Tuesday, May 26, 2009

Start-up Cost Projections For First Time Entrepreneurs

Q: At a pub in Los Gatos, CA a casual conversation with some young, first time entrepreneurs lead to an interesting comment:
"...the business plan outlines our estimated (operational) expenses but how do I know an investor is not going to look at these numbers and say...'are you f'ing kidding me' and  right then and there we can loose this guy (his interest)..."How can an entrepreneur build these projections most accurately and in a way that will maintain credibility with potential investors?  What could be defined as the "best practice" for entrepreneurs dealing with this subject?

A: (Brad) As I've said in the past, I've never met a financial plan for an early stage company where the revenue side was correct.  However, I've met plenty where the cost side was correct (or – at least – appropriate).  The key here is simple – you want to have a cost structure that makes sense, covers all the bases, but doesn't assume a big revenue ramp to be supportable.

If you are in the very early stages (e.g. a few people and an idea), recognize that your investor is likely going to be funding you for about 12 months to see how things play out.  The biggest mistake first time entrepreneurs make is that they fall prey to the idea that they need to put together a five year P&L forecast and cash flow projection.  I can guarantee – with 100% certainty – that this model will be wrong.  As an investor, I don't really care about this; rather I want to see how you are thinking about getting to "the next stage" of your business.  You get to define the next stage, what it'll cost you to get there, and what things will look like when you get there.

If you are a first time entrepreneur, go find an experienced entrepreneur to act as a mentor.  She can be a first line of feedback your cost model and likely will know a few "financial people" that can help you put together a simple, yet credible model.  In addition, when you spend time with potential investors, don't try to bluff.  Tell them it's your first time building a model like this and that – while you had help – you know you lack experience and are looking for feedback.  Try to engage the investor in the process. Listen the potential investors feedback and iterate on your model.

Simple message – don't be afraid to ask for help.

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Tuesday, May 05, 2009

The Origins Of Text Messaging

By Tricia Duryee - Mon 04 May 2009 02:41 PM PST

With U.S. cellphone owners now sending an average of 357 messages a month, and Twitter pretty much standardizing thoughts of around characters, it makes you wonder how the technology ever got started?

The LA Times answers that question today after interviewing Friedhelm Hillebrand of Bonn, Germany, who helped usher in this new era of communication. Hillebrand's research stretches back to 1985, when he used his typewriter to compose random sentences to determine that messages of 160 characters were "perfectly sufficient." He also found that often postcards contained fewer than 150 characters, and messages sent through Telex, a popular telegraphy network for business professionals at the time, were also usually about the same length, he said.

After determining a message's ideal length, he had to create a market. As chairman of the nonvoice services committee within the Global System for Mobile Communications (GSM), a group that sets standards for the majority of the global mobile market, they decided that all phones and providers must support short messaging service (SMS). Next, since networks didn't support data at the time, Hillebrand needed to figure out how they would be sent. He thought to leverage a secondary radio channel that had been used only to alert a cellphone about reception strength and incoming calls. Hillebrand told the Times: "Most of the time, nothing happens on this control link. So, it was free capacity on the system." Initially, they could fit only 128 characters, but with a little tweaking, they squeezed out room another 32 characters to hit the perfect number.

The LA Times reported that today Hillebrand, who lives in Bonn and manages Hillebrand & Partners, a technology patent consulting firm, never got rich from participating in the concept. Although if it's any consolation, he does get an honorable mention in the Wikipedia entry on "SMS."