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Why Raising Capital Might Not Be Your Best Funding Strategy – 6 Tips!

December 31, 2020 By Sam Palazzolo, Managing Director

I recently met with one of our holdings – a technology-software startup in Las Vegas, Nevada USA (Headquarters for Tip of the Spear Ventures) and we reviewed why raising capital might not be your best funding strategy. Let me be frank… While being an “entrepreneur” is fashionable these days, Las Vegas was never/is not now a major powerhouse in the tech industry. However, even with its limited entrepreneurial scene Las Vegas would appear to be awash with more capital for funding entrepreneurs than it has ever seen before. Investors are doling out money to promising startups, and major corporate Acquisition Departments at Google, Facebook, and MSN are ready in the wings to acquire interesting technologies and more importantly the smart teams that work therein.

Bootstrapping Your Business

I am an entrepreneur who bootstrapped his first company more than two decades ago, and it has been interesting to see the Las Vegas startup scene mature since forming Tip of the Spear Ventures in 2012. Similarly, the tech-software entrepreneur previously mentioned also bootstrapped his startup. Since we invested and began mentoring the organization five years ago, they now garner more than 40,000 visitors a day to their website, generate revenue of seven figures a year, and are extremely profitable. As such, they’ve had quite a investors and private equity firms approach them with funding, ready to invest in a business with a positive cash flow and pristine reputation in exchange for equity.

Capital Funding Sources

I remember the first time I had the conversation with the leader of the organization (There have been many approaches over the years, all of which seem to follow the same pattern – We’ll give you $XMM in exchange for XX% Equity). As the startups strategic partner, we reviewed each and everyone of the approaches, but elected not to accept any. While most would look at this as unfashionable (Shouldn’t you look at raising capital and ensuing Series A, B, and C rounds of funding as “right of passage” on the road to exit?) While congratulations are in order because most entrepreneurs would consider this as recognition by the business community as having arrived. Most entrepreneurs mistakenly believe at these moments that they’ve got it made (They’ll take a few million, expand the operations, juice up revenue and, within a few years sell out and cash an eight-figure cheque – WINNING!) Isn’t this the 21st -century success story – launch something, build it (They’ll come, right?), gain a bit of traction in the marketplace, get an infusion of cash and then sell, sell, sell as you get on the infamous train!

So why did we not recommending and why did the startup leaders not take any offers of funding? Simple… They retain complete ownership of their company and have never taken a cent in investment money. You see, it’s easy to get swayed by the upside but few entrepreneurs look at what they give up in exchange.

Why Raising Capital Might Not Be Your Best Funding Strategy – 6 Tips!

While in no way against funding (I mentioned that we were one of their original investors, and this is how we make our money at Tip of the Spear Ventures by investing in entrepreneurs), here are six considerations (or tips) that you should similarly consider before accepting funding:

  1. How badly do you need the cash? If you’ve successfully bootstrapped to profitability, perhaps your company is not in a situation that it cannot meet its financial obligations. You have money in the bank for those rainy days (Hopefully a year), so ask yourself “Do I even need the money?”
  2. What’s the endgame? The startup world is abuzz about moonshots and unicorns (Those companies valued at a minimum of a billion dollars). But is that something you really want? Do you want to build a disruptor? Or do you want to build a small company that does what it does best and serve the market for a long period of time?
  3. Are you willing to lose control? As the majority owner of your company, you don’t need to worry about anyone else’s opinions (for better or for worse). You don’t need to worry about keeping investors happy or making sure the board is happy. Keep in mind that the early-days of funding-marriage soon become cantankerous and almost divorce-like as demands placed on the entrepreneurs for ROI and other OKR metric attainment begin. No funding means you are the decision-maker.
  4. Is your share of the pie big enough? Raise enough capital (especially when your own company’s value is low) and have enough co-founders, and the threshold on how much money the company has to sell for before you make back your money goes up. I think it was one of the Beetles that when asked if they thought they’d ever reunite snarled “and split this tour 4 ways?!?” Sure, 10% of a $100Million exit is bigger than 100% of $5Million, but the reasons unicorns are unicorns is because they are extremely rare! You hear about the moonshot and unicorn success stories, but companies are far more likely to fail in achieving those levels.
  5. How much time do you have? Venture Capital backed startups are notorious for sucking time. As mentioned in #3 above, control also equates with time. You’re probably already wearing multiple hats as an entrepreneur. Will you be able to wear them all as effectively with less time to do so?
  6. What are your goals? What do you really want from your business? For most it’s freedom. The ability to go for an hour long walk with your dog during the middle of the day or sneak in that round of golf is appealing. While most entrepreneurs dream of time today it actually is in exchange for time tomorrow because the goal of why they became entrepreneurs in the first place was so appealing.

At the end of the day, most entrepreneurs operate their business to help provide for their lifestyle. Taking external funding would bring into play external forces that would make it harder for entrepreneurs to enjoy their lifestyle.

SUMMARY

While most entrepreneurs are content realizing that they can/are here to make a dent and don’t need to dominate. Taking external business funding will limit those lifestyle choices and freedoms in making those dents.

Sam Palazzolo

Filed Under: Blog Tagged With: entrepreneur, las vegas, private equity, raising capital, sam palazzolo, tip of the spear ventures, venture capital

The Leadership Challenge: Flexibility – 5 Tips!

July 25, 2017 By Sam Palazzolo, Managing Director

The Point: If you’ve ever taken in a Cirque du Soleil show you know that the pure athleticism of a cast member is simply mind-boggling. It bears repeating… Mind –boggling! Mix several of these cast members into the choreography of the show itself and it can be sensory overload (almost inducing a nauseous state!) In this post we’ll examine the leadership challenge of flexibility and provide 5 tips so that you as a leader can be more Cirque-like in your leadership pursuits… Enjoy!

The Leadership Challenge:  Flexibility – 5 Tips!

I Have to Do What with My Phone?

Is there anything better than taking in a show in Las Vegas? In full transparency, I’m fortunate enough to call Las Vegas home and am 100% biased. I simply believe it’s the best city on Earth! After all, who has better entertainment, restaurants, and night-life than LV (I’ll recognize NYC, but…)? And nothing is better than going to see the Cirque du Soleil shows. From KA at MGM, Michael Jackson at Mandalay Bay, The Beatles at Mirage, “O” at Bellagio, the list goes on and on… Each of them fantastic in their own right.

As different as each of these shows are, there is a core athleticism that remains the constant benchmark. The cast members are not only in fantastic shape, but the choreography highlights just how fantastically athletic each one is. Another constant is a need for safety for each and every cast member. So with safety in mind, each show starts off with a “kind” way of informing the audience to please shut-off your cell phones (NOTE: Videos/Photos are forbidden!)

5 Tips for Leadership Flexibility

I recently took in the “O” show at Bellagio, and it did not disappoint! I was left mouth-opened (ironically in the shape of an “O”), gasping for explanation as to how the cast members were able to pull-off the many choreographed scenes that were performed. In a word, I was stumped!

So it’s with this show in mind that I began to ponder “What are the leadership lessons that can be learned from such an amazing production?” Here then are 5 tips for the leadership challenge of flexibility, Cirque-style:

Tip #5 – Sometimes It’s Going to Rain!

To say that the “O” Cirque show has water in it is like saying there is oxygen in the air… It’s everywhere! And just when you think you/the cast members are safe water presents itself again and again. So know this much as a leader, it is going to rain (or the elements are not going to cooperate). It’s not a matter of if, but when… So prepare yourself for the elements.

Tip #4 – You Better Be Flexible!

The Cirque cast members, as previously mentioned, are each gifted athletes, with strength and flexibility. So as a leader you had better be prepared to flex your muscles and be flexible when those unplanned business situations arise.

Tip #3 – Eliminate Noise (No Cell Phone Utilization!)

I previously discussed the cute way in which audience members were requested to quiet their phones. Likewise, as a leader sometimes you’ll be better off if you go and sit in a quiet conference room by yourself to actually think (and breath) about what you are going to do. Think of this as a strategy session for one!

Tip #2 – If You’re Scared, Say You’re Scared and Jump In!

The highlight of the “O” show for many is the high-divers that jump to what appears to be their peril, but in actuality land in a very wide/deep pool of water. I guess that old New Orleans phrase of “If you’re scared, say you’re scared” can come in handy for the leader that needs to get over whatever is presenting the obstacle-of-the-moment so that they can move on.

Tip #1 – Enjoy the Moment!

Nothing, and I mean nothing, gave me greater joy than to go see the “O” show with loved ones (I’ve actually seen it twice!) It was in this second viewing that I was able to take in more (See my sensory overload comments earlier) and really notice what was taking place all over the stage. As a leader, you’ll be pulled in a multitude of different directions in what appears to be simultaneous instances. When this occurs, and I know it will be difficult, you need to remember to smell the roses and enjoy the moment.

SUMMARY

In this post we’ve explored the leadership challenge of flexibility, brought to life through the magical Cirque du Soleil shows in Las Vegas. While you/I might never look like a Cirque performer (I’m still attempting to!), hopefully the five tips presented will provide you with some insight into how you can be the best leader you can be (Or at the very minimum, jump from a high-dive into a pool!)

 

Sam Palazzolo

 

PS – If you have a leadership challenge you’d like me to explore, please drop me a line and let me know!

Filed Under: Blog Tagged With: cirque du soleil, flexibility, las vegas, leader, leadership challenge, sam palazzolo

The Leadership Challenge: Culture

August 24, 2015 By Sam Palazzolo, Managing Director

The Point: You know how when you think about a business and you get that “vibe” that resonates with your sole (and it’s a good vibe)? That’s a company’s culture, and it’s what we want when people think of Tip of the Spear! So in this post we’ll take a look at company cultures and how they can make (or break) customer experiences (both internal customers – employees – and external – customers)… Enjoy!

Are You Leading at the Tip of the Spear?

Zappos Culture is a Fantasy!

One of the clients I’m working with on a large-scale change management/customer experience initiative is attempting to get their arms around company culture. Know this much: This is a HUGE redwood tree to attempt get your arms around. But how do you go about eating an elephant? That’s right, one bight at a time!

So if company culture is what you’re after, where would you head to benchmark what is truly best in class? We compiled a short-list and Zappos was at the top. Now you might have red about Tony Hseih and his book on Zappos (“Delivering Happiness: A Path to Profits, Passion, and Purpose”). I know that I read the book several years back and recall what one of my clients said about it: “Zappos Culture is a Fantasy!” In other words, they believed that there is no way that employees could manage themselves in relatively “flat” organization structures. They also believed that a company would go broke if they pulled all the shenanigans that Zappos purportedly pulled in the workplace (Free snacks, frequent all company meetings, etc.)

What are Your Cultural Core Values?

So it was with this framing that I went to Zappos, a pilgrimage of sorts to a clandestine cultural Mecca where dreams could come true, and fantasies were reality in business. What exactly was the leadership challenge I was in search of solving? After all… This was Las Vegas! Anyway, I registered for a tour, showed up at the given time (There is great communication prior to the tour regarding directions on where to go, how to get there, etc.), and checked-in in preparation for cultural lift-off (Yes, in case you’re wondering I was overdressed. I had come from a meeting wearing a suit/tie… But something about a 100+* day in Las Vegas had me lose my tie. Good thing… They cut them off at the door!)

The tour began and closed with something that I’ll never forget (No, not the ukulele playing tour guide… Come to think of it, I won’t forget him either!) What was unforgettable was the “vibe” this office place had. With what can only be described as minimal “management” present, everyone seemed to lead their own way throughout the tour. Furthermore, there was the sharing of 10 Cultural Core Values and even an annual yearbook authored by Zappos associates regarding what this culture means to them. With nearly every state and continent represented by the Zappos associates, this meant that there was a somewhat diverse culture present (if only in as much they were operating in Las Vegas, when it could have been a trendy LA neighborhood).

The bottom line of the visit was that not only was the Zappos culture a reality, but it was about to have an impact on 100+ people from my daily tour alone. Multiply that quantity by about 10 tours a week and you get some pretty exponential numbers regarding other companies/people looking to identify how they can make their place of work more like Zappos.

The Zappos Cultural Core Values… Easy to Replicate | Hard to Implement

In case you’re wondering, here are the 10 Core Values that every Zappos associate must abide by (They’ll actually pay you to depart from the onboarding training if you identify that you can’t uphold them!):

  1. Deliver WOW Through Service
  2. Embrace and Drive Change
  3. Create Fun and A Little Weirdness
  4. Be Adventurous, Creative, and Open-Minded
  5. Pursue Growth and Learning
  6. Build Open and Honest Relationships With Communication
  7. Build a Positive Team and Family Spirit
  8. Do More With Less
  9. Be Passionate and Determined
  10. Be Humble

They’re listed proudly on the company website under the “About Zappos Culture” page. So if everyone interested can see these, pickup Tony’s book for under $20, and take a tour (tour cost was only $10) why then is it so difficult for others to replicate this culture?

Here’s why it’s difficult to replicate the Zappos Culture – It’s hard work and it takes leadership. In leadership development programs and ensuing executive coaching sessions I hear time and again how leaders want the right culture, the right people, creating the right customer experience. However, this takes effort and energy as a leader. Perhaps not always leading from the front (sometimes supporting while not leading the charge), there is a gap between how to implement/execute such a culture. Most leaders get frustrated, throw their hands in the air after adopting a few of the cultural gems from Zappos, and simply give up.

SUMMARY

In this post we looked at the Zappos Culture and how while few can imitate, even fewer can replicate it. What is your organization’s culture like? Is it like Zappos? Is it far from it? What do you want it to be as a leader/stakeholder?

 

Sam Palazzolo

The Leadership Challenge- Culture

Filed Under: Blog Tagged With: company culture, culture, executive coaching, las vegas, leader, leadership development, the leadership challenge, tony hseih, zappos

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