evolve - embrace brand evolution. The Sponge - master brand makers - embrace brand evolution

Note: This was originally written as a guest post for The Next Web

On Tuesday Feb 9 I attended the Venture Capital by Design seminar out of curiosity (and the insatiable need for knowledge that can benefit Sponge clients). Not having any endeavours that require additional capital at the moment made me an exception amongst the two parties of investors or capital seekers that filled the room.

The board was loaded with an experienced mix of investors and entrepreneurs who could offer great advice: Michael Zimmerman, Rob Fitzpatrick, Chris Hitchen and Ilkka Tales. Their profiles can be found on the event site

After the general introductions, Anthill founder James Tuckerman, who MC’d the event, posed an awesome question to the panel. Given that entrepreneurs are mainly divided into two camps (shown to be fairly even amongst the attendee show of hands), those who focus on the strong business technology/idea, and those who focus on the strong marketing plan, if only one could be chosen, which is more important?

The panel unanimously agreed on the strong marketing plan although there is an obvious advantage to having both types within the management of your business.

As the event progressed, it was clear that there were 3 key areas that were being focussed on:

• What you need to get the money
• Where to get the money
• What not to do when trying to get the money

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What you need to get the money

• If you are tech startup looking for capital, you need to be passionate and have some of your own skin in the game. Your business must be scalable, a product, process, or system that can be sold again and again to any number of people. It cannot rely on the people or their available time. Remember that investors want a significant return on their cash, so you need to right size your investment capital to the scalability that is possible for your business at exit (when you return the cash).
• For a web based business,  build a community and demonstrate a revenue stream. Keep in mind that there is a massive oversupply of display ad space and it is extremely difficult to sell, even on a website with millions of visits. Do not put it in your business plan as a core revenue raiser.
• Knowing your industry and being realistic about your competitors and understanding their roadmaps is important as well as having runs on the board, personally, or within your management team.
• Demonstrate an understanding of the landscape of your industry and possible roadmaps of your competition; and
• Have an existing revenue generating marketing plan that you can implement

Most investors would like to see some patentable ideas or technologies, but it is not important. It is often about being better at executing rather than the idea itself. Being first to market on the web doesn’t always mean you have the advantage.

IP (Intellectual Property) can be a critical part of establishing value in an entity, particularly if you plan for a trade sale exit. IP can be patents, know how, and trademarks. Know how, or how your company does what it does, is pretty critical. Patents can enable you to block off and monopolise a market sector. If your business has IP, consult an IP lawyer. There are some great IP lawyers in Australia, with even better ones in the US.

Create an advisory panel, or board, as they can add a wealth of experience to your business. Members can often become an Angel investor once they have been infected with your idea, but they need to have skin in the game along with any expertise or advice that they contribute. With skin in the game, there is an added level of commitment.

With advisory panel members, board members, or VCs, listen to their advice, but don’t necessarily take it. You need to show you have a plan, you have the ideas.

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Where to get the money

Angel investors can include “Friends, fools and family”, high net worth’s in your network, or the professional angel community e.g. Sydney Angels . Typically this funding is for 10 to 100K. For greater amounts a Venture Capitalist is needed, for 40 million plus you need to go global. Overall the VC industry hasn’t been that successful in the last 10 years, so looking forward there will be far less able to raise money.

You can hire someone to do a capital raise. Be prepared to pay 3.5% to 5% of the amount raised as a success fee, but try to avoid any monthly management fees. Do due diligence on who they are going to target and tie them down for a two month period. Like real estate, if your house is on the market for more than two months, it goes stale. The same goes for a revenue raise. Giving them a deadline to work to creates a sense of urgency.

Smart money is when you take on an investor who can add value to your business with their knowledge, experience and networks. You need to quiz your investors as to how they can help you as much as they quiz you about your business. It is important that they fit in your company and culture, because you don’t want someone to come on board that becomes your boss.

It can take a long time to find the right investors for your business and build a relationship, so start talking to potential investors early. It takes a lot of coffees and a lot of talking. Keep in mind that trust is reciprocated and is needed to get a contract signed, so it is advised to give your investors a bit of trust up front.

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What not to do when trying to get the money

VCs, or Angels dislike it when you say you have an idea that is so amazing, but cannot tell them (because you are scared they will steal it), or that you want you to sign an NDA first. The VC industry has a standard NDA, but this will only be signed in the later stages of negotiations.

Saying that you are only aiming at 1% of the market is a common error. And having a fixed value in your head for what your business is worth. The market will determine how much it is actually worth.

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So there’s my summary of the event.

Many of you will already know a lot of what’s included above, for some of you it may be new. Either way it’s good to hear from the experts (again…), in a clear fashion, what’s key if you’re seeking funding.

My congratulations also go out to the organisers, Anthill Magazine and Mitchell Lake who, despite the rather bleak funding environment for tech startups in Australia,  put together a great event to help those seeking capital to increase their chances of success.

I would love to get your take on VC in Australia.

What do you think happens to a successful company when an overbearing, charismatic leader leaves? And what’s more, what if the leader hadn’t the foresight to empower his successors with a unified vision and strategy for the future?

The chances of growth or positive return on investment for shareholders are a likely as oil prices going down. Unless preventative action is taken it can be a quick and rapid decline into oblivion. Let us take for example a large Swiss financial group who we will refer to as “Gold”.

Unlike its real world counterpart, this gold was depreciating in value. They were staring down the barrel of a continuing decline in profitability. A lot like a bogged car spinning its wheels, they had become stagnant in a growing market. The competition however, including a bunch of upstarts, were successfully chipping away at their hold on the market. Although limited by their intimidating leader, Gold’s board were able to convince him to hire a new CMO to attempt a turnaround.

After interviewing key personnel, reviewing business processes and with intensive consultations it soon became blaringly obvious that Gold was experiencing a very common problem. It is a problem that is shared by many businesses across the world irrespective of industry.

The problem was essentially (but not limited to) that there was no current VMCV (Vision, Mission or Core Values) set to unite and empower the staff to make any decisions for the benefit of the company. This was mainly because the soon to retire CEO fearfully held onto a dictator leadership style that pushed out natural and talented successors, strangled new ideas and breads the same dog-eat-dog style management down the line. The latter was in the process of being quietly and gradually dealt with by some brave members of the board, the first challenge by the CMO and consultants.

The Sponge Solution

When you ask why a company like Gold has no VMCV you often answered with a shrug and an answer that basically passes the responsibility for that upwards. What you will usually find is that there is also no brand strategy, no strong marketing strategy, or core message being communicated to the market.

In order to develop any of these everyone involved in the evolution must first understand a few key things (but not limited to these). They are:
1. Who are your clients and what do they want or need?
2. What do they think about your company?
3. How are you currently being perceived in the market place?
4. What your staff and stakeholders think of your company?
5. Why those that have parted from your company have done so?

These are basic questions which deliver key data that can help pinpoint your location in the market, like a GPS system for your brand. In order to get these answers along with other company specific and world view challenging answers, The Sponge Brand Analyzer System is configured and deployed. The system involves proprietary components designed to elicit high levels of response and return rich qualitative data. Keep in mind that it is imperative to poll a database that is formed from an unbiased stand point and includes past and present clients, staff and stakeholders, including those who parted company on bad terms.

The data reveals a variety of fluffy feel good answers from those who have established good relationships along with critical data that can be used as a catalyst for change. Being able to sort the results based on status of the participant’s relationship with the company enables the gleaning of what work needs to be done and exactly where the leaks are in the ship’s hull which is causing it to sink. Naturally some of these are predicted by the CMO, some board members and the consultants and rightly so; how could they have made it to this level without some idea. However, the more alarming answers are not predicted by anyone, which is entirely why we insist on this process. A real eye opener for the CEO and the board, it earns the CMO more freedom to implement the next necessary steps.

When the key findings show that the majority of staff does not understand what the core direction of the company is, which makes them unmotivated and see coming to work as something of a disliked chore that they have to do rather than want to do. Even though the range of services is good, current clients that are only just “satisfied” with the customer service are not ecstatic. Clients that leave do so because of lack of attention and information. The staff that leave do so because they feel they are being suffocated and that the environment is cut throat and very stressful. Not at all the rosy picture that is painted by the CEO! And with this paradigm shift comes willingness to participate and create a legacy.

Cultural planning days involve a lot of drinks, chatting and group participation. When held off site in an unusual venue, the invisible shackles that usually clamp tight around the ankles as one enters the office are not present and there is a sense of equality for each participant. Huge white boards, butcher paper and post it notes are scribbled on frantically as ideas form out of discussions stemming from the survey findings. Facilitators guide the 3 day event and implement particular exercises and procedures to work through a program designed to produce a successful outcome. Interspersed amongst these creative sessions are bonding activities, where different levels of management are paired and have to trust and rely on one another to fulfill extreme activities.

The result of the weekend is a united team with a clearly defined (although quite raw) and emotionally charged set of company Vision, Mission, Core Values and clear objectives with a basic process of how to achieve them. More work by the consultants and the CMO is required to transform these raw gems into exquisitely cut and polished diamonds that can be published and communicated wherever they can be of benefit. The platform of the company culture is created and the key people claim ownership of it, like a pebble dropped in a pond it is only a matter of time before it ripples through the entire company. This culture is the core of the brand. It is what drives all communications and relationships.

The next step is the creation of a strategy to communicate this new company culture to the market, but more on that later…