How do you calculate a reasonable price when bidding on a contract?

Calculating a reasonable price -- profitable for you and acceptable to the client -- is a very challenging issue facing any contractor.

[Warning: the rest of this post is supposed to be a joke!]

Three contractors are bidding to fix a broken fence. One is from New York, another is from Tennessee and the third is from Florida. All three examine the fence.

The Florida contractor takes out a tape measure and does some measuring, then works some figures with a pencil. 'Well,' he says, 'I figure the job will run about $900: $400 for materials, $400 for my crew and $100 profit for me.'

The Tennessee contractor also does some measuring and figuring, then says, 'I can do this job for $700: $300 for materials, $300 for my crew, and $100 profit for me.'

The New York contractor doesn't measure or figure, but leans over to the government official and whispers, '$2,700.'

The official, incredulous, says, 'You didn't even measure like the other guys! How did you come up with such a high figure?'

The New York contractor whispers back, '$1,000 for me, $1,000 for you, and we hire the guy from Tennessee to fix the fence.'

'Done!' replies the government official.

My apologies to contractors from Florida and Tennessee.

-- Jack Krupansky

Only three more days to get the early-bird rate for EntConnect 2009

There are less than three days left to get the $149 early-bird rate for registration for the EntConnect entrepreneurs conference. Register on of more Saturday, February 28, 2009 for $149 or the rate goes up to $299.

Whether you are an entrepreneur or thinking about starting your own business or simply need a good excuse to go skiing in the Rocky Mountains of Colorado, the Entrepreneurial Connections conference (EntConnect) may be just the conference you have been waiting for. Targeted primarily at engineers (hardware, software, and other) and others with a strong technical interest, it is more of a loosely-structured "unconference", with plenty of opportunities for a relatively small group of participants (15 to 40) to network or even give their own presentations on a very wide range of topics from technology, business strategy, intellectual property and legal issues, accounting issues, finance, marketing, sales, and even selling your business. With plenty of time to ski or otherwise enjoy the mountains and Denver area (great time to visit Boulder or Colorado Springs as well), the conference is a great opportunity to "learn and share" and otherwise have an "out of box" experience. Participants and speakers range over the full spectrum from wannabes and newcomers to successful young entrepreneurs and seasoned veterans. The conference is an excellent opportunity to meet up with former readers (and possibly even the publisher) of Midnight Engineering magazine as well.

Visit the official conference Web site, EntConnect.org. Hotel rooms at the Sheraton Denver West in Lakewood, CO are available at the conference rate of $79.

I have been attending the conference since it first started (as ME-Ski and then ENTCON) in 1992.

-- Jack Krupansky

Thomas Friedman: The government should give money to venture capital funds

I am no fan of Thomas Friedman, but I do agree with most of what he says in his latest Op-Ed in The New York Times entitled "Start Up the Risk-Takers" in which is proposes a fairly simple model for government investment to create new jobs:

Call up the top 20 venture capital firms in America, which are short of cash today because their partners -- university endowments and pension funds -- are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors' upside and keep 80 percent for themselves.

Sounds like a plan. But, it is not quite so simple. True, professional venture capital firms operate in a relatively narrow range of financing and stage of development. The typical paradigm for a venture capital-funded venture is "early stage", were only a relatively modest level of capital is needed (rarely more than $20 million), and where only a modest number of jobs are generated. Sure, some venture capital firms offer "later stage" funding, but that is still for the relatively early life of a new venture when growth is high but revenue and jobs are still relatively modest. The Googles and Microsofts and Intels of the world did not require large-scale capital in their venture capital stages. So-called expansion capital on a large scale typically comes not from professional capital firms, but either organically funded from revenue and profits from dramatic early success of a Google or Microsoft or Intel, or from debt offerings on Wall Street or other non-venture capital sources. That is the stage when a high volume of jobs are created.

Professional VC firms do offer growth stage funding ($10 to $50 million), but that is still only the stage where a venture might be hiring no more than a few hundred people, not the major growth stage where thousands of jobs are being created and hundreds of millions of capital investment are being made.

Sure, I agree with Friedman -- and have already myself suggested -- that the government should temporarily step in to fund professional venture capital firms that are having difficulty raising capital from their traditional sources such as large banks, insurance companies, pension funds, and large endowment funds (all of whom are themselves struggling financially), but this is money to fuel a future wave of job creation, say three to ten years from now, and won't create millions of new jobs in the next two to three years.

There are also SBIR, SBA, and other government funding programs that can be boosted directly by the government. Government guarantees for bank loans and debt offerings for young, innovative ventures could also be a big help for growing innovative companies far beyond the early stages where venture capital is most successful at boosting promising companies and weeding out the good ideas that simple do not work in the real world.

Yes, by all means the government should ramp up venture capital investment, but that will not obviate the need for stimulating and supported significant chunks of the "old economy" for many years to come.

Besides, the last thing we need is yet another new "bubble", let alone a slew of them.

We want new ventures that are robust and durable, not flash-in-the-pan, "gold rush" style "opportunities."

Energy innovation is worthy of investment, as is filling the gap for funding of venture capital firms, but let us be careful to avoid turning this into another "dot-com boom", because we all know how that movie ended.

The good news is that it might cost only $20 billion (as Friedman suggests) to give the venture capital industry the shot in the arm that it does in fact need.

Personally, I am not completely convinced that any or many of the top VC firms could actually put $1 billion to use with their current investment paradigms and I would not want to destroy the current paradigm that works so well. To be clear, over-investment does not result in comparably greater success. Maybe $250 million average (per year) for the top 20 firms and $50 million average for the rest of the top 100 firms would be more than sufficient for the level of investment that these firms could manage successfully at this point. That works out to about $9 billion a year. Okay, double it to make sure that good businesses do not have trouble getting funded. That gets us to $18 billion, close to Friedman's number. My own original number was $2 to $3 billion a month or $24 to $48 billion per year. My model was simply that in times of financial crisis, better to err way over the top. At this point, I would prefer to hear the VC sector tell us what they feel that they need. Offer them $50 billion a year and sit back and watch the spectacle of them saying "Please give us less money."

Maybe the key thing is for the government to be able to assure VC firms that there will be "government supported" funding (e.g., debt securities) available for VC-funded companies that have advanced beyond the VC-supported stages to the point where they do need tens or even hundreds of millions to expand to the degree where individual firms are creating many hundreds or thousands of jobs. This might help to encourage VC firms to fund new ventures that will eventually require large-scale capital after they advance beyond the stages where traditional VC firms add the most value.

Finally, Friedman did not even mention so-called "angel" investing, where individual investors are funding innovative new ventures at a smaller scale than normally appeals to professional venture capital firms. Give these people more generous tax incentives, matching funds, and possibly some degree of government guarantees, or maybe outright tax credits, and you could see a dramatic blooming of innovative firms.

In any case, I do have to give Friedman credit for raising awareness of this critical issue to the national level. A single small paragraph in my own blog simply wasn't good enough to even get the ball rolling:

Provide government funding to venture capital firms which are experiencing extreme difficulty raising funds from traditional sources (big banks, pension funds, and insurance companies) due to the credit crunch and skrinkage of the economy, on the order of $2 to $3 billion per month.

-- Jack Krupansky

Are you a former reader of Midnight Engineering magazine or need an excuse to go skiing in the Rocky Mountains of Colorado?

[This is a revision of a recent post, just trying to get it more accurate.]

Whether you are an entrepreneur or thinking about starting your own business or simply need a good excuse to go skiing in the Rocky Mountains of Colorado, the Entrepreneurial Connections conference (EntConnect) may be just the conference you have been waiting for. Targeted primarily at engineers (hardware, software, and other) and others with a strong technical interest, it is more of a loosely-structured "unconference", with plenty of opportunities for a relatively small group of participants (15 to 40) to network or even give their own presentations on a very wide range of topics from technology, business strategy, intellectual property and legal issues, accounting issues, finance, marketing, sales, and even selling your business. With plenty of time to ski or otherwise enjoy the mountains and Denver area (great time to visit Boulder or Colorado Springs as well), the conference is a great opportunity to "learn and share" and otherwise have an "out of box" experience. Participants and speakers range over the full spectrum from wannabes and newcomers to successful young entrepreneurs and seasoned veterans. The conference is an excellent opportunity to meet up with former readers (and possibly even the publisher) of Midnight Engineering magazine as well.

Visit the official conference Web site, EntConnect.org. Hotel rooms at the Sheraton Denver West in Lakewood, CO are available at the conference rate of $79.

I have been attending the conference since it first started (as ME-Ski and then ENTCON) in 1992.

-- Jack Krupansky

Anatomy of a press release

PR Newswire has a succinct diagram that highlights the elements of an ideal press release. Of the 11 key elements, to me the most important is the lead paragraph:

This is the single most important paragraph in the whole release. If you don't draw your reader in here, you've lost them forever. This is your chance to set up your story in a single sentence or two.

Obviously the headline has to grab the viewer's attention first, but the lead paragraph needs to convince them that you have something to say that will make reading the rest of the news release worth their while.

PR Newswire has a good FAQ page that gives an working introduction to the world of press releases (they call them "news releases.")

Please note that PR Newswire distributes news releases, but it is up to the newsmaker to write their own news release.

-- Jack Krupansky

Are you an entrepreneur who needs an excuse to go skiing in the Rocky Mountains of Colorado?

Whether you are an entrepreneur or thinking about starting your own business or simply need a good excuse to go skiing in the Rocky Mountains of Colorado, the Entrepreneurial Connections conference (EntConnect) may be just the conference you have been waiting for. It is more of an "unconference", with plenty of opportunities for a relatively small group of participants (15 to 40) to network or even give their own presentations on a very wide range of topics from technology, business strategy, legal issues, accounting issues, finance, marketing, sales, and even selling your business. And plenty of time to ski or otherwise enjoy the mountains and Denver area (great time to visit Boulder or Colorado Springs as well). Participants and speakers range over the full spectrum from wannabes and newcomers to successful young entrepreneurs and seasoned veterans.

Visit the official conference Web site, EntConnect.org. Hotel rooms at the Sheraton Denver West in Lakewood, CO are available at the conference rate of $79.

I have been attending the conference since it first started (as ME-Ski and then ENTCON) in 1992.

-- Jack Krupansky

Marketing doesn't matter?

Guy Kawasaki has a post on AlwaysOn entitled "6 Helpful Clues for CEOs" that offers a list of statements that a clued-in CEO should say to their employees. Number 3 on the list is:

• "Engineering needs to make something so compelling that a $0 marketing budget isn't a problem." The pressure isn't only on marketing -- engineering needs to create something so great that the marketing doesn't matter.

I happen to agree, but this is absolute heresy. The conventional wisdom is that marketing (and sales) is everything - better to have a mediocre product with great marketing than a great product with mediocre marketing.

Two key points. First, how many products are actually truly "great", other than in the eyes of their creators? Second, I think the main intent when Guy said "marketing doesn't matter" was that a high burn rate is not the defining characteristic of successful marketing. I seriously doubt that he would advocate giving up on those "free" and "shoestring" marketing efforts as well. His preceding statement for clued-in CEOs was that marketing should focus on exploiting "free" resources and a "shoestring" budget:

• "The marketing budget is now $0, and we will figure out a way to get to market." Maybe you have more than $0, but if you adopt a much better mindset. How can you use free resources, social media (Facebook, Twitter, Friendfeed, etc) to market your product on a shoestring budget?

Still, I do like the mere hint that products should be designed and engineered and built so that only minimal expense on "marketing" is needed.

Maybe this is a definition of "Utopia" - a world in which marketing no longer matters.

In any case, I am certainly a big proponent of marketing on a shoestring. In fact, back in the early 1990's I wrote an article for Midnight Engineering magazine entitled "Product Promotion on a Shoestring - Low-cost Marketing Ideas for the Software Entrepreneur". That was shortly before the Web took off, but the concepts are still the same. Old wine, new bottles.

-- Jack Krupansky

Entrepreneurial casino - rolling the dice

Sure, there is risk in any kind of venture, whether it be incremental investment in a long-running and "proven" business, or an attempt to commercialize a "new idea" or enter a radically new market, but the question is how to characterize and categorize these risks so that we can properly compare and evaluate them. A "bold" move will typically have a much higher risk of failure than a "conservative" move, but when a solid wall looms ahead that may block an existing business or business model the tamer move may in fact dramatically increase the risk that the business will not survive at all. Sometimes, but not all of the time. Tough call.

With an entrepreneurial venture we are by definition invoking a significant higher level of risk as we try to make a big splash. OTOH, that big leap may have a higher probability of surviving in the longer-term if it can make it beyond the "infant mortality stage." That can be a very wise tradeoff, but it also means that the venture can begin to look a lot more like a casino bet than a rational business decision.

We can also hedge our bet by leading with a smaller splash that is calculated to have a more robust appeal to a smaller audience. That can dramatically reduce short-term risk, but may also dramatically reduce the chance of retaining the degree of boldness to later break out of the niche to a much broader market. Essentially, you are not reducing total risk, but simply shuffling it around and making an implicit statement about your depth of vision. Figuring out how to balance the short-term and the longer-term is a core challenge.

Sure, you can always reduce the chance of a loss on a casino bet but placing a smaller bet, but it is still a casino bet at heart.

And if you feel that you have hedge enough to eliminate virtually all risk, you may ultimately find that you have eliminated your chance of a reasonable return as well.

Evaluating, balancing, and hedging. Good stuff, but at the end of the day you still have to finally roll the dice and let reality judge whether your reasoning is valid.

Timing is a factor as well. Sometimes being earlier is better, but being too early can be as risky as being too late. If an emerging market is not "ready" you may or may not have the resources to wait or force readiness. To a large extent this may be a matter of personal preference, but it does have implications for your risk profile as well. Either way, the dice must still be rolled.

-- Jack Krupansky

How do you keep track of ideas that pop into your head?

I am curious how others deal with the problem of recording and tracking ideas that pop into your head. In particular, what electronic or software tools do you use to organize ideas and random information that comes up in your professional life, the information that does not fit cleanly into a PDA calendar or address book.

Half of my random information stays only in my head, some gets written down on index cards, some gets entered into text files in "My Documents", some events get recorded in my PDA calendar, and a lot of stuff is stored away in email. Sometimes ideas end up on email lists or in blog posts such as this as well.

That may be fine for recording, but without any good organizing the value of any idea falls off a proverbial cliff.

As they say, there has to be a better way.

To put the question more simply, when an idea pops into your head, what do you typically do with it? Especially when those ideas occur when walking, driving, eating, showering, etc., rather than when you are sitting at your desk and computer.

-- Jack Krupansky

Book: Strengths Based Leadership by Tom Rath and Barry Conchie

I was doing my usual Sunday afternoon browsing of the "New Arrivals" table at Barnes & Noble near Lincoln Center here in New York City and spent a few minutes leafing though Strengths Based Leadership by Tom Rath and Barry Conchie. Based on their research, the authors identified three keys to being a more effective leader: knowing your strengths and investing in the strengths of others, assuring that the members of your team have the right strengths, and satisfying the essential needs of your followers.

The authors have identified a long list of strengths and have an online program to evaluate your strengths and provide you with specific strategies for leading with your top five strengths and enabling you to plot the strengths of your team based on the domains of leadership strength detailed in the book.

Unfortunately the online descriptions for the book are short on details and I failed to take notes when reading passages in the book, but there is a wealth of information in the book. Whether any of it will work for you is another matter.

My apologies for not providing a better summary of the book, but by all means browse through it and decide for yourself whether it offers you any advice of value.

Note: I do get a tiny commission from Amazon if you buy a book after clicking on the cover images or link above that redirect to Amazon. Thanks!

-- Jack Krupansky