Two things to leave out of your pitch deck

by Rick Colosimo on June 12, 2016

Someone recently sent me a link to this advice that startups should never say “we have no competition.” I think it’s good advice.

I just saw a pitch deck for a real estate investment that used the phrase “conservative assumptions.” That’s another phrase that should just go away. No one ever claims the opposite: “This valuation is based on wild assumptions that are really just guesses we picked to make the numbers look good.” Even when that’s how someone built the model — more true than not for most companies — they don’t want to admit it.

The success of your startup is almost certainly unrelated to the number of competitors or how much of the potential market they might get. They can be huge and not making money. It was true in mobile phones for a while: Apple had a relatively small share of the market but made almost all of the profit. Everyone else was fighting a losing battle.

NB. This note is the obligatory reminder that you are in business to make money, not to have buzz or faux traction or users or market share. You’re in business to create free cash flow. You create value for people and your customers pay you for the value you create. If it’s more than it cost you, you make money. If it’s less (you get huge numbers of users selling ten dollar bills for five bucks), you lose money. You can’t do that forever. If you don’t want to make money in your business, you don’t have a business: you have a hobby or a nonprofit (and even nonprofits have to figure out how to be sustainable). If your business doesn’t make money, either you’re doing a bad job or it’s a bad business – not every possible market niche can be filled by the market. The market for Land Rover Defenders at $10k is probably huge, but that’s a bad business because you just can’t get a real Defender out the door at $10k.

I favor clients who have built robust financial models (or asked me to build one for them) because it tells me that they’re focused on ensuring that the business creates free cash flow so the doors can stay open.

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Periods are cheap; use them.

by Rick Colosimo on May 11, 2016

One of the easiest ways to improve the readability of your contracts is to use shorter sentences. I don’t even mean that you have to trim each sentence. If all you do is turn compound sentences into two sentences, you will help the reader. In addition, by eliminating coordinating conjunctions, you clarify the meaning of sentences by reducing the chances of someone misinterpreting what the “and” is supposed to mean (whether that mistake is accidental or on purpose).

I read this section the other day in an agreement drafted by a typical large NYC law firm:

This Agreement (i) shall be binding as to the executors, administrators, estates, heirs and legal successors of the Partners, and (ii) may be executed in several counterparts with the same effect as if the parties executing the several counterparts had all executed one counterpart.

I can see why, 38 pages in, they didn’t want to waste two whole sections on an incomprehensible successors and assigns provision and an unnecessary in the first place counterparts provision. But look at this: the drafter added (i) and (ii) for relatively short and completely unrelated clauses, which then required an additional comma before the conjunction “and” when the clauses wouldn’t have needed one without the (i) screwing things up.

Why not just use shorter sentences?

This Agreement (i) shall will be binding as to the executors, administrators, estates, heirs and legal successors of the Partners, and .
This Agreement(ii) may be executed in several counterparts with the same effect as if the parties executing the several counterparts had all executed one counterpart.

Or, make the second better by removing the passive voice:

The parties~~, and (ii)~~ may be execute this Agreement in several counterparts with the same effect as if the parties executing the several counterparts had all executed one counterpart.

In this case, however, the best course of action would be to strike the entire section. It adds nothing of value.

But, it’s all good: in this agreement, you can give notice by telecopier. As an aside, I now regularly strike fax as a notice provision because fax machines are like black holes for some companies – I make this a company-specific option when a company knows that it does lots of business by fax and expects that it would be hard for them to lose a fax.

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Why are there social enterprises?

May 9, 2016

Why are there social enterprises? Some time ago, I wrote a Five-minute General Counsel post on how to approach the question of whether a social enterprise fits a founder’s needs. In that post, I focused on the issue of whether the concept of fiduciary duties and the prudent investor standard were as anathema to “social” […]

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Another reason you need a board

April 12, 2016

The HBR recently shared the results of a study showing that an increase in the amount of flattery received by a CEO disproportionately increased the likelihood of the CEO being fired. “You look mahvelous” Flattering the CEO increases chance of getting [him] fired http://t.co/2odFtkwBW3 — rickcolosimo (@rickcolosimo) November 5, 2013 That link is dead: look […]

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Compensating LLC founders

March 29, 2016

One side effect of the growing use of LLCs in startup companies is the general unfamiliarity of most first-time founders with the quirky side-effects of partnership taxation of LLCs. The most annoying of these for companies is usually that members, no matter how small their equity stake, can not be employees of the LLC. This […]

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How do I create a board?

March 4, 2016

You’ve read my post on the benefits of having a board in your closely held company, and you’re convinced. You’re ready to move forward but stuck at step 2. How do you go about putting a board together? For most companies, major investors push for governance rights and the structure of the board becomes an […]

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