From Inspired Startup

In poker and in business, it’s much easier than you think to go on tilt.  The most dangerous thing about being on tilt is when you don’t realize you are on tilt.  For those of you who don’t even know what tilt is – going on tilt in poker is an emotional state whereby you can no longer make good decisions.  Most often than not, this occurs in poker when you are expected to win a hand and someone gets lucky to beat you for a big payday.  It can also occur if you start winning quite a bit and you start thinking that you are unbeatable (not too dissimilar from Wall Street the past few years).  If you can’t recognize when you are on tilt, you are bound to lose everything you have and seriously regret your decisions when you get your normal state of mind back.  Recognizing when you are on tilt in poker and in business will not only save you dollars in the long-run, it will also keep you positive and sane when things aren’t working in your favor and keep you hungry and humble when things are working really well.

I don’t think I’m a strong enough to avoid going on tilt.  I’ve found the best way to address the issue is to realize when you are in it and have a game plan for addressing it before it happens.  Here are five things that I keep in mind:

1.  Have a spotter.  Someone who will call you out when you make poor or irrational decisions.  For me, just having someone appeal to my sensibilities at the poker table or in business is good enough for me to quickly react and get back on track.  Perhaps, that is your advisory board, a board member, or even a trusted friend.  Who is your spotter?  If you’re in Seattle, go to events like Twiistup and meet like-minded entrepreneurs (full disclosure: I’m an investor and big fan of Twiistup).  Be connected, be in community, be a spotter for others.

2.  When things are going badly and it seems the business can only get worse, get perspective quickly.  Things tend to work in cycles and getting through the negative cycles gets you closer to the positive cycles.  Things are never as bad as they seem, and you need to stay positive.  Be confident, make adjustments if necessary.

3.  Maintain a healthy dose of humility and hunger.  You should always celebrate successes, but don’t get comfortable with success.  There is always reason to be conscious of competitors you haven’t heard of, employees that are looking to leave, customers that are pushing for lower prices, etc.  Having humility and hunger forces you to always be learning, innovating, striving for excellence.

4.  Taking a break.  When you recognize that you are on tilt, walking away will help you make better decisions.  I’ve been in some long, arduous negotiations and sometimes it can make me go nuts and make poor decisions.  Taking some time to re-evaluate and catch my breath have helped me see things more clearly.

5.  Have fun.  I don’t mean to be flippant, but poker is a game, and business in certain respects should be looked at as a game as well.  I’ve seen it too many times that when things get tough, you stress out trying to get even only to dig yourself a bigger hole.  In business, things get tough, you get reclusive, spend more time on the business, and get further into the weeds and not having fun.  Even when things are tough and mentally draining, what are you doing today to get back into the game?  How are you having fun each day?  How are you turning it into a game rather than work?

Generally, I tend to err on the side of being more steady – not getting too high nor too low.  I think it helps me stay sane and positive.  I know of quite a few successful entrepreneurs that are not very steady and get very high and very low.  No matter which personality you are, I think everyone has the propensity to go on tilt – how do you recognize it and how do you address it?  Let me know in the comments below.

From A Smart Bear: Startups and Marketing for Geeks

You didn’t start a business so that you could learn accounting, but learn you must! Here’s a little help.

QuickBooks lets you switch between two radically different methods of accounting with a click of a button. It’s nice to have accommodating software, but which one should you pick?

Never heard of either of these? Time to learn:

“Cash-Basis” accounting means you only count revenue and expenses that you actually have. Things that count: Receiving a check or credit card payment, writing a check to the telephone company, paying your credit card bill. Things that don’t count: Receiving a purchase order, receiving the bill from the telephone company, charging something on a credit card. So it counts only if real, hard cash comes in or goes out. Stuff that hits a bank account.

“Accural-Basis” accounting means you count pledged revenue and expenses. It’s the opposite of cash-basis — what counts are purchase orders (customers pledging to pay you), bills arriving (vendors you’re pledging to pay), and credit card purchases (debt you’re incurring). It doesn’t matter when you pay the bill or when the customer actually sends you a check.

So which should you use?

Which is better for paying taxes?

The IRS allows you to pay taxes with either style of accounting, but you want to use cash-basis.

You have to pay taxes with cash. With cash-basis accounting, you show a profit only if you have excess cash actually in your possession. If it’s in the bank, you can set it aside for taxes. It’s like a dagger through the heart, but you can afford it.

Not so with accrual-basis. If you get a huge purchase order from a new customer, that would show as income; then the IRS wants their 30%, but since the customer hasn’t paid (and you, silly silly, paid your bills on time), you don’t have the cash to pay. Oops!

Cash is king, much of the time.

You’ve probably heard “cash is king:” Real cash (not purchase orders) pays your mortgage, keeps the internet up, and pays employees. Bills can be paid late, but they don’t take “accounts receivable” at the grocery store.

Thus for daily operations, cash-basis wins again. When you’re deciding whether you can afford a new advertisement, whether your payroll check is going to bounce, or whether you can actually take some cash out for yourself this quarter, you have to use cash-basis.

Which is better for understanding how the business is doing?

So far cash-basis has won every time, but when you shift your attention from daily operations to business analysis, cash is not king.

Here are questions best answered using accrual-basis accounting:

• Am I taking in more money than I spend?  (How close?  How is it changing?)
• Am I staying inside my own budget?
• Which expenses are eating my lunch?
• Are there unexpected expenses?
• How do I build a budget for the next six months?

Let’s take the first question as an example. Revenue-versus-expenses is important for every business at every stage of its life; no duh. What you’re really comparing is “revenue won” versus “expenses incurred.”

The trouble with cash-basis accounting is that it has nothing to do with when you incurred the expense, but rather when you paid the bill. You might have paid late (on purpose or otherwise). You might have paid early for a discount. The bill might have appeared on weird days so it just so happens that you paid a monthly bill twice in March and skipped April. Same with revenue — at Smart Bear it was common for a purchase order to be paid 5, 30, or even 90 days late. We won the order — the marketing worked, the sale was approved, tech support satisfied the end users — but who knows what in month the revenue would actually hit the bank account.

With the bulleted questions above, these cash-basis variances hide the important story. You need to measure intent, not the chaotic reality of money moving around.

Jason’s Scaredy-Cat Method:
Cash-basis revenue + Accrual-basis expenses

I’m conservative and pessimistic by nature. Yeah, I know, not adjectives you’d normally associate with someone who starts companies instead of holding down a job, but that’s not news.

So at Smart Bear I combined the worst of both worlds to build a safe model of how much money I could afford to lose on experiments. Why this peculiar cash/accrual split?

• Revenue only counts when the cash is in the bank (cash-basis). I’m uncomfortable incurring expenses when I don’t know when or whether a customer will pay. Collections are uncertain; I won’t depend on a dollar until they can’t take it away from me.
• Expenses count immediately (accural-basis). I’ve incurred the cost, so for planning purposes I have to pretend that cash is gone. Sure some cash-revenue might appear before the bill is paid, but it might go the other way, causing a temporary cash-poor condition.

This isn’t always an appropriate method. It’s bad for budgeting or forecasting because you’ll underestimate what you can afford, so for example you’ll unnecessarily limit marketing efforts. It’s bad when you’re getting your arms around the “revenue versus expenses” example because you’re not comparing the same kinds of money.

But this method is perfect when pondering an experiment. It’s perfect when you’re wondering if you can afford $5000 in graphic design work, a new $6500 marketing campaign, or whether you can hire someone and have 3 months of runway to discover that was a massive mistake.

It’s right for experiments because with this method you know for certain that even if the new effort is a colossal failure, you really can afford to lose that money.

More advice, more methods

What other methods or advice do you have for the intrepid entrepreneur who just realized she has to know something about accounting? Leave a comment and join the conversation.

From Futuristic Play by @Andrew_Chen

From A Smart Bear: Startups and Marketing for Geeks

This is a guest post by Jarie Bolander, author of Frustration Free Technical Management and a moderator at Answers OnStartups.

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It’d be wonderful if you could run a business without interacting with anyone else — never relying on others to deliver quality work on time and never having to “be salesy” on the phone.

Yeah, but unfortunately you do have to rely on others to respond to emails and phone calls. This reliance can be a constant source of heartburn. So you can either take some Tagamet or learn how to get permission to follow-up with people.

Or both.

You Are Not Alone

Most people dread following up with customers, vendors and even employees. It sounds weird to extroverts, but many of us have performance anxiety that prevents us from following-up even when it’s in our own best interest. You would think that, as social creatures, we would love to interact with our fellow humans, but alas no.

[Editor's Note: I have an irrational fear of the phone. When it rings I'm overcome with a sense of dread. I have to work myself up to placing an out-bound call. It's not anti-social — I love personal and electronic interactions equally — it's something specific and bizarre and, I've since learned, fairly common.]

Our irrational dread stems from the following fears:

• Fear of rejection: The real reason people don’t follow-up. It’s hard to get rejected by a customer or partner, or even a stranger. If you get permission to follow-up, this rejection is less likely.
• Don’t want to be annoying: This is the most common excuse people give for not following up. This is why it’s important to set natural follow-up points so you can get permission to call, email or meet.
• Conflict avoidance: A reason that people don’t call you back. If you set up the interactions so that any potential conflict is reduced, then they will want to talk to you.
• Awkwardness in asking for something: Asking for the sale or clarification produces a lot of anxiety. The trick to asking for something is to make it the natural next step to your series of follow-ups. That way, it builds up gradually.
• Trust that what you say will happen: A common problem when someone works with you. No matter who you interact with, you need to follow-up with them if they committed to get something done for you. They might have forgotten or gotten busy.
• Too busy to worry about it: This is common for the overworked entrepreneur. You should never be too busy to follow-up on things you want done. Think about it. If it’s important, then you need to ensure it gets done. Otherwise why did you start it?

Permission Follow-Up

The most powerful technique to get others to help you achieve your objectives is to create natural follow-up points that make it easy for you to contact someone. Think of this as permission marketing applied to following-up. Permission Follow-up allows you to contact your customer, vendor or employee because you have a pre-established agreement on when it’s appropriate for you to communicate with them. The power of this technique is that you make them want to receive your email, call or meeting.

Or at least expect it. When the other person expects you to contact them, and you do, none of the excuses above are applicable.

Natural Ways to Follow-Up

Okay, I am sure most of you are feeling that Italian veggie sub you had for lunch starting to bubble up in your throat. Relax. There are tons of ways to create natural follow-up points that will make getting that customer meeting, dealing with that difficult vendor or making sure your team releases it’s products on time.

Here’s a bunch of specific methods. Next we’ll apply them in a scenario.

• Take responsibility to do the follow-up: This is most direct way to get permission to follow-up since you actively took responsibility to contact them. When they agree, then you are set. It’s on your calendar, not theirs.
• Set mutual deadlines: Deadlines are a great way to set expectations and points of reengagement. This will make whomever you are interacting with expect your next communications especially if the deadline is to give them something.
• Additional information: Committing to and delivering additional information will setup a natural way for you to interact. When you do follow-up, your contact will expect your call.
• Specific actions you are responsible for: When you take and complete actions it shows that you value follow-up and that makes others expect this from you.
• Status updates: Anytime your situation changes or you release a new revision, is a perfect time to give a quick reminder or update.
• Relevant books and articles: A good way to reengage with people is to send them relevant posts or articles. When you do this, it reminds people who you are and allows you to dialog about other opportunities.
• In town: Face to face meetings are the most effective ways to follow-up on cold leads or to accelerate a deal. Just being in town makes it easier for your contact to meet you and that might be the one thing that pushes your interactions to the next level.
  
  [Editor's Note: I have found this to be an especially effective tool. My technique: Whenever you're going to be in a city, call everyone and say "I'm going to be in town anyway, could I just swing by for 15 minutes? Or longer if you want to go over something?" Almost everyone will agree, and there is nothing like real face-to-face interactions, especially in the age of digital arms-length relationships.]
• Mutual friends: An introduction (or reintroduction) by a mutual friend can be a powerful follow-up method if your interactions have stalled. Your mutual friend can also be an excuse to reconnect.
• Ask for clarification: When you ask for clarification, it shows that you are striving for understanding and if done after an interaction, reminds your contact of what you talked about.
• Time has passed: Sometimes the passage of time can be used to your advantage as long as you have another entry point (like a status update or a mutual friend). In some cases, just sending a “checking in” email or note, can be all that is needed to follow up with other interactions.

These natural follow-up points must be injected into an interaction at the appropriate time — when the interaction needs an inflection point or as a way to tie up some loose ends. Sometimes, it may take several different methods since people respond differently to following-up. (Most have the same anxieties as you do!)

Scenario: A Customer Interaction

Let’s put this into action.

Perhaps the most important customer interaction is your first meeting. It sets the tone for everything to come and is ripe for planting those follow-up seeds. Here’s how it might go:

You: Beth, thanks for meeting with us. We were introduced to you via Matt over at KoolTech. Matt uses our Wizbang SaaS client and thought you guys might find it useful too.

Beth: Yeah, Matt told me about you guys. It sounds like you might have something that will work for us.

You: Excellent. Matt’s a great guy and we were excited to have Matt recommend we get together. Did you get the information I sent you about Wizbang?

Beth: Actually, no I didn’t. However, I did read you site and think I have a good idea what you do.

You: Why don’t I reconfirm your email and send it on to you?

Beth: Sure, it’s ….

You: I will send this out when I get back to the office. Does that work for you?

Beth: Yeah.

You: Excellent. How about we show you our demo?

Beth: Thought you’d never ask.

Demo Ensues. Ooo’s, ahh’s

Beth: Great demo. It looks like just what we need. Can you send me a quote? Budgets are tight.

You: Sure. We can also set up a guest account for you and your team to try it out.

Beth: That will work.

You: Why don’t you give me their contact info and I will set them up

…

You: Beth, thanks for your time. We really enjoyed meeting you.

Beth: As did I.

You: I captured a couple of next-actions for me. They are …. Do you agree?

Beth: That’s great, just so long as I don’t have to do anything else.

You: Wonderful. I will get back to you in a week with that quote. Will that work for you?

Beth: Yeah, that works.

You: In the mean time, I will setup some guest accounts and follow-up with you to see how it’s going.

Beth: Sounds good. Talk to you soon.

The above interaction had several follow-up seeds planted (in bold) that are ready to be harvested. All of the responsibilities are on your shoulders, and your customer gave you permission to follow-up. This means that they will be expecting your call or email.

So what happens when they don’t return your calls or email? Permission follow-up handles this as well. Not only are you planting follow-up actions with your direct contact, but with others they work with, like what happened above (setting up a guest account for other team members). Doing this allows you to have several entry points. Taken in combination, these entry points give you a better shot at getting your call or email returned.

Go Ahead, Give it a Shot

Practicing permission follow-up does feel awkward. Just stick with it. Over time, permission follow-up will produce results and you will get more comfortable with it. The simple fact is that other people usually don’t place as high a priority on these things as you do, and you have to lean on them to get things done.

It’s not about leaning hard or being an asshole. It’s just about getting permission to follow up.

What tips do you have for following up with customers or vendors? Would any of the techniques here bother you? Leave a comment and join the conversation.

From cdixon.org

I can’t remember the last time the tech world was so interesting. First, innovation is at an all time high.  Apple, Google, Facebook, Twitter and even Microsoft (in the non-monopoly divisions) are making truly exciting products. Second, since the battles are between platforms, the strategic issues are complex, involving complementary network effects.

Twitter’s moves this week were particular interesting.  A lot of third-party developers were unhappy. I think this is mainly a result of Twitter having sent mixed signals over the past few years. Twitter’s move into complementary areas was entirely predictable – it happens with every platform provider. The real problem is that somehow Twitter had convinced the world they were going to “let a thousand flowers bloom” – as if they were a non-profit out to save the world, or that they would invent some fantastic new business model that didn’t encroach on third-party developers. This week Twitter finally started acting like what it is: a well-financed company run by smart capitalists.

This mixed signaling has been exacerbated by the fact that Twitter has yet to figure out a business model (they sold data to Microsoft & Google but this is likely just one-time R&D purchases). Maybe Twitter thinks they know what their business model is and maybe they’ll even announce it soon. But whatever they think or announce will only truly be their business model when and if it delivers on their multi-billion dollar aspirations. It will likely be at least a year or two before that happens.

Normally, when third parties try to predict whether their products will be subsumed by a platform, the question boils down to whether their products will be strategic to the platform. When the platform has an established business model, this analysis is fairly straightforward (for example, here is my strategic analysis of Google’s platform).  If you make games for the iPhone, you are pretty certain Apple will take their 30% cut and leave you alone. Similarly, if you are a content website relying on SEO and Google Adsense you can be pretty confident Google will leave you alone. Until Twitter has a successful business model, they can’t have a consistent strategy and third parties should expect erratic behavior and even complete and sudden shifts in strategy.

So what might Twitter’s business model eventually be?  I expect that Twitter search will monetize poorly because most searches on Twitter don’t have purchasing intent.  Twitter’s move into mobile clients and hints about a more engaging website suggest they may be trying to mimic Facebook’s display ad model. (Facebook’s ad growth is being driven largely by companies like Zynga who are in turn monetizing users with social games and virtual goods.  Hence it’s no surprise that a Twitter investor is suggesting that developers create social games instead of “filling holes” with URL shorteners etc.) Facebook’s model depends on owning “eyeballs,” which is entirely contradictory to the pure API model Twitter has promoted thus far.  So if Twitter continues in this direction expect a lot of angst among third-party developers.

Hopefully Twitter “fills holes” through acquisitions instead of internal development. Twitter was a hugely clever invention and has grown its user base at a staggering rate, but on the product development front has been underwhelming.  Buying Tweetie seemed to be a tacit acknowledgement of this weakness and an attempt to rectify it. Acquisitions also have the benefit of sending a positive signal to developers since least some of them are embraced and not just replaced.

What’s Facebook doing during all of this?  Last year, Facebook seemed to be frantically copying Twitter – defaulting a lot of information to public, creating a canonical namespace, etc. Now that Twitter seems to be mimicing Facebook, Facebook’s best move is probably just to sit back and watch the Twitter ecosystem fight amongst itself.  As Facebooker Ivan Kirigin tweeted yesterday: “I suppose when your competition is making huge mistakes, you should just stfu.”

Disclosure: As with everything I write, I have a ton of conflicts of interest, some of which are listed here.