The Organic Incubator

Since the recession hit (and yes we are now climbing out) there was a flurry of articles on how the VC model is broken. I believe it’s true. 

For entrepreneurs, the road to equity investment is challenging at best, and at times, less and less desirable as much is given away in return for immediate cash. The concept of smaller early exits, debt financing, and organic growth are becoming increasingly popular with entrepreneurs.  Why? I see a few good reasons.

First of all IT based businesses are not as capital intensive as they used to be. The cloud is a cost effective way to deal with most infrastructure needs and let’s you scale when you perform.

Secondly, the recession has made entrepreneurs more Darwinian. I believe that tough times force us to become better partners and better planners. As better planners, we craft our exit strategy BEFORE determining our funding needs [READ BASIL PETERS: EARLY EXITS]. Part of that process is identifying the most optimal moments to fund your company. Perhaps your business model does not call for any funding whatsoever. Like many things in life, sometimes it’s just better to wait.

There has also been much talk of incubators and their role in our economic ecosystem.  After all, they are credited with providing the first critical services and some capital to get a business going.  Like VCs, the incubator model is one to be considered.

The classic approach is to raise capital through government, institutions or private investors and then use that capital to setup infrastructure, such as office space, provide business mentorship, and make smaller investments. Local incubators Bootup Labs and Wavefront are two examples.

The goal is to help nascent businesses develop to a stage where they are eligible for their first angel round (or not). Some challenges with this model are that it takes a very long time to realize any returns for the investors.  Furthermore, unless the approach is to continue to participate in equity rounds the ownership level for an incubator decreases sharply as blossoming companies go on to additional rounds of fundraising.

The point of this article is not to poke holes at traditional forms of financing, be it VC or incubator. We all know of many successful examples – and as a local Vancouver entrepreneur, I look forward to the results that Bootup Labs and Wavefront will bring.  However, if the incubator model was to organically grow, prove business models before they need cash, well, then one could expect that the risk for investors is somewhat mitigated. What we are looking at is the Organic Incubator.

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Status of Mobile Marketing in CANADA

Today, seventy percent of all Canadians are mobile subscribers. We are active users as well; texting over 20 billion times in 2008. Four million of us browse the mobile web more than once a week. I use it everyday. Relatively speaking, we are just as active as any other major market - even though our carrier fees are astronomical. We are also good marketers. Toronto represents the 7th largest DMA market in North America, and the nation as a whole spends over 19 billion in marketing a year. Given all this, we would expect Canada to comprise some share of North America’s mobile marketing spend. Alas, we are not even “a blip on the radar”, spending less than $5 million annually on mobile marketing and advertising. In the US, a $5-million dollar spend can account for the budget allocated by just a single company (albeit a very large company). In this sector, Canada doesn’t even measure up to the 10% rule (i.e. brands spend 10% of their total US marketing spend in Canada).

The reason for this lag has in part to do with our current economic condition, as there is no question that Canada’s marketing industry was hit hard by the recession. Funding for new ventures evaporated, countless marketing roles were axed, and agencies were forced to deal with considerable budget cuts. In such a climate, agencies and brand managers seeking to get CFO buy-in have been hesitant to pitch anything new. Rather than exploring new ways to improve the ROI of marketing & advertising initiatives, whatever money remaining in a marketing budget is often allocated to “tried” but not necessarily “true” methods. We cannot blame the agency or brand manager, as it’s abundantly clear that the value proposition for mobile marketing has not truly been accepted. The risk of launching an unsuccessful campaign is perceived as too great, no matter how little the costs are. But, rather than dwelling too closely here on why Canada is not yet active in mobile marketing, I want to spend time exploring the ways in which we can enhance our role in this field.

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5 Things I Learnt from Year One in my Startup

Tagga is over a year old now – actually it is now 1.5 years old.  Boy…they do grow up fast.  Since we have past the one-year mark, I thought I would share 5 important lessons that I learnt in my first year of creating and running Tagga.

Five things you need to know in a startup

1. A “Strategy Guy” should not be hired in a startup. The reality is that things change so much in the first year that your strategy is shaped by the data you gather from your market, customers, and team.  You begin with a hypothesis “my product will solve this problem” and then you test it in the market.  The only way to acquire that data is by rolling up your sleeves and getting involved in those very important grass roots dialogues.  Everyone on your team should be willing to get “his or her hands dirty”.  The “strategy guy”, as I call them, often want to be hired with the pitch that they can shape the strategy of your business.  These people often feel very senior, not interested in writing lines of code or cold calling and believe their offering is of value because they somehow have a deeper knowledge about your market and business than you or your team do.  These so-called “business kick-starters” will inevitably be a waste of your time and will likely only disappoint you.  If you want someone to help test ideas and gather feedback, use your Board or Board of Advisors.  We all have the strategic prowess to run multi-billion dollar businesses in our heads.

2. Hire those with the best attitude and a willingness to learn over those with experience.  Often investors and peers will get excited at the opportunity to recruit an experienced “rock star” to your team.  The trouble with that is that these types of individuals are often not as eager as they ought to be and that can be poisonous to your company environment.  If you have anyone on your team that isn’t willing to wear more than one hat: fire them.  Everyone needs to be flexible and used to working on tasks above and beneath their skill or desire.

3. Build your product to solve a customer’s problem.  Do not build something because your competitors don’t have it.  At Tagga, we entered a very noisy market.  That is not unlike most new media companies.  While it is critical to differentiate yourself from your competitors, your mandate is to build out a product or service that solves a problem from your target audience.  This should be your single guide.  Often companies will focus on building a product based on what their competitors don’t have, without establishing if there is a clear pain point for the target market.

4. Stay Focused. Stay Focused. Stay Focused. As you shape your company’s path, you will learn new things about the market and as a result new opportunities will emerge.  Often many companies will fail because they start to chase every opportunity that comes their way.  When you start a company you have a very short timeline (often governed by cash) in which you need to prove out your business model or acquire customers.  This requires focus.  At the same time, you need to know when to quit and shift directions.  The best way to do this is to treat each milestone in your business as a project: objectives, critical path forward, key metrics to achieve.  If you fail on achieving your key metrics, that’s probably a signal to reassess your direction.  Remember, it is critical that if you are going to fail, you need to fail quickly and move on.

5. Attract the best and pay them what they are worth (or the best you can).  Your only asset is your team.  If you can build an excellent team then you exponentially increase your chances of achieving excellence.  Good people need to be paid well.  It’s understood that you have limited finance options in a startup, however spend wisely and compensating your staff well is a good investment. (note: expensive staff do not always = good).  You can always be cheap on rent, desks, phones etc.  Always reward those that perform and get rid of those that don’t.

I think I could go on, but I will stop here and maybe add a part deux to this article.  Not surprisingly, a key theme here is building a great team.  They really are your best assets and if you can cultivate a positive and efficient company culture, then, I believe you can navigate most hurdles in a startup.  Be patient though – an amazing team does not get built overnight.  Like anything in a startup, you have to remember to crawl before you walk, and that it truly does take time to build something great.

Need to engage with your target audience? Quit asking them to call you or visit your website.

Everyday in the offline world, we are literally bombarded with thousands of advertisements – usually asking us to do the same thing: remember this URL (and use it when you are in front of a computer) or call us for more information. How often do any of us do that? Seriously, do you remember the last time you ate some chips and then went online or phoned in to enter the chip trivia contest?

Mobile phone penetration in North America is now well over the 80% marker. So fine, the “please call me” approach should work, right? The masses say no. In fact, we now text-message more than we call . I imagine that’s not so surprising. Calling is time-consuming, awkward and costly. When you consume advertising content and you are compelled to engage, you probably want to at that moment. At the same time, advertisers want to be able to let you do that. Given that many of us are veteran or emerging textophiles, why not utilize this simple medium to fulfill that engagement issue?

Across the border and overseas, increasing numbers of marketers are starting to leverage mobile for ever more effective direct marketing techniques to solve that very problem.

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The HipGuide goes mobile with Tagga

Get HIP GUIDEION Magazine and Tagga have joined hands to provide an interactive text component to their Hip Guide.  The Hip Guide is a free guide to ION’s picks of the best retailers, restaurants, bars, salons and services in Vancouver.  And, now you have the listing available 24/7 on your cell phone.  How?  Simply text ‘gethip’ to 82442 and you will receive a sms reply message that includes the listing below along with the company’s address, phone number and web-link.

ION MAGAZINE PRESENTS THE WINTER 08/09 HIP GUIDE
WHERE TO BE, WHERE TO BUY, WHERE TO TEXT

  • Adidas Originals
  • Mandula
  • Dream Apparel
  • Miss Sixty/ Energie
  • Plush Style Lounge
  • Ark Clothing
  • True Value Vintage
  • Underworld
  • Colourbox
  • Element Spa for Nails
  • Moods Hair Salon
  • Adrenaline
  • The Morrissey
  • Ginger 62
  • Grub
  • Republic
  • The Modern
  • Bar None
  • Pop Opera
  • Caprice Nightclub
  • LUX
  • Celebrities
  • The Roxy
  • Doolins Irish Pub
  • Cellar Nightclub
  • A&B Partytime Rentals

 

Recession-proof your business: Invest in mobile marketing!

During a recession, the business landscape transforms itself. That’s not necessarily a bad thing. Lucrative opportunities come about that are otherwise unattainable during better and brighter times. I believe when the going gets tough, truly great entrepreneurship shines. After all, you are forced to be more creative with your efforts to build value. You will likely consider new partnerships; new sales approaches; dump business models, projects and people that don’t perform; empower your remaining staff to do more; and, most importantly, reevaluate your marketing strategy.

Often, the natural inclination to recession-proof a business is to slash marketing costs.  That is the last thing you want to do. Studies completed on marketing during the recessions of the 70s, 80s and 90s show that the smartest thing to do is to spend on marketing. In fact, a study published by McGraw-Hill shows that companies that continued or increased their marketing spend during a recession had 256% higher sales than the companies who chose to cut or halt their marketing budgets.  Moreover, companies that went into hibernation and tried to reestablish their brand position after recovery paid 4 to 5 times the amount saved by their marketing budget cuts.  (If you are a marketer and contemplating how to talk to your CFO, read this).

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Mobile Advertising: The numbers are starting to add….and add up!

Sound bite: Mobile advertising is going to be a huge market. The "stats" and common sense converge...

It’s practically old news to say that Gartner believes the mobile advertising market is worth some $2.7 billion today and growing to $12 billion by 2012. For comparison, studies generated by the Kelsey Group say the online advertising industry is estimated to be about $30-40 billion today, and growing to some $140+ billion in the same period. As with much statistical research, not all of it is completely accurate – if any at all. Yet, it is always useful for corporate navigation and promotional strategy.

Being a staunch believer in the future of the mobile advertising industry, I do see merit in Gartner’s estimates. There is considerable data to support this trend. Already, the mobile market is three times that of the fixed Internet one, yet online ad spending is nearly 20 times the size. Clearly, the “mob ad “ world is in a nascent stage, with space for massive growth. This is especially true when you consider that online advertising, on its own, accounts for a mere 7% of total global ad spend.

Looking at sheer numbers of subscribers isn’t a useful enough indicator. What matters is if consumers notice mobile ads. Studies show that yes, they do…they really do. According to Dynamic Logic, mobile advertising increases consumer awareness by close to 24% and augments intent to purchase by nearly 5%. Not bad. Studies say agencies big and small are rushing to offer clients mobile-based promoting tools. Being a principal of a newly founded mobile ad company, we are witnessing this first hand.

Since we have already admitted that stats are usually wrong, let’s examine the situation empirically. Mobile phones are typically always on and with their owner. We text, we call, we surf – we do everything on our trusty device. We leave our laptop at home. Our overzealous usage is even playing a hand at our evolutionary path. Our thumbs will become more angular so that texting can be more efficient. There is only so much content (advertisements) that can be served up on a phone. Therefore, advertising realty is limited and we become a captive audience to unique marketers’ messages.

Given all this, it's safe to say that if marketers really want to reach consumers, they will inevitably need to establish a savvy way to speak to them on their mobiles. Don’t believe me? Ask yourself what would be more inconvenient: no phone or no laptop?