Lessons Learned

1
Lessons Learned

• Jon Carson
• Chairman/CEO
• cMarket, Inc.
• MIT Enterprise Forum
• June 2003

2
Background/Perspective

• Three startups (all sold profitably) over last 20
  years ranging from 10 employees to 260. Avg
  start-to-finish 6yrs
• Two bootstrapped, one financed thru mix of angel,
  institutional, and strategic
• Cumulative financings of 72m (only one easy
  round). Returns (in excess of capital) of 100m
• Have never lost an investor money
• Only work on projects with high social returns
• Just completed series A for cMarket

3
Key Areas of Learning

• Financing
• Strategy
• Organization
• Operations

4
Financing

• Bootstrapping is healthy for the culture
• Its all about runway/fume date vs. points on the
  board.
• It ALWAYS takes longer than you think
• Business preez is a living breathing document.
• Listen to VCs. Best free consulting youll get
• Funding thru the income statement is the best way
• Know your terms and be prepared to walk- its not
  worth it if youre not likely to benefit
  financially
• Price your deal to market valuation comps (EY)
• Use VC experienced counsel (Testa, HD)
• Assume a year of personal cash flow

5
Financing- Three Key Variables

• Personal capacity
• Cash, credit cards, in-kind
• Depicting the business opportunity
• Momentum (esp. w/customers)
• Team (relevant experience)
• Business Model
• Product offering
• Size of opportunity
• Defensibility of strategy/competitive intensity
• Getting enough at-bats w/investors
• Angels
• Super Novas
• Institutional VCs

6
Strategy BNW vs. BBF

• Brave New World (e.g. late 90s)
• Premium on big ideas --strategy and vision are
  critical
• Revolutionary vs. evolutionary
• Growth at all costs
• Lots of ambiguity and well funded new entrants
• Tends to be focused on building platforms
• Horizontal vs. vertical market strategy
• Fighting (many ) broad fronts more complicated
  strategy issues and securing large amts of
  capital
• Outreach and PR become important

7
Strategy BNW vs. BBF

• Better, Bigger Faster (e.g. now)
• Typically more application focused vs. the big
  idea
• Cash flow at all costs
• Evolutionary vs. revolutionary
• Vertical vs. horizontal market strategy
• Less ambiguity and well funded new entrants
• Execution is key- points on the board
• Capital efficiency is at premium
• Lots more folks below the radar screen

8
Strategy Commonalities

• Its all about gaining unfair advantage
• IP
• Locking up distribution or procurement assets
• Locking up key customers
• Market positioning
• A good board can be invaluable
• Quarterly offsites for mgmt to re-link and
  recalibrate tactics to overall strategy
• Reality is your friend

9
Organization

• Right folks in the right roles
• Look for motivating factors
• Defined interviewing process. Dont all ask the
  same questions
• Only need a few stars- key is building a great
  team of worker bees who get stuff done
• Search firms are good for top guns butdont let
  them do final reference checks
• Really good part-time CFO can be invaluable
• Dont be afraid to make a mgmt change
• Great team generally cant overcome a bad model

10
Operations

• Quarterly objectives have worked best
• Create linkages to strategy and to budget
• Reward the behavior you seek- link to the comp
  plan
• Create a monthly metrics dashboard of key
  drivers and focus everyone on it
• Simplify by using the rule of three (or four)

11
Parting Thoughts

• Bootstrapping/cash mgmt is critical
• Cmarket ran for 7 mos on 10k (6 ftes)
• Laser focus on getting working prototype and
  first customer(s) is critical
• VC cycles are long- we are still in the early
  innings of the down cycle
• Be realistic about cost of institutional capital
• It pays to be humble
• If it feels hardits because it is- and thats
  why the upside is so high when it works.