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Archive for the ‘Building A Start-up’ Category


The Use of Funds Slide

Tuesday, August 13th, 2013

Every piece of advice on raising capital says that you need to have a “Use of Funds” slide in your deck, but few people do those slides well. Hint: “Marketing!” is not an appropriate use of funds.

I want to take a moment to tell you what to put on that slide. There are a few key pieces of information that you need to discuss:

1) How much money you are raising and what valuation (as appropriate)

2) How long this money lasts

3) What you are spending it on

4) What happens when you spend that money.

Here is the big concept that I find missing in most “Use of Funds” slides: Your investors want to see you use the funds in a way that will allow you to raise your next round. This slide is about telling investors what you will do with their money that will be so impressive that you can raise the next round at a substantial premium.

Re-read that sentence again. It tells you everything you need to know: This slide is about telling investors what you will do with their money that will be so impressive that you can raise the next round at a substantial premium.

The barrier you are trying to overcome with this slide is, “I love the idea, but can this team move the needle enough with this amount of funding to get to whatever the next level is?” You are not going to use the money for “marketing”. You are going to use the money to “Acquire 2,000 users”. If you have not done a good enough job explaining how you can acquire 2,000 users, you can add detail here or elsewhere. The question on this slide is, “If they acquire 2,000 users, will that be impressive at demonstrating traction to raise the next round.” If the investor’s answer is “no”, then that was not a good use of funds.

So all you need to do on this slide is think about what it takes to raise the next level of money. (Hint: It it not “launch”. Launch is one of the things you will do.) Then line those things out, along with how much money you are raising and how long it lasts.

Here is an example:

Getting Started!

  • Raising $500,000 convertible note with no cap closing end of October
    • $250,000 already committed
    • Sequoia is leading round
  • Use of Funds
    • Funding through 4Q2015
    • Staffing engineering department
  • Key Milestones Prior to Series A
    • 1Q2014 launch event
      • 50 beta launch partners
      • 2 big names participating in press release
    • Strategic partnership with Google, Microsoft, or Yahoo
    • $1,000,000 annual run rate at launch, 20% month over month growth thereafter
  • $3.0m Series A to follow

Get it? If that isn’t impressive enough to be able to raise your Series A, then your use of funds is not good enough. The investor needs to look at this and say, “If he did all this, I would sure as heck participate in his Series A, so I would be a fool not to jump on the train now!”


Dove soap is magic for your business

Tuesday, April 23rd, 2013


Dove soap is softer on your hands because it is one quarter moisturizing liquid

Best product positioning and marketing slogan of all time.

Think about this elevator pitch. I think about it all the time.

In one line, you know the value proposition: Soap that is softer on your hands!

In one line, you know the differentiation: They are focused on being softer on your hands!

And, most importantly, they tell you the magic: BECAUSE IT IS ONE-QUARTER MOISTURIZING LIQUID.

Now every other soap that wants to get in the game has to deal with this question: does your soap contain moisturizing liquid? How much?

If you are a competitor, your answers can vary:

  • Less than one-quarter: You are doomed
  • More than one-quarter: Are you still technically soap? You are just playing Dove’s game now! This is 3.5 minute abs!
  • We use something else: This is possible. But man, Dove uses moisturizing liquid!

So simple, so crystal clear, so easy to sell. You need to be like this.

Why Young People Are The Most Common Entrepreneurs

Tuesday, April 2nd, 2013

People wonder why more VCs fund young people, why more young people are entrepreneurs, and things like that. I have a theory: Young people are too dumb to know better.

This is a huge advantage and it has multiple dimensions. Certainly, it was true of my first start-up. Ah, I remember it well. Our initial business plan said that if we worked really, really, really hard, we could make $35,000 per year!

That is what people are up against. Start-ups where the goal is only to make $35,000 per year. The result is that their cost structure is massively lower, they have access to talent that is incredibly inexpensive, they think 100 customers offering them $20 per month is a mind-blowing business.

But here is the real challenge: They will do anything for a buck. Think about it. If what I just described sounds pretty awesome, imagine what they would offer to do if a customer offered them $15,000. They would do ANYTHING. People with experience out in the corporate world don’t just have mortgages and families and cost structures. They have an idea of what a dollar should be worth. They look for businesses that have “models”. They look for businesses with “Market Size”. And they look for businesses that sound “reasonable”. This is probably the most heart-breaking of all. Very few “grown-ups” try to start businesses that are incredibly hard and/or expensive. They know better! It’s too hard! It’s too expensive! The model doesn’t work!

Young people will start that business and then slowly pivot their way to real revenue and profitability.

If you want to start an awesome start-up, you should start thinking more like that.

Company Culture &

Tuesday, March 26th, 2013

advertising-dot-com-logoBen Horowitz recently wrote my favorite company culture blog post of all time. Here is the key:

In this post, when I refer to company culture, I am not referring to other important activities like company values and employee satisfaction. Specifically, I am writing about designing a way of working which will:

  • Distinguish you from competitors
  • Ensure that critical operating values persist such as delightingcustomers or making beautiful products
  • Help you identify employees that fit with your mission

That is a big deal. It is not about yoga or massages or open layout or all-hands meetings or transparency. Great culture is about things that help you win.

When I reflected on it, I have only been a part of one company that had a culture that was meaningful in this way: had a culture centered on one event: The War Room.

The War Room was an all-hands meeting that happened every day at 9am. It was a 30 minute review of the previous days results. The CEO attended, the COO attended, everyone attended – almost every day.

This was a powerful, powerful message. was (is) a performance advertising network – we were arbitrageurs. We were squeezing pennies out of nickels, so there was a significant operational component to the business: When you make all of your money at the margins, neatness counts. The CEO and COO would call people out: What happened with this campaign yesterday? Why was performance not better? What are we doing to improve results tomorrow?

This had an interesting by-product: There was a culture of early risers at At 9am, someone important was going to ask you about the operational details of things that happened the prior day. The worst answer was, “I don’t know, I will look into that”. The best answer was, “The targeting was over-constrained, we have already made a change this morning and it is already looking better.”

You wanted to give the best answer, so you needed to be ready. You needed to have reviewed your campaigns prior to the all-hands. You needed to identify and resolve issues right then.

And if you think about it, the result was not just that the all-hands was better and you looked better: We made more money. Results the next day were better because you took care of business at 8am instead of 2pm. That is 6 hours of incremental profitability that goes right to the bottom line.

What made this work: This was a rare and real example of top-down commitment. The entire senior management team was in the room at 9am every morning. They called in if they were traveling. They were engaged. This isn’t about putting together some values and sending out a quarterly email. This is 30 minutes every day spent reinforcing the real, REAL values of the business: Operational excellence, attention to details, doing the little things that make the difference between losses and profits in a performance business.

The result: One of the best acquisitions of all time. Because the founders stayed after Aol acquired them and continued to reinforce the culture, even Aol was unable to screw it up for years and years.


Tuesday, March 19th, 2013

Mentoring is great.

I am a mentor at’s The Fort incubator. You know what I get? I get to be a mentor!

Lot’s of people want to give back and I am all for that.

But I wish we had more qualified mentors.

Let me be clear: Mentor’s can make or break your business. In David Thomson’s book Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth, he reviews a significant amount of documentation explaining how if a business does not have a board member that has built a billion dollar business, the odds that an entrepreneur will build their own billion dollar business falls dramatically.

You should get a billion dollar mentor for your start-up.

But most mentors, myself included, are nowhere near what you are looking for. What is really crazy is that these days, I see people that are still in incubators, not yet having found product/market fit for their product, in many cases doing start-ups straight out of college, that are mentoring! I don’t want to be a jerk, and I have no illusions that I am some special guy, but really?

On the one hand, everyone should have a mentor. Larry and Serge have Bill Campbell. Bill Campbell probably has God actively mentoring him. Are these people bad mentors? No way, they are probably great (I have never met them personally). Still, if your mentoring qualification is primarily that people have mentored you, that is a bit disturbing.

Let me spend just a minute throwing myself under the bus: My last start-up was acquired when we were just 3 people. I have never directly managed an organization larger than 30 people. I have never raised a significant amount of money. Yet I advise people all the time because I think about all the crappy advice and crappy advisors that I got/had at my start-ups and I feel like I can at least keep people from getting the same crappy advice/advisors that I got.

Still, don’t pick a mentor for how nice and friendly they are. You need a mentor that will push you. You need a mentor that you respect. Everyone is a mentor, but you don’t want them to be your mentor.


I already wrote every post on Hacker News

Tuesday, March 12th, 2013

Screen Shot 2013-01-31 at 8.06.58 AM

I must admit, this blog post is no longer timely. About 60 days ago, I felt like Hacker News became much more technical and much less “How I didn’t get into Y Combinator and why rejection will help me win/fail”. But I wanted to make the point that if you are looking for entrepreneurial goodness, look no further! I already wrote all those posts.

Vacation and Entrepreneurs: I wrote that!

Pivoting, etc.: I wrote that!

Online Advertising is terrible (a popular HN meme): I wrote that too!

How to make $250,000 in two hours: I wrote that!

Something about technical architecture and start-up: I wrote one of those!

Complaining about Google: I did that!

The secret to recruiting engineers for your start-up: I told you that!

How my company got acquired, blah, blah: I wrote a bunch of those.

Writing better blog posts: I wrote about writing that.

Diet/Exercise/Tim Ferriss: I wrote that!

Starting Start-ups and stuff: I wrote that!

Incubators, etc.: I wrote that.

Confess that this looks like Hacker News when all the non-technical entrepreneurs are upvoting things.

Your First Day

Wednesday, February 13th, 2013

walrusNot enough companies work hard to make an employee’s first day at work special. Frankly, I include myself in that category. But I am a big believer in first days. The old saying is true: “You never get another chance to make a first impression.”

An employee’s first day is that chance to make an impression. A chance to establish tone and culture. For the employee, it would be nice if it was a mix of unboxing an apple product and a trip to Disneyland – a thoughtful experience that shows that you are thinking about them, that they are going to have a great, great time, and that they will never be happier.

I am a big believer in getting people right to work. On the first day, an employee will never think more highly of a new organization, be more eager to make a great first impression, and more excited to show the kinds of contributions that they are capable of. Don’t waste a new employees excitement with filling out HR forms – help them show you what they are eager to demonstrate: how incredibly productive and useful they can be as a member of your team.

Most companies screw this up because it is hard. Usually it takes time to figure out how to get someone productive in your work environment. Hey, if great on-boarding was easy, everyone would do it.

The Best Thing About A Vacation For Entrepreneurs

Tuesday, January 29th, 2013

Vacations are great.

But vacations for entrepreneurs are opportunities.

This is your chance to step outside your regular routine and see other problems out in the world.

You need to find pain people have, but you have designed your life to minimize pain. Only by breaking with routine can you discover and learn new things.


The Blog Post Where I Explain When You Should Pivot

Thursday, December 6th, 2012

How do you know when to pivot?

It is never obvious if you should pivot or stay the course. Sometimes you are banging your head against that wall and if you just bang your head one more time, the whole wall will come crumbling down. Sometimes you are banging and banging and if you keep banging all you are going to do is hurt your head. When you are on this side of the wall, you never know which.

The true essence of entrepreneurship, when distilled down to its crystalline core, is that a great entrepreneur is able to tell if they should pivot or if they should keep banging their head against the wall.

Here is the secret: When you pivot, you will still feel like you are banging your head against the wall, it will just be a different wall. Few companies experience some immediate sense of relief when they pivot.

Being an entrepreneur is hard. If it was easy then everyone would have their own companies. Furthermore, most companies don’t work out. It is all just banging your head against the wall. Picking the right wall – one that is hopefully paper thing – is what being an entrepreneur is all about.

(This post was inspired from reading a blog post by Sandy MacPherson (, whose Quibb is interesting in a very pleasant way for me, but probably doomed to fail. Sandy wondered about what it means to different people to pivot vs. stay the course and I actually know the answer to that question. Rather than helpfully post it on her blog as a comment, I thought, as I long as I was being incredibly unhelpful, I would post it on my oft-neglected blog for the permanent record.)

Engineers irrationally hate advertising

Thursday, March 15th, 2012

What engineer thinks this sounds very interesting:

  • Big data
  • Incredibly complex algorithmic learning
  • Huge scale
  • Millions of users daily
  • APIs
  • A de-emphasis on the user interface – EXCEPT WHERE IT IS EMPHASIZED

The answer is most engineers. Because most engineers cannot stand the idea of working for an advertising company.

One of the things I have noticed in the course of recruiting people to work at, Deconstruct Media, and Verve Wireless is that engineers have an irrational loathing of working on advertising projects. Despite the fact that their rational mind recognizes that advertising funds free content (including search engines like Google), they have no desire to help make the world a better place for advertisers and help fund the development of better content.

Why is this? When I was at and random people would ask me what I do, I would say, “You know all those University of Pheonix ads you see on the Internet.”, “Yeah, I see those everywhere, they drive me nuts”, “I put those there!”

I would say that because it was funny. Engineers would feel like it was the truth and be depressed by it.

When you compare some of these projects to other projects, they frankly don’t compare too badly:

  • LivingSocial: We sell pizzas at half price – is that what engineers want to do?
  • Government contracting: We are building tools to help the FDA manage case applications
  • Yahoo: We help people read their email (where success=seeing more ads)
  • Google: We help people search for stuff
  • Even Quora: We help people get answers to their questions

Call me crazy, none of those seems inspiring. But advertising seems to create a response that is 100% pure loathing.

This is particularly tragic given the fundamental interestingness of advertising technology online today.

I will add to the list of good qualities advertising companies have:

  • Clear path to revenue, profits, and fundraising
  • Huge market
  • Rapidly growing

It is easy to start a company in this space – why aren’t engineers diving in?