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Guy Kawasaki, founder/CEO of the venture-capital investment bank Garage.com, presented students and conference participants with not one, but three keynote talks at the recent HBS Entrepreneurship Conference.
A columnist for Forbes magazine and author of seven books (Rules for Revolutionaries among them), Kawasaki, 46, served as "chief evangelist" for Apple Computer before starting Garage.com in October 1997.
After first taking the School to task for "rejecting" him in the past first as an MBA candidate, and then as an author in search of a publisher Kawasaki announced, "This is called 'The Mother of All Keynotes' because most keynote speakers try and fail to do one keynote. I'm going to try and do three keynotes for you today. That's because I want to leave a lasting impression at Harvard that they should never had rejected me or my book."
Kawasaki's wry observations of the current business scene, relayed with self-deprecating humor and great panache, kicked off the student-run conference on October 28, 2000.
Quipping, "I always use a Top Ten format. At least the audience can track the progress of my speech," Kawasaki elaborated on three main topics: the top ten lies of entrepreneurs, closing funding, and confessions and hindsight of an MBA.
Keynote 1: "Top Ten Lies of Entrepreneurs"
At Garage.com, Kawasaki and his colleagues review about 12,000 business plans a year. "We've heard it all," he told the HBS audience. "If you're going to tell lies to potential investors, at least come up with new lies." The lies entrepreneurs must stop telling, he advised, are the following:
1. In year three we're going to do $75 million, and our projections are conservative.
"Never ever say that, because no one ever believes that," Kawasaki scolded.
2. IDC or Yankee Group or Jupiter or somebody says that by 2003 the market for left-handed shrimp-farming software will be $50 billion.
Citing an external consulting firm to support dramatic statistics is another no-no. "This is so prevalent in business plans that most investors take this as a sign that [the entrepreneurs] are bozos. Every business plan comes in with a projection like this."
3. Amazon.com is about to sign our contract next week.
"Very few people are willing or able to say no," Kawasaki counseled. "In all the meetings you'll have to do with business development, no one will ever say no. They will always say, 'It sounds interesting, let us get back to you.' You think they will sign a contract soon. But let me see the signature first. Not saying no is not the same thing as saying yes."
4. We have these great key employees. As soon as we get the $2 million from you, they're going to quit their CEO positions and join our team.
"Let me get their names and phone numbers and I will call them."
5. We have first-mover advantage.
"We get one plan a week like this. If you have a good idea, you should assume that five companies are doing it out there in the world. If you have a great idea, assume that ten companies are doing it. Very few have first-mover advantage. It's the first to scale, not the first to move, that matters."
6. We have several VCs who are interested.
"Either it's no, or they gave you a term sheet. Those are the only two states once you pitch a VC. (I was going to do a Top Ten Lies of VCs," Kawasaki said in an aside, "but I couldn't narrow it down.) One of the great lies of VCs is that they're interested, they just don't want to take the lead. And as soon as you find a lead investor, they'll pile on and put money in. Take that as a hard no. That's a no."
7. Oracle/Microsoft/IBM is too slow to be a threat.
"They're not so stupid. They're not so slow."
8. We're glad the bubble has burst. Now there is a higher quality entrepreneur.
"You know what?" Kawasaki exclaimed. "Nobody is glad the bubble has burst. Let us not forget: The world would be better with NASDAQ at 5,000."
9. Our patents make our idea defensible.
"This is a terrible, terrible thing to say. It shows total audacity on your part. Other than in biotech and in medical devices, patents don't matter. All that matters is your ability to implement and scale. Instead of saying this, what you should do is hire more engineers. What makes a business defensible is implementation and engineering, not intellectual property protection. Patents do not matter."
10. "The tenth lie is the so-called Chinese soda lie," Kawasaki pointed out. "The Chinese soda lie says: 'If just 1 percent of the people in China buy our soda, we will be a hugely successful beverage company.' That is true, mathematically. The problem is getting 1 percent of the people in China to drink your soda. So when the institutional investor hears this lie, he or she thinks: a) 'You're insulting my intelligence.' And b) 'I want 99 percent of the market, not 1 percent.' You know, an investor's greatest dream is to face Department of Justice antitrust litigation."
Keynote 2: "iClosed"
Launching into his second keynote, Kawasaki outlined what he called "the real tactics" of getting funded today.
1. Get team, get money. "The single biggest determinant of success in raising money is the quality of the team," Kawasaki explained. "Lots of entrepreneurs have this chicken-and-egg dilemma: 'Boy, if I had a million dollars, I could get that key executive from Andersen Consulting.' Which comes first, the executive or the money? The answer is the executive. If you get the team, you will get the money. A very good proxy for the quality of your idea, the quality of your technology, the size of your market and your personal skill, is: Can you convince a key executive to leave a cushy job and come work for you without you having a lot of money?"
2. Don't outsmart yourself. "Go with the flow," he advised. There's a reason people hire good lawyers, not "Uncle Joe the divorce lawyer," when they're embarking on deals.
3. Don't be paranoid. "This is one of my pet peeves," Kawasaki stressed. "Lots of entrepreneurs ask for nondisclosure agreements. They think they have to protect this great idea. They think that if they mention it, the investor will steal it and give it to another team. You know what? That never happens. If you ask a potential investor to sign an NDA, you are putting a sign on your forehead that says, 'I am a bozo.' Just tell them the basics of your idea, and ask, 'Do you have anything in your portfolio or are you considering anything for your portfolio that overlaps with this business?' If they say yes, tell them anyway. Implementation is 90 percent; the idea is 10 percent."
4. Be brief. ("This advice has the most bullet points," noted Kawasaki.) A one-screen e-mail will do for starters. No attachments. "Venture capitalists do not know how to open attachments." Your business plan should be no more than 20 pages long. The first 3 pages of the plan are the only ones that matter. "Don't spend pages and pages proving that the Internet will be big. Okay?" Assume you have a one-hour meeting, and make every minute count. "For them, you're one of ten meetings that day. All you want from that meeting is a commitment to go to the next step, which is due diligence. The point here is to be brief. I don't think I've ever seen a business plan that was too short."
5. Acknowledge or create an enemy. "Too many entrepreneurs say they are truly unique, that there is literally no competition. Investors think you are clueless and don't know how to use a search engine or there is no market and that's why there is no competition. What you want to do is to present analysis to show that there is competition. Then you have to explain what your unique and defensible competitive advantage is. In the rare case that there really is no competition, I would even suggest that you make one up."
6. When raising money, look for value, not valuation. "Many entrepreneurs believe that the Holy Grail of raising money is to get the best valuation. The Holy Grail is getting the best value," he said. If you have a rich aunt, for example, she will give you a higher valuation than, say, Sequoia. "Take Sequoia's money," Kawasaki advised. "What's most important is the per-share price, not what percentage of the company you own."
7. Eat when served. "This is from Eugene Kleiner," he acknowledged. "When people are willing to give you money, take the money. The leading cause of failure in start-ups is death. You are not dead as long as you have money. Take the money."
8. Ask for less money than you need. "Ask for less and declare victory" by getting fully subscribed first, he counseled.
9. Avoid blood and sex in your company. "One of the very tricky things that we see" as potential investors, Kawasaki said, is a husband-wife team or a mother-son team. "This is definitely one of the bumps in the road when you as the investor wonder, 'Should I do this deal?' Every time I've done a deal with a husband and wife, it blew up. Suppose the wife is CEO and the husband is CFO, and everything is just fine, and you're about to go public. You meet with your investment bank, and your investment bank says you really need a CFO who has taken a company public. So now you have to go to the wife and tell her she has to fire the husband ... Good luck.
"I realize that there are companies where husbands and wives and mothers and sons and fathers and daughters work 25 years together and build great companies," said Kawasaki. "God bless you if you can create a dry-cleaning business. But if you want to create a venture-capital funded, NASDAQ-listed company to the extent possible, avoid blood and sex."
10. Keep burn rates low and cash balances high. A good rule of thumb, he said, is that your company should always have one year of money on hand. "This means, do not advertise on the Super Bowl. Do not take beautiful oceanfront property. You may switch business models several times. It's very difficult to raise money when you're running out of money and want to switch business models."
Keynote 3: Hindsight as an MBA
For his concluding keynote, Kawasaki outlined a few lessons he'd learned.
1. Consulting isn't doing. "I thought I was really smart because I could analyze and tell people what they're doing wrong. But implementing is more important. Seeing what should be done is very different from doing what should be done."
2. Doing isn't leading. "You have to go from consulting, to doing, to leading."
3. Organization behavior is key. "When I was in school, I really thought that the key to my education was to take operations research, finance, statistics... all the hard stuff that has science and math to it. The easy stuff was OB. I was roughly 180 degrees off. The hard part of being a CEO is the organizational behavior part. Being CEO, you don't need to know math. I can tell you all the math you need to know right now, which is: If you buy something for a dollar and sell it for five dollars, you will be rich. The key, though, is OB, social psychology, leading. This is where the money is made."
4. The how is more important than the what.
5. No one cares that you have an MBA. "Maybe that's because I have a UCLA MBA," Kawasaki noted with a grin. "What counts is what you do with it."
6. There is no such thing as a wrong first job. "It's okay to work for a company that explodes," he said, because there is still so much that can be learned.
7. Analog beats digital. Kawasaki said he used to believe the goal of every computer company was to create the world's greatest workstation. "But I was wrong. The goal is a happy, productive, creative customer. The goal of a revolution is a happy person, not the most wicked cool workstation. Digital is faster, but the goal is a happy customer."
8. Business is a process, not an event.
9. Never ask people to do something that you yourself would not do. "Imagine if people who own airlines actually flew in coach and ate the food."
10. Kids are the greatest joy. "I have lived a charmed life," Kawasaki acknowledged, turning thoughtful as he concluded his talk. In his youth, he said, he "truly did believe" that what would make him happiest would be cars and houses and power. "What has made me the happiest has been my children. The three things that matter are my kids, my Christianity, and my relationship with my wife." Addressing the HBS audience, he said, "I hope when you look back, you never think, 'I wish I had worked harder.' Rather, that you made the world a better place."
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