conference at Olympia today.

The five strong panel had some heavy weight business people on it including Jonathan Jay, Chelsea Baker, Brad Rosser, Rachel Elnaugh and Howard Graham. As it was set up in the middle of the conference, it drew quite a crowd, with 50-60 seated and a crowd of onlookers 3 to 4 back around the side.

To add to my nerves, the first two presenters were torn to shreds with the usual Dragon like comments such as “I didn’t understand any of that; I’ve no idea what you were talking about”.

I was up third. I gingerly took the stand, and, thank goodness, my nerves evaporated. All that G2i eleavator pitch training obviously paid off! I fielded a few tough questions, but generally received a good response. Even so, I can not say it has persuaded me to apply for the real thing.

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I just read Nic Brisbourne’s blog - he has posted some great advice from Rob Majteles. You can see it here.

Having read the advice I had a look at Rob’s website. He has a great Roosevelt quote under “Words to Live By”:

“It is not the critic who counts, not the man who points out how the strong man stumbled, or where the doer of deeds could have done better.
The credit belongs to the man who is actually in the arena;
whose face is marred by the dust and sweat and blood;
who strives valiantly; who errs and comes short again and again;
who knows the great enthusiasms, the great devotions and spends himself in a worthy course;
who at the best, knows in the end the triumph of high achievement, and who, at worst,
if he fails, at least fails while daring greatly;
so that his place shall never be with those cold and timid souls who know neither victory or defeat.”

Powerful stuff. Just what is needed in these tough times!

There has been a lot of debate in the blogosphere over the past week about the crunch and its potential effect on startups. A Sequoia presentation has been circulating which is a must read for anyone involved in a startup - you can read it here. The presentation paints a pretty bleak and, in my opinion, realistic picture of the next couple of years and tells startups to focus on preserving capital and getting to profitability.

We have been debating our business model and the merits of having both a free and premium product (dubbed by Fred Wilson as a freemium strategy). The thinking behind a freemium strategy is that the best way for a startup to build a decent size paying customer base is to launch a free version and get viral growth and then convert your top customers to pay for the service by offering premium features.

The counter argument to the freemium strategy that has emerged with the credit crunch and looming recesssion is that start ups need to focus on getting to profitability, so they should not be giving away free product, but focusing on getting paid customers.

I have been personally wrestling with this debate and even left a comment on Fred Wilson’s blog questioning whether Freemium was a suitable strategy for these lean times, particularly the points made on slide 46 of the Sequoia presentation (importance of established revenue model, understanding of market uptake, customers’ ability to pay, profitablity, cash) . He came back to me saying he thought that Freemium is a great way, maybe the best way, to achieve all the suggestions on slide 46.

I guess what he means by this is that you will not get better marketing for your product than initially giving it away (or a version of it). You will get lots and lots of customers using your product that would not have otherwise done so. If your product is any good, they will tell their friends, some of whom will also try your product. The key is then implementing the Freemium strategy so that you can optimise the number of paying customers. If you have a great product and lots of people take it up, even a small percentage of that base would make up a large paying customer base which would have cost a lot of marketing money to acquire.

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Back in 1998 I read a lot about First Tuesday, and I finally got there last night 10 years later.

They are still using colour lanyards: Green = entrepreneurs Yellow = Service Providers Red = Investors, however, they were trialing a new web 2.0 mobile networking device provided by xoio.com. The idea sounds like a good one - you can look up who is at an event, connect with them and then arrange to meet them at a meeting point. In reality, the tech was not quite there yet, perhaps more web 3 than web 2.

First Tuesday attracts an interesting mix of people - the original First Tuesday founder Julie Meyer was there as was the founder of Multimap, Sean Phelan. Sean had some great advice on how to build a web business in a downturn, revealing that Multimap focused on its business to business channel in 2001/2002 when web advertising virtually disappeared as a revenue stream. This enabled Multimap to build a client base with little competition from other suppliers and then come out of the downturn in a strong position and build its consumer advertising model.

All in all a great evening and not bad value at £20 with a couple of glasses of wine thrown in.

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• Microsoft Buys Multimap for a Reported $50 Million

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I just watched Day 4 of Seedcamp on video. You can watch it here: http://vimeo.com/1761085. There is a great quote on valuing startups:

“I asked Arsene Wenger the same question the other day. How do you value a player? Why is one player worth £16.5m and another player worth £35m? …..and he basically says “I just know”.”

Brilliant.

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Paul Graham has published a great essay on some of the challenges start ups face when trying to raise money. You can see the whole essay here.

He has an interesting strategy on how much money to ask for. He says:
“We advise startups to tell investors there are several different routes they could take depending on how much they raised. As little as $50k could pay for food and rent for the founders for a year. A couple hundred thousand would let them get office space and hire some smart people they know from school. A couple million would let them really blow this thing out. The message (and not just the message, but the fact) should be: we’re going to succeed no matter what. Raising more money just lets us do it faster.”

The challenge here is having several funding plans up your sleeve that show different growth rates and also stack up together. To be credible, the plans should show that if an investor puts less money in, the business will not grow as fast and will also have a lower chance of success. The key is putting the lower growth scenario together without putting the investor off and at the same time not making the larger investment easy to pass on because the lower growth scenario looks like a good investment. Why put more money in at the highest risk point when the start up can show good progress with a lower investment?

For me, the difficulty here is that I know if we have less money the chances of our success are greatly reduced. The reason for this is you don’t know what you don’t know and more money allows you to find out, flex your plans and find a successful strategy. Credibly telling an investor that if they give you less money, you are still equally confident of success albeit on a smaller scale, is a challenging balancing act. I will let you know how we get on.