Kill Section 926

If you read this blog, you don’t need to be reminded that I’m an entrepreneur, or that CitySquares has been funded by angel investors from eCoast Angel Network, to Jonathan Kraft, and Mark Cuban, among others. The bottom line is that CitySquares would not be here today if it were not for our angel investors, but more generally if it were not for Angel Investing as a whole. Most importantly though, angel investing is good for America, that simply cannot be disputed. So why is Senator Chris Dodd trying to make it harder for entrepreneurs and companies to raise angel financing, and why is he going to raise the minimum requirements to be an accredited investor, and on top of it all make the SEC review every angel deal before it can get done?

Is the Democrat from Connecticut out of his mind? What is he trying to achieve here, raising revenues for the federal government? I don’t get it – where’s the logic in this provision? Maybe someone smarter than me can help me understand, but in the meantime if you are for entrepreneurship, for innovation, for job creation, for small business, then go here and sign the petition to stop this nonsense.

More information can be found here on The Huffington Post, in a well penned piece from Robert Litan. A quote follows:

Various studies published or sponsored by the Kauffman Foundation have made it abundantly clear how dependent the U.S. economy has been and will continue to be on the formation and growth of new companies. Angel investors are important funders of new companies. There is no good time to make it more difficult for them to invest in startups, and now — when the economy is struggling to recover from what may be the deepest recession since the Great Depression — is the very worst possible time to discourage angel investment.

Sign the petition here.

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Getting it Done

This week ADP stated that 693,000 jobs had been lost in the month of December, and the U.S. Department of Labor stated this morning that unemployment has reached 7.2%, a 15-year high. Those are some gigantic numbers – terrifying actually. And the Fed says it’s only going to get worse this quarter, and potentially longer. Is it any surprise? Americans have been spending spending spending for years now, piling up debt, and living their lives on a credit score. Is it because of deregulation? Who knows. The fact of the matter now is that we’re now paying dearly for this recklessness in the form of job losses, bankruptcies, foreclosures, homelessness, and much more to come.

Everyone needs to smarten up, fast. Individuals, companies, no one is excluded fro this. If you weren’t aware of this a few months ago, in late Q3, you better damn well wake up! I was shocked the other day to learn that a friend of mine is actually quite clueless about all this. He’s a bit insulated from it where he lives and in his line of work, but no one is really insulated from this. My wife works at Harvard University, which recently saw its endowment cut substantially, losing 8% or $12B. For the first time in a long time, people are losing their jobs at Harvard, seeing their pay cut, seeing bonuses and scheduled raises off the schedule. Harvard, one of the most stable employers in Massachusetts, is having these kinds of problems. Again – no one is insulated.

This applies to startups too, of course. In fact, I’d say it hits us harder and faster than most other businesses. And that brings me to my point. CitySquares has been hit by all this. Sales are down as small businesses were reacting to the news in September and October, and as they refocused their energies and also smartened up. Sales are down, cash flow is down, some of our customers have gone under, some have been unable to pay their bills. Nevertheless, we’re seeing our way through this. We have an amazing tribe here at CitySquares – some extremely dedicated and passionate people. These qualities were demonstrated this week when I asked everyone to take a pay cut. The result? Some people took bigger pay cuts than they were asked to! And another thing – everyone stayed. Attitudes are great, everyone is as committed as ever. It’s just amazing to me.

I learned so much this week, as a CEO and as a Founder. I learned about employee psychology, I learned about my own abilities as a leader, as a CEO, as a founder. I learned even more about buy-in, about the difference between a decision and a choice.

So, CitySquares underwent pay cuts this week and I can honestly say that on this blog with pride, and with my head held high. Because I know that our team is prepared to do what it takes to weather this storm. Because they understand that paycuts for everyone means no one gets let go, everyone stays. And this tribe is aware of the same goal we’ve had for the past two years – the goal that’s now within 5-6 months from happening – the goal of cash flow positivity. The only way we can make that happen is if everybody here is on the same page, and that has not changed. Everyone here must work towards the same goal! Cash flow breakeven, in this market? In this economy? Outstanding! Show me a business that’s within 12 months of cash flow positivity, and I’ll show you a business that gets it. But show me a business that’s not making changes, not making the necessary cost reductions, not doing everything to ramp revenues and I’ll show you a business that’s in a lot of trouble.

Another thing, we wouldn’t even be here talking about this right, nor ever even arrived at this moment in time, if it weren’t for our investors, our angel investors from eCoast Angel Network and other outside investors like Jonathan Kraft, Mark Cuban, even my own father, among several others. We’re truly fortunate to have such fantastic individuals behind this company. Angel investors are special and its easy to forget how important they are to the economy, to the capital systems, and to the world of entrepreneurship. Angels make it happen.

So, there you have it folks. The truth as bare as it comes! And that’s what my blog entry from earlier this week was about – the difference between decisions and choices. Decisions I had to make, and choices that I had to give to the staff. There were difficult, very difficult, decisions that I had to make, along with our board of directors. These decisions lead to other decisions, and choices, for the tribe – and this week they all chose to help each other, to make the necessary personal investment, to protect each other.

Monday was one of the hardest days I’ve ever had at CitySquares. Today is one my proudest.

Fight or Flight

better-angry-bear-pictureEveryone is talking about the bad times that are here, how difficult things are and how difficult things are going to get. It’s ugly out there – no doubt about it. As an entrepreneur I have to listen, read, and watch all the headlines, reports, and opinions. It’s also my job to pick and choose which sides of the arguments I want to take. Just as a smart consumer would take in all the facts about prices of goods, and investors will take in all the facts about the stock market, entrepreneurs need to take in all the facts about their markets and the rest of the climate. The tricky part, though, is not just taking in the facts, its forming an opinion and then a plan based on the facts and your perspective. This is when leadership is tested the most – in the face of adversity. And this is when choices are made – choices that are the difference between life and death. Look around people – those decisions are happening right now, everywhere you turn. Companies, homeowners, consumers, investors – those decisions are being made for better or for worse.

Our primal fight-or-flight response – something that’s deeply ingrained in our primal instinct – is tested during times like these, among others. Fight-or-flight theory suggests that

“animals react to threats with a general discharge of the sympathetic nervous system, priming the animal for fighting or fleeing. This response was later recognized as the first stage of a general adaptation syndrome that regulates stress responses among vertebrates and other organisms.” – Wikipedia

Basically it means this – when faced with a challenge that threatens your survival, what do you do? Do you fight? Or do you flee? Either answer could be right. For example: If you are in the forest and face-to-face with a mother-bear in the woods, you’re natural instinct may be to flee – run for your freaking life! And you may be right, but do you take that risk? Or do you just stand still and don’t make a single movement. That’s also the right answer. Or, do you stand tall, wave your hands like a maniac and create the illusion of size, height, strength, fierceness? Either way, what you’ve decided not to do is to fight the bear. Yet if you’re face-to-face with someone who’s invaded your house in the middle of the night, you’re natural instinct is to fight the attacker off with a weapon. That might be the wrong answer. Either way, we’re talking about instinct here – our primal reaction to what challenges our survival.

There are fine lines here too, subtleties. For example, some people face very tough challenges in their lives. Maybe a child lost her parents when she was very young – does that child now stand up on her own and claw her way through life, taking care of her baby brother? Or does she give up, and rock back and forth in a fetal position? Hard to answer, hard to say. How about an adult who loses everything to a gambling habit instead of safely learn from these slides, or to drugs? Do they claw their way back or do they slide into the downward spiral? And when do they decide to start fighting? Hopefully before it’s too late.

OK, you get the point – sorry to be so depressing but these are examples that shape who we are, these are decisions we all face at one time or another, in our respective ways. They define people for the rest of their lives.

This now begs the question – what does a company do when faced with hard times? When an economy is slowing down, when the chips seem to be on the other side of the table, what decisions does the company take? How does it respond? How does its personnel respond? How about its sales people? Management? What about the Board of Directors, or the shareholders? How do all these stakeholders respond? And do they all agree?

I was on a flight the other day thinking about this very subject while flipping through the recent issue of Inc. magazine when at page 28 I came across a little quote from famed management guru Tom Peters. To quote Inc.:

Tom Peters is most associated with managing during bad economic times. His In Search of Excellence was published amid the sharp recession of 1982, and Thriving on Chaos debuted on Black Monday in 1987. On he recently wrote about running a business in a time of “significant and sustained economic disarray.”

I liken Tom’s quote to this very subject – fight-or-flight. My favorite line, and the same line quoted in Inc., is in bold text below:

While many businesses will fail amidst the current economic crisis through no fault of their own, some will survive in spite of the odds—and a few will surprise by turning a messy situation into economic-competitive advantage. The requisite winner’s attitude is expressed by former Ritz-Carlton chief Horst Schulze, commenting on his decision to launch his new high-end hotel business, Capella, despite the market madness: “I do not accept the explanation of a recession negatively affecting the [new] business. There are still people traveling. We just have to get them to stay in our hotel.” And, indeed, getting an “unfair share” of “what’s left” is near the heart of the matter. Schulze’s remarks also remind us that instant, mindless cutting of R&D or training or salesforce travel in the face of a downturn is often counterproductive—or, rather, downright stupid. Tough times are in fact golden opportunities to get the drop, and the longterm drop at that, on those who respond to bad news by panicky across-the-board slash and burn tactics and moves that de-motivate and alienate the workforce at exactly the wrong moment.

Tough times indeed require tough and unpleasant decisions—but thriving, not just surviving, is an option for those who mix wisdom and boldness of leadership with transparency and maximized employee involvement and engagement. Without suggesting that there is anything humorous about the pain that bad times cause, one can say that “this is when it gets fun” for truly talented and imaginative leaders at all levels and in businesses of every sort and size!

I frequently hear words of doomsday and panic from those I’d expect to hear it from – backseat drivers and people who’ve never really done anything, or who’ve never really  been there and done that. From people who’s claims-to-fame are an MBA, or who rode a wave at a time of great opportunity and when everyone else was riding the same wave. I hear words of fear, reactionary language, strong opinions from those who don’t see beyond their own horizons, from those who lack vision. Yet I hear words of encouragement, of calmness, an almost harmonious philosophy, more proactive and forward thinking language, and open-mindedness from those who have been there, who have done that, who are glass-half-full, those who have vision.

The hard times in life test people – test our instincts, like our will to survive. Hard times test our humanity, shape us into who we are. Hard times make us stronger, but only if we choose to fight.

Companies are no different. We must choose our battles wisely, but we must forge ahead. We assess the battlefield, have a battle plan, fortify our properties, and attack the weak spots of enemy lines. We put the sun to our backs to blind our competition, and we fight! We do not run! We do not hide! We attack in waves, one powerful wave of attacks after another.

Entrepreneurs, you’ve arrived at this destination by your own choosing! You cannot control the climate, or the environment, you can only control your reaction to it. Smarten up, stiffen up your spines, and get to work! When the going get tough, the tough get going. Fight! These are opportunities!

The Economy: An Opportunity

Serial Entrepreneur Jason Calacanis who recently retired from blogging and started, instead, an email newsletter has always been straight-talker. His candor and quick tongue are traits I find in myself that often, like Jason, get me into trouble. If you subscribe to Jason’s newsletter you certainly received his latest. If not, you can find it here on Alley Insider.

Jason’s email has a “focus on the entrepreneurial and startup depression and economic downturns/depressions–and how you can deal with them.” He suggests that the economic downturns we’re seeing right now will kill 50-80% of startups within the next 18 months, and that entrepreneurs need to be prepared to take certain steps to fortify, but also to monitor and address their own “entrepreneurial depression and anxiety.”

I love this topic. I’ve stated many times on this blog, and otherwise, that one of the biggest defining characteristics of an entrepreneur is his/her perseverence and resiliency. Those characteristics are to an entrepreneur like water to a fish. These are traits that an entrepreneur just requires 100% of the time. Jason states,

“Depending on your DNA, getting your ass kicked is either complete torture or deviantly rewarding. Truth be told, I like getting my ass kicked because it makes me angry, motivated and focused.” Continue reading The Economy: An Opportunity