It took me a while (and a lot of effort) to understand React. Looking back, it was well worth it. React has changed a lot of paradigms â many people jumped the gun criticizing React too early, saying it was a huge step backwards. If you care about React (which you probably do since you are reading this), I would really recommend watching Pete Huntâs talk, Rethinking Best Practices -Â https://www.youtube.com/watch?v=DgVS-zXgMTk
But before we begin to analyze React, we must first understand what it is.
Components
React is a javascript tool/library to build components.
It allows you to create javascript functions that do 2 things.
(1) render HTML and (2) bind UI actions/events to that HTML.
With React, you inject that HTML/UI combo (also known as a component) into the DOM. This component carries a couple of things with it. It usually has some data (state or props) as well as some methods. Understanding the difference between a componentâs state and it's prop is key to working with components. Briefly:State - inside the component and nobody else knows about it; gets its initial state on creation, and erases when doneProp - passed in from above; controller wants to tell the ui something; interacts with the world
From the React tutorial, the code for a component looks like this:
This example uses JSX syntax. You can see the HTML-like syntax with events in the same bundle.
React, with all its glory, runs on the client-side. Thereâs an interesting method of React that allows you to just render the HTML â React.renderToString() â which is used for server-side rendering. But weâll save the discussion of isomorphic applications for another post.
The most important concept to understand about React and React components is that they are stateful. The component gets rendered based on its current state (the state variable). Every time the state variable changes, the component will re-render. You may initially think this is bad â your DOM would go crazy. Youâre both right, and wrong.
The image below shows a Facebook page with multiple components. The idea with React is to divide any functionality/widget on a page into itâs own component. Every component is limited and defined by its own state.
Separation of Concerns
Many people have criticized React. Instead of separating the logic from the view, React is now mixing HTML with javascript! This is crazy! â Not really.
When you think about it, in an MVC, the VC is pretty much separating HTML from javascript. You want your controller to be separate from your view so you can see what it should look like. However, in an application, you tend to have multiple uses for parts of your views. Templating solutions use things like partials in an attempt to solve this on the view side. The problem here is that you must also update your controller every time. Make sure that the partialâs javascript is available on every page you use it.
People are creating plugins for react to bundle not only HTML/JS but also the corresponding CSS! That way your component will always have the correct styling on every page. Pretty cool. You can read more here: https://speakerdeck.com/vjeux/react-css-in-js
React is a new way of thinking. If you always use the view with the same javascript, why wouldnât they be together? Once you start playing around with it, you will see that it makes plenty of sense.
You should use React because it is smart. It has a lot of efficiency and organizational benefits.
Efficiency
React modifies the DOM efficiently. For every âre-renderâ, React creates a Virtual DOM. It compares the vDOM to the current DOM. The differences are then processed as native javascript manipulations. React will then make the minimal number of DOM changes to your actual DOM. So instead of re-rendering the whole page, React will create an image of what should be and then intelligently change the DOM to the new state.
As for the speed of the vDOM, it is important to note two things: 1) The vDOM/DOM diffâing is scoped to the component being rendered. 2) Javascript processes are extremely fast. DOM manipulations are slow. The vDOM diffâing wonât slow down the application. Only changes will really slow it down. Itâs worth mentioning here that HTTP requests, on this rudimentary scale, would be ranked extremely slow. Hence, it is way better to re-render your whole page instead of making another HTTP request if you can (ie single-page applications).
The React team has made a lot of progress optimizing this process with various heuristics and special techniques. Since the rendering happens very often, this is very critical. It is one of the most important concepts developed by the React team and being applied to many other, new frameworks. For more details, check out http://calendar.perfplanet.com/2013/diff/.
Another benefit of using React is that it enforces common, well-known Javascript techniques. It limits DOM manipulations, batches read & write operations, optimizes event delegation to nearest parent, etc. These techniques are easy to enforce in the beginning, but as projects and teams grow, they become harder and harder to keep track of.
With event delegation memory management, React intelligently binds UI controls to the highest parent, and maps delegations from there. From the documentation on event delegation:
React doesn't actually attach event handlers to the nodes themselves. When React starts up, it starts listening for all events at the top level using a single event listener. When a component is mounted or unmounted, the event handlers are simply added or removed from an internal mapping. When an event occurs, React knows how to dispatch it using this mapping. When there are no event handlers left in the mapping, React's event handlers are simple no-ops. To learn more about why this is fast, see David Walsh's excellent blog post.â http://davidwalsh.name/event-delegate
Think of the following example: A large table has a button on each line. A naive implementation would be to bind an event listener for every button. You bind n event listeners. The performant implementation would be to bind 1 event listener on table, then look at event target and see what was clicked. You bind 1 event listener.
These things are not new â they are sensical, traditional JS best practices. However in a large project it is easy to lose track.
Another good note from the docs:
The performance cost model of React is also very simple to understand: every setState re-renders the whole sub-tree. If you want to squeeze out performance, call setState as low as possible and use shouldComponentUpdate to prevent re-rendering an large sub-tree.
Re: Organization
With React, you use components â there are no templates. A component is a javascript function that returns HTML with UI bindings. It is essentially a view-controller; it generates the view and has all the logic/events it may need. This allows you to encapsulate all the functionality of a component and easily reuse it wherever appropriate.
Components can make up other components: they are composable. If you need to handle all your links in a special way, you would create a <Link /> component. You can then use that component anywhere. When the time comes to change how the links are handled (and it will come!), you just need to update that one component.
Components are aware of their owner component. You can very easily pass in data from a parent component to itâs child via the props object. If you want to pass data from child to parent, you can either bind the parent component to the child or set up a global event system. See http://facebook.github.io/react/tips/communicate-between-components.html for an example.
And finally, components are easily testable. We noted in the intro that components are based on their state. This allows us easily to create a single component â as complicated or simple as it may be â on a single page all by itself. We can set itâs state to be whatever we want, and voilĂĄ, error reproduced. The simplicity and uni-directional flow of react components (whenever state changes, you re-render the whole component), allows you for easy testing. Once you get into Flux, a full application architect with uni-directional flow, you will see even greater benefits. It reduces interdependencies between components. You will then know if a bug is in a component or not â very concrete. No weird cases or impossible sequence of events needed.
As a final note to all you React converts (because now you know how awesome it is), beware ofâŚâŚ.
The jQuery Curse
If you come from a typical MVC/jQuery background, I warn you, switching to React may be tricky! In the beginning you may find yourself wanting to select an element by class/id and try to add/remove classes for css. Donât do it! Figure out the React way to do it. You will be able to do everything without jQuery.
Letâs look at an example.Given an object with 10 numbers, create a list. When you click on one, set itâs class to active.
Typically with jQuery, you would create the list, and bind events to elements. For event handling,you would do something like
With React, you would never do that. You never change a nodeâs class or any property in the DOM. Rather you would update your list object in the componentâs state/store and it will re-render with the new information.
Takeaway notes:
Separation of concerns focused on functionality, not coding language.
Components are based on state and are uni-directional
Virtual DOM for minimal DOM manipulation
Optimized event handling/UI bindings
Bundles view and logic into reusable components
Composable/reusable - one component can be built by other components
Easy to test a component - bugs are either inside the component or they are not
No interdependency, high predictability.
And finally, react components do not handle the data models. For that, you should look into Flux architecture. Iâll share some of my own insights with Flux in my next post.
Elepago's Eulogy: The End of A Mobile Payment Startup
Elepago is was :( a mobile payment company looking to introduce pay-by-phone functionality to Mexico. The following is a timeline of the events spanning the life of Elepago.
May 2012
I had recently graduated from Princeton University and decided to move back to Monterrey, Mexico to start a business. Rooted by my love for technology and the start-up culture, I was dedicated to bring the Silicon Valley mentality to Monterrey.
July-August 2012
After intense market research and getting a feel for the country, I decided digital payments was the way to go. The original idea was something that would facilitate online payments. Competitors included PayPal, MercadoPago, DineroMail, and more. After mulling around the idea, I decided to leverage mobile phones for loyalty management, convenience, and security. With a 'solid' 60-page business plan, my father and I committed $300,000 MXN ($22,000 USD) to give life to Elepago.
September 2012
Young and ambitious, I decided to take on the payment world. The mobile-security enhanced online payment quickly shifted to a digital wallet for use in physical stores. I had a couple of meetings with people around town and found a to-be co-worker, Charlton Harrison. Since we were just getting started and strapped for cash, he accepted a below-market salary and would get 18% equity of the company (when incorporated).Â
He has 20+ years experience in programming, while I was learning the basics of Javascript and the difference between client & server-side languages. We began working full-time on getting a prototype put together.Â
February 2013
Elepago, SAPI de CV is incorporated in Monterrey, Mexico. Prototype is ready; we are working on a full product now. Charltonâs expertise helps for back-end work and database architecture. I invested my time to learn about AWS for elastic cloud hosting as well as modern javascript technologies to set the framework for a mobile app. We decided to use PhoneGap with jQuery Mobile (which we later replaced with Ionic Framework). This helped us to only maintain one code base for both iOS & Android.
March 2013
After prepping and pitching to family and friends for over 3 months, we finally close an angel round for Elepago.
Four investors committed a total of $4,000,000 MXN (~$300,000 USD) to be made available over the next 12 months as goals are met in exchange for 40% of the company (given out in a weighted proportion to the money).
By this point my father and I had invested $550,000 MXN. One caveat they included was that we also complete the $1,000,000 MXN contribution that they were making at the end of the 12 months. We agreed.
We closed with this straight equity deal.
By the closing, we had set up connections with Mexican payment processors (Stripe/Braintree solutions didn't exist at the time in Mexico) and our app was finally able to charge credit cards.Â
NOTE: We were pre-revenue. We had a couple large potential clients; but no deals. We had nothing. We convinced them mostly by showing case-studies of similar companies. The high-growth and high-valuations caught their eye and opened them to the potential. They later commented the main reason they invested was because they believed in me.
April 2013
We begin try selling our product to retail stores. âPay with your phone in the storeâ-type thing. We had meetings with some of the largest retailers in Mexico. The idea was to tie in loyalty programs to help them get rid of duplicate account nightmares and card production costs.
May 2013
Retail stores didn't sell. We drifted into restaurants. We quickly signed 3 customers (two chains with between 5-15 restaurants each!).Â
We had yet to integrate the restaurantâs point-of-sale. We reached out to the POS provider and signed a service agreement, in which they would develop the Elepago integration into their POS. The initial estimation was 1 month.Â
Little did we know, this turned out to be one of our biggest nightmares and starting hurdles.
July 2013
Ramping up for sales, marketing, accounting, and customer support, I invite Ruben Marcos as Elepagoâs 3rd co-founder and COO. We agree to pay him an average market salary, with 2-4% equity stake in the company.
As for the technical side, we continue waiting for the POS integration. Without it, we have no product to launch.
August 2013
After waiting (and hassling) for almost 3 months, we get a call from the POS provider. âThe integration is almost ready; however, we noticed you guys are getting into loyalty programs. We do loyalty programs. This leads to a conflict of interest and we cannot finalize or release the code.â Loyalty was always part of the mobile play as one of the key leveraging points for the phone.
We were stuck. We had investors waiting for a product launch and we had nothing.
Fueled by vengeance, I asked one of our customers for access to the main computer. I copied over his database to a USB. Charlton and I go heads down, learning Visual Basics in less than a week. We piece together a client-side desktop app that reads and monitors the 1997 .mdb database files, and relays pertinent information to our servers.
September 2013
We finally launch with a live beta at our first restaurant! Full of trail and error, our MVP was put the test and refined. For our monthly board meeting, we invited all the investors to lunch at the restaurant. Everything worked like a charm. We were able to see the bill in real-time and pay separately from our phone.
October 2013
Elepago officially launches and 4 restaurants go live within a week. Great initial reception by the restaurants, waiters, and users. We had strong marketing presence at the locations and grew quickly, processing about $25,000 MXN ($2,000 USD) in the first month. Daily visits to the locations were required to check up on the employees and marketing displays as well as to harvest any feedback.
We hired person full time to do customer support. We also had some interns doing marketing work part-time.
December 2013
We close a more clients, including one with over 20 locations nationwide. Still pushing the product, we offered discounted pricing. Although we had to train employees and spent generously on marketing supplies, we waived the initial set up fee for the restaurants. We also gave attractive credit card processing rates between 1.5-2.5%. Our processing rate cost was initially 4.5%; we quickly got it down to 1.8%.
These were good months! Great progress for Elepagoâs first months with constant growth in monthly transaction volume as well as user registrations.
March 2014
Signing up and launching 6 restaurants per month, we were growing at steady rate. Although we had projected growth of up to 12 restaurants per month by now, we were happy with the 6. In our projections we didnât consider the variety of different POS brands, modules, and versions. We developed an intelligent client-side integrator that allowed us to relatively easily service new POS's -- although the process was always full of trial and error.. We hired a developer who's sole job was to complete integrations.
Emails came in frequently complimenting us on such a great service; the only complaints we heard were: 1) add American Express and 2) get more locations.
We began to work on merchant-oriented features such as loyalty campaigns âThanks for your purchase. Come back in 7 days for a free drink", feedback (NPS) systems âWould you recommend XX to your family and friends?â, and more. Our hopes were that by serving the merchant, they would begin to pay a monthly fee.
April 2014
April was a big month. We opened 2 restaurants outside of Monterrey in a small city called Saltillo. We took this to be the most concrete proof of concept - finally launching outside of our own city. Elepago worked. We will be millionaires. People had heard about us, they were asking for it in other cities. Aside from these new locations, we hit records across metrics: active users, new locations, transaction volume. We had grown the team to 12 people, including interns.
Things are looking awesome. The COO talks to his dad, and they want to buy in for more shares. After bouncing it off the board, we reach a conclusion. The company will be diluted such that there are 5 equal shares (they will get the same % as the 4 previous investors, but it will be less than 10%). They buy in 9.2% for $1,100,000 MXN. With this buy-in all 5 investors will have the same equity, however a 10% premium on the original investors.
Agreeing on this means we have diluted roughly as such:
CEO & father: 43%Â
CTO: 11%
COO & father: 9.2%
4 investors: 36.8%
I consider the COO's shares to be part of the operating team; so it was helpful in reducing our investor ratio from 40% to ~37%.
With this, the total amount of capital committed to the project totaled $6,100,000 MXN.Â
Note: we haven't made any money yet.
June 2014
Summer turned out to be tough. This was expected to a degree: people went out of town, there was less regularity, etc.
We continued to add new locations. Notwithstanding the location growth, our metrics stayed pretty flat. We were unable to pass our record set in April. With many new locations, we were spreading ourselves too thin.Â
Fortunately, we met and began talks with a venture capital group in Mexico City. They liked our product. They also had contacts in the two largest restaurant operators in Mexico with 1,000s of locations. This was a nice gust of fresh air.
July 2014
We start to realize that transaction and volume growth is not coming at the pace we expected. Revenue is even further behind. We had signed on many clients, but with spectacular discounts. At times, even taking a loss on operations! just to serve them. We had seen a glimpse of the grim road that lay ahead.
The operating team, namely myself and my 2 co-founders, break the news to the board. We had accomplished so much -- processing cards in Mexico, created the application, gotten over 5,000 registered users, and processed over $800,000 MXN. However, it had been almost a 8 months of operation and we had not been able to churn any profit, if even net revenue from operations. Going forward we would have to pay hefty auditing fees to get PCI compliance and begin submitting compliance documentation as a money transmitter. We had also faced a couple of fraudulent cases losing ~$15,000 MXN that we had to cover. The processes and obstacles that were coming up seemed to high a barrier to tackle.
The board decided to focus on âdressing up the brideâ and reach out to interested parties. Someone may be interested in launching an e-wallet and could make use of our platform. I always communicated this clearly to my team.
The venture capital group continued to say they were interested, but we couldn't get them to take action. We even threw them curveballs, offering to sell the system to them. They seemed to feed you what you want to hear, their words carrying little weight.
August 2014
We hadn't made any progress on revenue, much less profits.
We couldn't find anyone interested in buying Elepago.Â
It was in August that I called a board meeting and addressed the board bluntly. We still had about $3.0M MXN of committed capital available. However, I was no longer comfortable contributing money of my own. After going through the grind, I no longer had a path to generate revenue or profits. I was in no place to accept money from investors.Â
They agreed. If we were going to shut down, we had to close quick.
After thoughts
Throughout the course of Elepago's life, we frequently stopped to consider our strategy. We realized we were operating at a loss, as many start ups do. In the beginning it was understandable because we had hope to generate revenue in the future. We had to invest in people to build the software that would make us millions. Even after getting the product out, it's easy to justify that it takes time for people to get on your platform. Its then, when everyone is using it, we charge and make millions.
It turns out that many startups do go that route, and it works. There are some key indicators you should look for if you are in a similar stage.-
We had some people using it, but no body ready to pay for it. Restaurant owners didnât want to pay for the service.
We barely had any net revenue. By net revenue, I mean what's left after you pay for costs of goods and services sold. Our spreads were too tight. With our numbers it seemed would never cover the cost of 1 employee, much less turn profitable. Not being profitable is one thing, but not operating positively is another. Uber makes 20% on each trip. Sure they aren't profitable because they are investing in growth. But they are operating positively (cost of managing the drivers << 20% of trips) and growing their revenue. That is valuable.
Our project didn't turn out to be as scalable as we thought. I had the mentality that Elepago, a tech startup, was supposed to be a 'create-the-system-and-watch-it-grow' type thing. Maybe throw in some marketing stuff. Turns out we had to educate, train, and convince waiters and cashiers on how to use Elepago. We had to actively promote Elepago in each restaurant or else see 0 movement. We had to have technical visits to each location to get them up and running. Etc, etc. There was way more maintenance and physical work than we imagined. This equated to higher costs which weren't compatible with our slim margins.
"Should I start a startup fresh out of college?"
I started Elepago right after graduating from college with a degree in Mechanical & Aerospace Engineering. Would I recommend other students to do a start up right after school? Yes and no.
Yes, because it is a one-of-a-kind experience. I think it is fair to say that nothing will push you as hard as being in a situation like this. You are responsible for other peopleâs money; you are responsible for peopleâs lives and jobs; you are responsible for creating something out of nothing.Â
It was a tough journey. I challenged my discipline, my self-esteem, my persistence, my dedication; pretty much my whole character was put to the test. My girlfriend (now fiancĂŠ) would routinely say I was bipolar.
It was out of my desire to succeed that I learned so much:
I learned everything there is about mobile payments. I became an expert in the field.
I learned to dominate javascript and front-end design.
I learned how to architect and organize complete scalable systems from scratch.
I learned how to hire and fire people.Â
I learned how to create and lead a team.
I learned how to sell, and how to adjust.
I learned how to deal with clients and provide customer support.
I learned to pivot when things arenât working.
I learned to weigh opportunities.
I learned that while you are busy and dedicated to your work, you forget about the salary. You work to get things done. It is more powerful to be driven by something you are passionate about than money. (I made very little, but, because of my drive, I had very little desire to spend any of it anyways â I was always thinking about improving Elepago and making it work.)
In the end though, I learned to listen to the numbers.
One of the more concrete things I learned was to code. I came to truly enjoy the logical puzzles presented by applications. I enjoy researching and weighing out pros/cons of server configurations, server-side languages, MVC frameworks, and much more. It is because of Elepago that I became an adept programmer. I landed a job in the tech-hub of the world with the worldâs leading real-estate platform, Zillow. I now do front-end development at HotPads. So I can't say things didn't work out.
No, because you are bound to fail. You hear about all the success stories: Mark Zuckerberg, Larry & Sergey, and 15-year-old wizards who sell their company for $30M to Yahoo!. These are outliers. You must be crazy motivated, driven, and intelligent to be an outlier; but it's more than that -- also involves luck. You have to be in the right place at the right time. Itâs definitely possible to succeed, but you will have better chances later in life.
You will go through a lot of suffering: psychological imbalances, mood swings, and erratic behaviors. You will be lonely. You will feel the world on your shoulders. You wonât be able to take your mind off your project without feeling like a traitor to your team and investors.
My advice applies particularly to high-tech, high-risk start up ventures. If you have a traditional, or even tech business, that is profitable early on, then you should definitely keep going with it. Many good things can and will come. You will feel pressure (a bit less especially if you have no investors!), but will at least have the success to counter any stress.
In all, it was difficult. I would actually steer towards not starting your career with a start up of your own. The ideal age for a founder is between 28-34. Getting your feet wet and picking up some industry insights will definitely help you be much more successful in the long run. For some in-depth career advice along these lines, check out Andy Rachleffâs post: https://blog.wealthfront.com/hot-mid-size-silicon-valley-companies/.Â
But then again, if you are like me, stubborn to pursue your dream right out of college, who's going to tell you you can't do it? You wouldn't listen to them anyways! You will never regret it.
Even though my Elepago experience didn't work out, Iâd take it over a MBA any day.
Iâd like to share my notes on an interview with Andre Delgado, founder of G5. G5 is a successful marketing firm in Mexico with a strong portfolio of large companies including Allen, Soriana, Banregio, etc. This conversation really opened my eyes to the necessity of good marketing strategies and how to devise one.
The main take-away from the meeting is a series of questions that he calls âEntender para Atenderâ, or âUnderstand to Deliver.â See questions and examples below.
UNDERSTAND TO DELIVER
1. What is your business' challenge/direction/product?
Determine what you make, what you do.
Volvo - to make cars.
Axe - to make deodorant.
Bonafont - to make bottled water.
Uber - on-demand taxis.
Coca cola - to make sugared water.
Coca cola light - to make diet flavored water.
2. Who are you talking to?
Determine what segment of the population you want to attack.
Volvo - targets people who look for security.
Axe - targets men of all types (handsome/ugly, skinny/fat, attractive/repulsive, rich/poor)
Bonafont - targets women
Uber - targets professionals
Coca cola - targets the general public
Coca cola light - (2014 campaign in Mexico) targets men who watch their weight.
3. Whatâs your big idea?
The big idea behind your product needs to be something your target inherently wants. Your target will never say they want it, but the fact they they do want it will drive them to your product.
Volvo - The safest luxury car in the world.
Axe - All men want to get with women.
Bonafont - If you want to be skinny, drink water.
Uber - Satisfy professionalâs egos. Everyone wants to be the boss. Everyone wants to be important.
Coca cola - Everyone wants to be happy.
Coca cola light - Go against the grain. Who cares what guys think of you. Everyone does it, its just embarrassing to say it.
4. Why should your targets believe in that idea? The good marketing campaigns identify things their target market ALREADY believes in. No need to convince anyone.
Volvo - Working class, employed people like the idea of stability and safety.
Axe - Every man wants to have beautiful women drooling over them.
Bonafont - All women already have the desire to be skinny and fit.
Uber - Professionals naturally want to climb the ladder. They want to become the boss. They want to be important. They already believe it, no need to convince them.
Coca cola - People already believe in happiness. They want to live better, they want to be happy. No need to convince.
Coca cola light - Guys do a lot of things that are embarrassing when spoken about, but everyone does it. Let those feelings out.
5. How do you communicate it?
Short, clever snippet that encompasses your whole message.
Volvo - Volvo for life. (always drive a volvo & volvos promote life through security)
Axe - Commercials with Axe guys getting all the girls (elevator guy gets more girls than famous guys). See:Â https://www.youtube.com/watch?v=I9tWZB7OUSU
Bonafont - Drink 2L of water a day to be skinny. Their logo is a stretched out, skinny figure. Although the message doesnât say âdrink Bonafont water to be skinnyâ, Bonafont is saying it so people associate it with Bonafont.Â
Uber - Your personal driver.
Coca cola - Open happiness. See:Â https://www.youtube.com/watch?v=zlA9tXYxD8g
Coca cola light - Commercial of a guy changing diapers, guy cooking, guy taking coca cola light to a party. All the things men do, but donât say. Coca cola light is just one more of those. Be proud of them. See:Â https://www.youtube.com/watch?v=lQBwdaoSFFQ
Summary: It is not so much what you do or how you do it, but rather how many people believe what you believe. Your brand needs to position itself to be amiable, to attract your desired audience. The easiest way is to simply profess something your audience already believes in. By leveraging a natural tendency, you will be able to attract them to your brand!
I'd like to share my notes on an interview with Andre Delgado, founder of G5. G5 is a successful marketing firm in Mexico with a strong portfolio of large companies including Allen, Soriana, Banregio, etc. This conversation really opened my eyes to the necessity of good marketing strategies and how to devise one.
The main take-away from the meeting is a series of questions that he calls 'Entender para Atender', or 'Understand to Deliver.' See questions and examples below.
UNDERSTAND TO DELIVER
1. What is the businesses challenge/direction/product?
Determine what you make, what you do.
Volvo - to make cars.
Axe - to make deodorant.
Bonafont - to make bottled water.
Uber - on-demand taxis.
Coca cola - to make sugared water.
Coca cola light - to make diet flavored water.
2. Who are you talking to?
Determine what segment of the population you want to attack.
Volvo - targets people who look for security.
Axe - targets men of all types (handsome/ugly, skinny/fat, attractive/repulsive, rich/poor)
Bonafont - targets women
Uber - targets professionals
Coca cola - targets the general public
Coca cola light - (2014 campaign in Mexico) targets men who watch their weight.
3. What's your big idea?
The big idea behind your product needs to be something your target inherently wants. Your target will never say they want it, but the fact they they do want it will drive them to your product.
Volvo - The safest luxury car in the world.
Axe - All men want to get with women.
Bonafont - If you want to be skinny, drink water.
Uber - Satisfy professionalâs egos. Everyone wants to be the boss. Everyone wants to be important.
Coca cola - Everyone wants to be happy.
Coca cola light - Go against the grain. Who cares what guys think of you. Everyone does it, its just embarrassing to say it.
4. Why should your targets believe in that idea? The good marketing campaigns identify things their target market ALREADY believes in. No need to convince anyone.
Volvo - Working class, employed people like the idea of stability and safety.
Axe - Every man wants to have beautiful women drooling over them.
Bonafont - All women already have the desire to be skinny and fit.
Uber - Professionals naturally want to climb the ladder. They want to become the boss. They want to be important. They already believe it, no need to convince them.
Coca cola - People already believe in happiness. They want to live better, they want to be happy. No need to convince.
Coca cola light - Guys do a lot of things that are embarrassing when spoken about, but everyone does it. Let those feelings out.
5. How do you communicate it?
Short, clever snippet that encompasses your whole message.
Volvo - Volvo for life. (always drive a volvo & volvos promote life through security)
Axe - Commercials with Axe guys getting all the girls (elevator guy gets more girls than famous guys). See:Â https://www.youtube.com/watch?v=I9tWZB7OUSU
Bonafont - Drink 2L of water a day to be skinny. Their logo is a stretched out, skinny figure. Although the message doesnât say "drink Bonafont water to be skinny", Bonafont is saying it so people associate it with Bonafont.Â
Uber - Your personal driver.
Coca cola - Open happiness. See:Â https://www.youtube.com/watch?v=zlA9tXYxD8g
Coca cola light - Commercial of a guy changing diapers, guy cooking, guy taking coca cola light to a party. All the things men do, but donât say. Coca cola light is just one more of those. Be proud of them. See:Â https://www.youtube.com/watch?v=lQBwdaoSFFQ
Summary: It is not so much what you do or how you do it, but rather how many people believe what you believe. Your brand needs to position itself to be amiable, to attract your desired audience. The easiest way is to simply profess something your audience already believes in.
James Altucher gives his quick and concise advice on starting and running a business.
Read the original post here:
http://jamesaltucher.quora.com/The-Ultimate-Cheat-Sheet-For-Starting-And-Running-A-Business
The rules are: I'm going to give no explanations. Just listen to me.
1) C Corp or S Corp or LLC? C-Corp.
2) What state should you incorporate in? Delaware.
3) Should founders vest? Yes, over a period of four years. On any change of control the vesting speeds up.
4) Should you go for venture capital money? First build a product, then get a customer, then get friends and family money (or money from revenues which is cheapest of all) and then think about raising money, But only then. Don't be an amateur.
5) Should you patent your idea? Get customers first. Patent later. Don't talk to lawyers until the last possible moment.
6) Should you require venture capitalists to sign NDAs? No. Nobody is going to steal your idea.
7) How much equity should you give a partner?
Divide things up into these categories: manage the company, raise the money, had the idea, brings in the revenues, built the product (or performs the services). Divide up in equal portions.
8) Should you have a technical co-founder if you are not technical? No. If you don't already have a technical cofounder you can always outsource technology and not give up equity.
9) Should you barter equity for services? No. You get what you pay for.
10) How do you market your app? Friends and then word of mouth.
11) Should you build a product? Maybe. But first see if manually your product works. Then think about providing it as a service. Then productize the commonly used services. Too many people do this in reverse and then fail.
12) How much dilution is too much dilution? If someone wants to give you money, then take it. The old saying, 100% of nothing is worth less than 1% of something.
13) Do you listen to venture capitalist? Yes, of course They gave you money. But then don't do anything they ask you to do.
14) What if nobody seems to be buying your product? Then change to a service and do whatever anyone is willing to pay for.
15) If a client wants you to hire their friend or they won't give you the business (e.g. like a bribe) what should you do? Always do the ethical thing - hire the friend and get the client's business.
16) What do you do when a customer rejects you in a B2B business? Stay in touch once a month. Never be angry.
17) In a B2C business: release fast. Add new features every week.
18) How do you get new clients? The best new clients are old clients. Always offer new services.
19) What's the best thing do for a new client? Overdeliver for the first 100 days. Then you will never lose them.
20) What if your client asks you to do something not in your business plan? Do it, or find someone who can do it, even if it's a competitor.
21) Should I ever focus on SEO? No.
22) Should I do social media marketing? No.
23) Should I ever talk badly about a partner of an employee even though they are awful? Never gossip. Always be straight with the culprit.
24) I have lots of ideas. How do I pick the right one?
Do as many ideas possible. The right idea will pick you.
25) What is the sign of an amateur? Any of these things:
asking for an NDA
trying to raise VC money before product or customers
having fights with partners in the first year. Fire them or split before anything gets out of control
Worrying about dilution
Trying to get Mark Cuban to invest because "this would be great for the Dallas Mavericks"
Asking people you barely know to introduce you to Mark Cuban
Asking people for five minutes of their time. It's never five minutes so you are establishing yourself as a liar.
Having a powerpoint that doesn't show me arbitrage. I need to know that there is a small chance there is a 100x return on money.
Catch 22: showing people there's a small chance there's 100x return on their money. The secret of salesmanship is getting through the Catch 22.
rejecting a cash offer for your company when you have almost no revenues. Hello friendster and foursquare.
26) What is the sign of a professional:
going from bullshit product to services to product to SaaS product. (Corollary: the reverse is amateur hour)
cutting costs every day
selling every day, every minute
When you have a billion in revenues, staying focused. When you have zero revenues, staying unfocused and coming up with new ideas every day.
Saying "no" to people who are obvious losers.
Saying "yes" to any meeting at all with someone who is an obvious winner.
knowing how to distinguish between winners and losers (subject of an entire other post but in your gut you know, trust me).
27) When should I hire people fulltime? When you have revenues
28) How long does it take to raise money? In a GREAT business, six months. In a mediocre business: infinity.
29) Should I get an office? No, not unless you have revenues.
30) Should I do market research? Yes, find one customer who DEFINITELY, without a doubt, will buy a service from you. Note, I don't say buy your product because your initial product is always not what the customer wanted.
31) Should I pay taxes? No. You should always reinvest your money and operate at a loss.
32) Should I pay dividends? See above
33) What should the CEO salary be? No more than 2x your lowest employee if you are not profitable. This even assumes you are funded. If you are not funded your salary should be zero until your revenues can pay your salary last. Important RULE: the CEO salary is the last expense paid in every business.
34) When should I fire employees? When you have less than six months burn in the bank and you aren't getting revenues growing fast enough.
35) When should you have sex with an employee? When you love her and the feeling is mutual.
36) What other reasons should one fire an employee?
when they gossip
when they don't over-deliver constantly
when they ask for a raise because they think they are making below industry standard
when the talk badly about a client
when they have an attitude
37) When should you give a raise? Rarely
38) How big should the employee option pool be? 15-20%
39) How much do advisers get? 1/4 of 1%. Advisers are useless. Don't even have an advisory board.
40) How much do board members get? Nothing. They should all be investors. If they aren't an investor, then 1/2 of 1%
50) Should you take the offer to buy your company? Yes . in cash.
51) What is the only effective email marketing? Highly targeted email marketing written by professional copywriters and the email list is made up of people who have bought similar services in past six months.
51A) Corollary: If you have zero skills as a copywriter then everything you write will be boring.
52) Should I give stuff for free? Maybe. But don't expect free customers to turn into paying customers. Your free customers actually hate you and want everything from you for nothing so you better have a different business model.
53) Should I have schwag? No.
54) Should I go to SXSW? No.
55) Should I go to industry parties and meetups? No.
56) Should I blog? Yes. You must. Blog about everything going wrong in your industry. Blog personal stories that you think will scare away customers. They won't. Customers will be attracted to honesty.
57) Should I care about margins? No. Care about revenues.
58) Should I spin off this unrelated idea into a separate business? No. Make one business GREAT. Throw everything in it. Do DBAs to identify different ideas.
59) Should I hire people because I can travel on a seven hour plane ride with them? Don't be an idiot. If anything, hire people the opposite of you. Else who will you delegate to.
60) When should I say "no" to a client? When they approach you.
61) When should I say "yes" to a client? Every other conversation you ever have with them after that initial "no".
62) Should I have sex with an employee? Stop asking that.
63) Should I negotiate the best terms with a VC? No. Pick the VC you like. Times are going to get tough at some point and you need to be able to have a heart to heart with them.
64) Should I even start a business? No. Make money. Build shit. Then start a business.
65) Should I give employees bonuses for a job well done? No. Give them gifts but not bonuses.
66) What should I do at Christmas? Send everyone you know a gift basket.
67) If my customer just got divorced what should I say to him? "I can introduce you to lot's of women/men".
68) When should I give up on my idea? When you can't generate revenues, customers, interest, for TWO MONTHS.
69) Why didn't the VC or customer call back after we met yesterday and it was great? They hate you.
70) Why didn't the above call back after we met yesterday and it was great? "Yesterday" was like a split-second ago for them and a lifetime for you. There's the law of entrepreneurial relativity. Figure out what that means and live by it.
71) Should I hire a professional CEO? No. Never.
71) Should I hire a head of sales? No. The founder is the head of sales until at least ten million in sales.
72) My client called at 3am. Should I tell him to respect boundaries? No. You no longer have any boundaries.
73) I made a mistake. Should I tell the client? Yes. Tell him everything that happened. You're his partner. Not the guy that hides things and then lies about them.
74) My investors want me to focus. Should I listen to them? No. Diversify in every way you can.
75) I personally need money. Should I borrow from the business? Only if the business can survive for another six months no matter what.
76) I just bought two companies. Should I put them under the same roof and start consolidating? No. Not for at least two years.
77) Should I quit my job? No. Only if you have salary that can pay you for six months at your startup. Aim to quit your job but don't quit your job.
78) What do I do when I have doubts? Ask your customers if your doubts are trustworthy.
79) I have too much competition. What should I do? Competition is good. It shows you have a decent business model. Now simply outperform them.
80) My wife/husband thinks I spend too much time on my startup? Divorce them or stop your business.
81) I'm starting my business but I have relationship problems. What should I do? Get rid of your relationship.
82) Should I expand geographically as quickly as possible? No. Get all the business you can in your local area. Travel is too expensive time-wise.
83) How do I keep clients from yelling at me? Document line by line every meeting and send your document to the client right after the meeting.
84) I undercharged. What should I do about it? Nothing. Charge the next client more.
85) I have an idea for an app but don't know how to execute. What should I do? Draw every screen and function. Then outsource someone to make the drawings look like they come from a real app. Then outsource the development of the app. Get a specific schedule. Micromanage the schedule.
86) I want to buy a franchise in X. Is that a good idea? Only buy a franchise if it's underperforming and you can see how to improve it. Don't buy on future hopes, only buy on past mistakes.
87) I want to buy a franchise in X. Is that a good idea? Rely on the three Ds: Death, Debt, Divorce. When someone dies, the heirs will sell a business cheap. When someone is in debt, they will sell a business cheap. When someone divorces, the couple usually have to sell a business cheap. IMPORTANT: even if the trends in the industry are in your favor, you CANNOT predict the future. But you can use the past to help you get a deal. Always get a deal.
88) I have a lot of traffic but no revenues. What should I do? Sell your business. There's only one Google. (well, there's two or three Googles: Facebook and Twitter).
89) I have no traffic. How do I get traffic? Shut down your business.
90) Should I hire a PR firm?
No. Do guerilla marketing. Read "Newsjacking" and "Trust me I'm Lying". PR firms screw up from beginning to the end. The first time I hired a PR firm, instead of sending me my contract they accidentally sent me their contract for "Terry Bradshaw". He was paying $12,000 a month. Was it worth it for him?
91) My competition is doing better than me across every metric. What should I do?
Don't be afraid to instantly shut down your business and start over if you can't sell the business. Time is a horrible thing to waste.
92) I'm in business now for 6 years and my business doesn't seem to be growing. It's even slowing down. What should I do?
Come up with 10 ideas a day about new services your business can offer. Try to get a customer for each new service. I know one business in this situation that refuses to do this because their VCs are telling them to focus more. You're going to go out of business otherwise.
93) Is it unethical to run my business from the side while still at my job? I don't know. Did God tell you that in a dream?
94) My customer called me at 5pm on a Friday and said, "We have to talk" and now I can't talk to him until Monday. What does it mean? It means you're fired.
95) XYZ just sold for a $100 million. Should I be valued at that? I'm better!
No, you should shut up.
96) Investors want to meet me and customers want to meet me. Who do I meet if I need money? You should know the answer to that by now.
97) If an acquirer asks me why I want to sell, what should I say? That you feel it would be easier for you to grow in the context of a bigger company that has experienced the growing pains you are just starting to go through. That 1+1 = 45.
98) I just started my business. What should I do? Sell it as fast as possible (applies in 99% of situations)
99) I can change the world with my technology. No you can't.
99A) Corollary: Don't smoke crack.
100) If you're so smart why aren't you a billionaire? Because I sold my businesses early, lost everything, started new businesses, sold them, and got lucky every now and then.
You create your luck by being healthy and not regretting the past or being anxious about the future.
Just Don't Quit
"You're not dead until you're dead. The will of an entrepreneur is a powerful thing, it's what separates us from our white collared friends in corporate. When we want something, we will move Heaven and Earth to make it happen. So if there's any real advice I can give, it would be to just keep going. Don't give up, sometimes the lucky break is right around the corner. "
Read the rest of the post here:
http://justanotherfounder.quora.com/We-Made-1-000-000-in-3-Months-and-This-is-What-I-Learned
Much of the hype of mobile payments gets focused on USA and European countries. Big names include Square, PayPal, Google Wallet, ISIS, TabbedOut, and more. Sure these are innovative companies pushing through with a new wave. However, I believe that mobile payments will have a more profound impact on emerging countries than in developed countries.
My basis for this is simple: developed countries are, well, developed. I'll break down the argument in the following three sections: (1) convenience (2) security (3) advertising and marketing.
Â
Convenience
Paying with credit/debit cards is already a seamless process. Cashier swipes the card and you're done. You don't even have to sign most of the time. If you do, its electronic and you can even sign while your goods are being scanned. The barrier for entry is very high due to the mature process.
In emerging countries, the process is still trying to be perfected. Chip cards and terminals are more expensive and slower. You are always required to sign, regardless the amount. Most of the time, there's awkward moments just standing there in front of the cashier. This allows a larger opportunity to take advantage of mobile payments. This chip technology and requisite signing is intimately tied to security.
Security
Developed countries track all transactions. They know everything everyone does, so well to the point that security is almost a non-concern. Even moving money as cash is regulated; they know where/when it is deposited and withdrawn or when its taken out of the country. Even if you do bypass the security, it doesn't matter. The situation will be corrected, balances will be rollbacked, without a problem due to the system in place. Don't get me wrong; I'm not a privacy buff, I like this. It allows countries to innovate: lower security, higher freedom. For this reason, authorizations, approvals, identification, and other requirements are much lower in developed countries versus emerging countries.  For example, with just your username and password, you have access your bank account from mobile or computer, and can conduct all operations.
Emerging countries don't have this mature tracking system in place. For the most part, once the money is moved, it's moved. (Yes this is a bit of an exaggeration, but the system is no where to USA/European levels.) For this reason, you need many forms of verification and authorizations. You need two-way physical communication via tokens and authentication devices to access your bank account and make any movements. You need chip cards to defend against magnetic strip cloning. Things in general are much tighter. Obviously security is very closely tied to convenience. As we mentioned, loosening security will increase convenience. Mobile (by doing things behind-the-scenes) allows you to keep security and increase convenience.
Advertising and Marketing
Everyone knows one of the largest value additions for mobile payments is targeted advertising and marketing. The vast amount of transaction data, at item-level detail, is huge for optimizing campaign strategies. Once again, in USA and European countries, these systems are very well established. Most large stores have their loyalty program. Pretty much, they buy your information. The 1-2% cashback as points is a payment to motivate you to swipe your card, linking that transaction to your user profile. Mobile payments seek to apply this for all payments, not just loyalty cards. Regardless, these systems are very mature. You buy wine at a groceries store, and you will get e-mails about new wines; you buy baby food, you will get e-mails for diapers; etc. There are also very reputable and established companies that collect large databases of information and leverage it to sell targeted advertising services. These operations are very mature.
From my experience, I have found out that no one does targeted marketing, atleast in Mexico. Many large enterprises don't have loyalty programs. If they do, they're hollow. They give consumers cashback as points, but the user never even registered. It's hard to target advertisement if you have no data or way to communicate with your users!!
What Mobile Payments Offer
I believe these are the 3 strongest points mobile payments improve on. Let's take a quick look at the benefits that come with a phone in terms of mobile payments, usually:
Convenience
users check phone on average 34 times a day (its likely already in your hand)
see multiple account balances in the same place
on the cloud; access your account from anywhere
Security
users check phone on average 34 times a day (how often do you check your cards?)
device information; how and with what they paid
know how often the user uses the service (flag/suspend unusual activity)
location (at time of access, payment, transfer, anything)
timely notification of new/unusual activity
Advertising and Marketing
tie all transactions to a user profile (not only loyalty)
individual, personalized, communication
geo-fencing, in-store, pre-purchase notifications
This is just a scratch on the surface of all that mobile payments can offer. You can check out our efforts for bringing mobile payments to Mexico with Elepago at our site.
If you need a case study about the impact in emerging countries, just look at the most successful and advanced country in the mobile payment sector: Kenya with mPesa.
How to Install jQuery Mobile: Understanding the files
jQuery Mobile consists of CSS and JS files.
There is only 1 JS file, jquery-mobile-1.3.0.js.
CSS files have 2 main components that lead to 3 different packages:
(1) jQuery Mobile Structure (jquery.mobile.structure-1.3.0.css, size: 80KB)
(2) jQuery Mobile Theme (jquery.mobile.theme-1.3.0.css, size 50KB)
(3) jQuery Mobile Structure and Theme (jquery.mobile-1.3.0.css, size 136KB)
All files can be either uncompressed or minified.
Don't forget to add the images directory to the same location as such:
css/jquery.mobile-1.3.0.min.css
css/images
I do not recommend using an alias to your general img folder. We have tried this and it caused odd behavior across different machines.
Using a custom theme:
If you want to have your own theme, you will still need to supply the jQuery Structure.
You can include option 3 (full file with default theme and structure) and then include your custom theme file after, as it will overwrite.
Example:
OR
You can include just the structure file and then your theme.
Raising Capital from Angels, VC's - How to calculate shares and ownership
Preparing a proposal for investors, I found myself constantly stumbling with numbers. Who get how many shares, how to set values, do I add more shares to the founders, etc. It is very easy to get lost quickly in preparing an investment proposal. I found this document rather helpful (post figuring out everything myself...) Had I read this beforehand, I would've saved a couple hours of stress!
The article is found on this page (has many useful documents!)
http://www.practical-entrepreneurship.com/resources/entrepreneurship/entrepreneurship.htm
Here is the link to the actual document:
http://www.practical-entrepreneurship.com/resources/entrepreneurship/105_capitalization_tables.pdf
And here's the full text:
Cap Tables Explained
Introduction
Capitalization tables (âcap tablesâ) are used to record and track ownership in a company. If you are a sole proprietor, then it is not necessary to use a cap table â you own 100% of the company.
But, if you will raise money from investors and thus share ownership in the company, cap tables are not only helpful, but necessary as you begin discussions with possible investors and, hopefully, pay out dividends from profitable operations and/or divvy up the windfall after you sell the company. If you do take the company public, you also need to be able to show who owns how
many sharesâŚso they can sell them on the open exchange (NASDAQ or the NYSE).
Cap tables look very complex and involve numerous calculations and references to other numbers. There also are countless formats and layouts, which can add to the confusion. To understand how
to create and read a cap table it helps to know that the two most important elements are the value of the investment and the percent of the company owned by each person or group. These are
both measured in the number of shares. Value also is based on price per share. Simply, number of shares x price per share = value of investment.
As exciting as it may be, the initial number of shares granted to founder(s) is really arbitrary and not important. You are granting them to yourself. Pick a nice number as a starting point. Use a
relatively big number (perhaps one million) because it allows for easier addition of future investors later (balancing math and common expectations). Also, despite your great ambitions, the initial value of foundersâ stock is, well, essentially zero, so price per share is not calculated until first investor comes in.
You also should set aside a pool of stock or options for future employees if you think that will help entice people to work for you or motivate employees. This is especially important if you will need employees before you have the cash to pay them salaries. This pool of stock may also be used to reward (i.e. pay) a board of directors for their time and contributions. Usually about 10%-20% is a good percentage to allocate. Youâll want to be near the high end if you think youâll need to recruit a high-powered CEO to replace you as the company grows or other executives to help lead your growing enterprise. For simplicity, this pool will not be discussed during the rest of this discussion, but can be assumed to be included in the foundersâ or existing shareholdersâ stakes. In reality, it is separate from foundersâ stock, is a different line item on the cap table (i.e. a row in an Excel spreadsheet) and does need to be called out separately.
Founders should expect their percent owned to decrease over time, but the number of shares will not change, and the value of these shares (measured in price per share) should increase as the
company increases in value. Remember, âworthâ equals number of shares multiplied by price per share. But, for each new round of investors, founders should expect their equity stake to decrease
in proportion to the percent of the company new investors are buying. This is dilution. If a new investor buys 25% of the company, previous owners should naturally expect to see their ownership Where capital and opportunity meet
in the company decrease by 25%. Total ownership always has to equal 100%.
Note on dilution: Suppose after the first investment round, the founders own 80% and the angels own 20%. Further supposed that the next round of investors will come in and own 30%. Itâs a minor point, and probably obvious, but worth commenting on. Foundersâ
shares do not decrease by a straight 30%. That would be 80%-30% = 50%. Instead, they decrease as a percentage of current ownership. That is, 80%*(1-.30%) = 56%. Likewise, the original angelsâ share decreases to 20%*(1-30%) = 14%. You can check the math by
adding all the ownership shares: 56% + 14% + 30% = 100%
Second note on dilution: The term âdilutionâ often has negative connotations. There is natural dilution as described here, which is a sign of growth and a âcostâ associated with
raising money. Then there is excessive dilution caused by âcram downsâ or âdown roundsâ. If the company suffers a set back and needs to raise money at a lower valuation or share
price than set during a previous investment round, existing share holders will sacrifice greater than expected dilution. Since the stock has gone down, existing shareholders lose value and new investors can buy more at this low price.
Cap Table Calculations
There are some basic formulas you should know (see Excel sheet). Sometimes, certain figures are only derived by working backwards from a calculation.
A: Pre-money valuation + investment = post-money valuation
B: Investment / share price = number of shares to investor(s)
C: Share price = pre-money valuation / number of existing shares
Note: Share price is also known as price per share
How do you determine how many shares a new investor gets? The simplest way, assuming calculations have already been made, is to divide their investment (say $100,000) by the established price per share (say $.50), which equates to 200,000 shares. However, for the first investor, the calculations are not already made. You need to step away from the cap table for a moment to get the required information.
1. You should determine your companyâs pre-money valuation independent of the cap table. For simplicity, letâs say you determine (probably with the âassistanceâ of a new investor) it is
$1M.
2. You should determine how much money you need to raise to reach a significant milestone. Letâs say you need to raise $500,000.
3. Your âpost-moneyâ value will be $1M + $500K = $1.5M, meaning the investor will receive one-third ($500K/$1.5M) for the investment. Any fractional investment will receive a pro rata share of the company. For example, if someone invests $50K out of the $500K, they receive $50K/$1.5M = 3.3% of the company. Alternatively, you could calculate this as 1/10 the total investment round (of $500K), which also equates to 1/10 of the new ownership stake
(f 33%); resulting in the same 3.3%. Where capital and opportunity meet So, letâs assume you have one investor who puts in the whole $500K for 33.3% of the
company. That leaves the existing, or previous, shareholders with 66.7% of the company (which is 100% minus the new investorâs negotiated stake of 33.3%). Sum up the number of
existing shareholdersâ shares. Letâs say they have a total of 2 million shares. Remember, this number was arbitrary to begin with but becomes important very soon. Also remember this
number does not change as new investors come in. With these two numbers (2 million shares = 66.7% of the stock), there are two common calculations to determine how many shares new
investors will receive. First, we now know those 2 million shares are worth $1 million (from the pre-money). This means each share is worth $.50 (price per share = value/number of shares = $1M/2M). The
new investor coming in with $500K will thus buy 1 million shares ($500K/$.50 price per share).
Another common way to calculate these numbers is to take the number of total existing shares (2 million) divided by the foundersâ updated ownership share of the company (66.7%), which
equals total shares after investment (3 million). The founders keep the same number of shares (2 million), which means the balance of 1 million goes to the new investor. This investor paid $500,000 for the 1 million shares, meaning the price per share is $.50. These are the same value as the first method above. Good. With multiple rounds, investors can continue to invest at the then current price per share to accumulate more and more shares. Imagine an investor who invests $100,000 in each round. As described above, if the initial round âis going at 50 cents a shareâ, this buys 200,000 shares. If, as one would expect, the price per share increases over time to each round as the company becomes
more valuable, perhaps their investments and holdings would look like this:
Round Investment PPS New Shares Total Shares
A $100,000 $0.50 200,000 200,000
B $100,000 $0.75 133,333 333,333
C $100,000 $1.00 100,000 433,333
D $100,000 $2.00 50,000 483,333
E $100,000 $10.00 10,000 493,333
Total $500,000 493,333
Itâs important to keep in mind that, when the company is sold, a share is a share, regardless when or at what price someone received it (not accounting for other terms, such as liquidation preference, or options). For the company, the price per share simply helps
determine how many shares an investor buys for a given dollar investment. For an investor, it also helps them determine their investment gain and ROI.
So, in this example, if the company is sold for, say, $117 million, and there are a total of about 5.8 million shares outstanding, the calculated price per share is about $20 per share. This investor, with 493,333 shares, would receive $9,866,667. The investor
would make nearly $10M, not including taxes. Since they invested $500,000, thatâs not a bad return. As a whole, this investment returned about â20xâ (which comes from 20 x $500,000 = $10,000,000), but most investors would also look at each $100,000 investment independently as well, and consider the time horizon for each to really judge the return.
Creating Your Cap Table
There are a number of templates you could use to build your cap table. A useful cap table should allow for easy identification of each individual shareholderâs number of stock held at each step,
their percentage owned at each step, the share price for each round, and the pre- and post-money valuations at each round. The common practice is to list shareholders down the left column and
describe each investment round across the top of the page. Please see Excel file entitled âCap Tables Explained.xls.â
Founders are usually listed first, then any executives who have been given an equity stake, and the employee/director option pool. Investors from the first round are then listed next; individually,
but clearly grouped together (put an extra blank row or border above the first name and below the subtotal below the last name). Repeat this for each subsequent round and always put subtotals
below each group to track their shares and ownership stakes.
It is also good practice to separate common shareholders from preferred shareholders. There are a number of differences between the two classes and reasons to delineate between the two on
a cap table. In most cases, founders and employees own shares or options for common stock, and angel and VC investors own preferred stock. This also makes it easy to track on the cap table
since the founders and employees are listed separately already.
Going across the page left to right, first include the number of shares and percent owned for each founder and the employees. Remember, there is no relevant share price or value. Share price and dollars invested will be included for investors. It also is useful to mark the date of each investment. A common order is date issued, dollars invested, shares issued, and percent ownership. Carry the calculations for each shareholder through for each round, not just the new investors. Typically, each new round will bring in new investors who will receive new stock at new values.
The calculations described above will apply for each round, but will get a little more complex as more shareholders are involved. Again, remember existing shareholders keep the same number of Where capital and opportunity meet shares (unless they invest more). The steps are (and usually in this order):
Independent of the cap table, determine how much money you need to raise to fund your business. Then:
1. ⢠Sum up the existing shares
As best you can, calculate a pre-money valuation for your company. This will set a share
price that you can take to potential investors. You may need to be flexible on these
values as you negotiate with investors.
2. ⢠Record the new dollars invested by each new investor.
You will be able to calculate the shares each investor will receive and the total shares
issued at the conclusion of the funding round
3. ⢠Calculate the ownership percentage for the new investor(s).
Youâll also be able to (and
want to) calculate the new ownership stakes for existing shareholders).
In the sample cap table, you can see there really are only two variables you need to establish and enter manually (cells are highlighted in green), along with individual investments. The rest of the figures are automatically calculated (cells are highlighted in yellow). As you read the following descriptions of this example, youâll notice the green highlights that correspond with the numbers in the cap table. I added a simple calculation highlighted in gray to track the value of existing shareholders with
each round. Assuming an âup-roundâ each time (i.e. the share price increases with each new investment round), existing stocks will increase in value regardless of the percentage anyone
owns of the company. The quickest calculation to see how much money you make each round is to calculate the change in stock price and multiply that by your number of shares. If they stock
price increases from $1 per share to $2 per share, you just doubled your moneyâŚon paper!! Donât forget, you donât realize your gains (i.e. make money) until you sell your stock.
Example: Founding
Company is formed on New Years Day 2003 by two founders who agree to share company equally. Still reveling from their celebration last night, they allocate 10 million shares for each of them. Two
months later, they bring on a Sr. VP and offer her 5 percent of the company. They realize giving her over a million shares sound like a lot, so they change their initial shares to 800,000 each and give
her 100,000 shares. They also set aside another 15%, or 300,000 shares for future employees and directors. Total common shares are thus 2 million.
A Round
Eight months later, they start to raise money to help the company grow. They determine they need $500,000 for about one yearâs cash needs and estimate their company is worth $1 million dollars.
They accept the fact that they will thus give up one-third of their company and issue one million shares. These then produce a share price of $.50. They talk to a number of possible investors and finally find a very wealthy and well-respected businessman to invest $200,000 in the company. He agrees to the terms and thus buys 400,000 shares. After this lead investor, four other investors follow under the same terms. The round is complete. The founders still control over 50% of the company and the biggest investor controls about an eight.
B Round
The founders and investors determine another million dollars is needed to expand into a new market and are willing to sell between 20% and 40% of the company. After extensive negotiations,
a group of six investors agree the companyâs pre-money value is $2.25M, setting the share price at $.75. The group collectively agrees to invest $800,000 for about 25% of the company. This is
within the companyâs range, so everyoneâs happy. Two of the original investors (call them Pat and Chris) agree to complete the round with $100,000 each. The new investment receives a total of
about 31% of the company.
Note: You could opt to add Patâs and Chrisâ across their row and just track their total shares, but there may be different terms associated with each round (other than just dollars). So, itâs
likely more clear to include Pat and Chris with the B Round investors. When Pat and Chris sell their shares, you should account for all their shares.
C Round
The Board determines the company needs to raise $1M and settles on the price of $1 per share, non-negotiable. This gives existing shareholders a nice 33% increase in value. With 4,333,333 shares already issued, the pre-money valuation at $1 per share is $4,333,333. The new $1M will receive about 19% of the company.
Note: This scenario is not that uncommon, although success at inflexible fundraising may be a question. But, it shows how the calculations can flow in multiple directions because all these figures are tied together in set formulas. The CEO presents to a local angel group that decides to form an LLC to invest $500,000 as a single shareholder. (The angels own shares of this LLC, but from the companyâs perspective, the LLC is the shareholder of record.) True believer Pat put in another $100,000 and eight others put in
various amounts.
Venture Round:
Riding on a track record of success, the company decides to fund even more rapid expansion by raising $5M from VCs. Pat, the faithful investor, introduces the CEO to two venture capitalists Pat is close to and both invest. The VCs negotiate the pre-money value to be $10.75M, which means they will own just under a third of the company. Further, everyone agrees to let Pat invest yet
another $100,000 into the company under the same terms as the VCs.
Note: Compare Patâs investments with the example I used above of an investor that invested $100,000 in multiple rounds. You can see how Pat accumulated 493,333 shares and stands to gain a lot from a sale of the company or IPO.
Summary:
This cap table shows a company that has experienced steady growth and successfully raised multiple rounds of investments from about 20 different investors. While each founder started off with a little less than half of the company, they ended up owning only 10 percent of the company. Is this bad? At last valuation, that small piece was worth over $1.5M. And, if the example of investor Pat is played out and the company is sold at $20 per share, each founder will earn $16M. Compare that to Patâs $10M.
This simplified cap table does not include options or warrants, bonuses, vesting schedules, or conversions. These obviously add to the complexity of the cap table and should be discussed with your accountant and/or investors. Because these terms were not included, calculations for âfully dilutedâ percentage also were not included, but, as the name implies calculates a shareholderâs percent ownership after all possible shares have been issued.
Was testing out a new infographic creation site -- www.infogr.am -- and came up with this snapshot of Elepago. Pretty neat service. A little buggy, but hey, it works and looks nice!
Developing mobile apps is very expensive. The golden rule still holds true: you get what you pay for.
I found this article on stack overflow. http://stackoverflow.com/questions/209170/how-much-does-it-cost-to-develop-an-iphone-application.
Summary:
Developing a premium app can cost anywhere from 50,000-250,000+ USD if done by professional American developers. You can get a lot cheaper (almost by a factor of 10) if you go offshores, say to Indian developers.
Going rates for professional developers ranges between 100-200usd/hour. 150usd seems to be the norm. You can find Indian developers offshores for ~20usd/hour.
To develop an app or a service, you need to take into account both components: front-end design and back-end (api, servers). The functionality, and hence the complexity, of the project is a big factor in the costs as it affects both components. Time constraints on the project also result in an increased cost.
Various apps and costs:
Twitterific - 250k
Obama app - 50k-150k in 21 days
Instagram - 500k to make new frontend and backend
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So if you are thinking of starting a company, consider learning to code yourself if you don't have deep pockets.
I found a very insightful powerpoint posted by a university in Brussel -- Vrije Universiteit Brussel. It shows a guideline for the different steps of funding; 3 F's (friends, family, and fools), to angel/seed investors, to venture capitalists, and finally banks. It shows guidelines of what steps/progress is recommended for each of the different funding sources.
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[caption id="attachment_102" align="alignnone" width="2192"] Funding Progress[/caption]
The full slideshow can be found here: http://www.vub.ac.be/downloads/valuation.pdf
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