A discussion I had today with the wonderful Reshma Sohoni, CEO of Seedcamp, brought back a thought/observation I was chewing on for quite some time now: European startups are rubbish at networking.

Let me start with an observation my dear friend and mentor Dr. Ralph Werner and I shared a while ago: When you visit a European trade show (and this is particularly true for events in Germany) people start by talking about the weather, the event itself, the booth design (down to the color of the carpet) and eventually, after 30 minutes of exchanging pleasantries, talk about themselves, what they do and how they could probably do business together. After this is done, both parties agree to exchange business cards. Now take the average trade show in the US: People walk up to each other, start with a breathlessly shouted introduction of themselves and their business, throw their hand with their business card towards the other person with the question: “So. What do you do?”. It’s basically speed dating - after an equally breathless answer both parties exchange business cards and walk on to the next person to talk to.

Now you could lament the fact that the ‘European way of doing things’ is nicer, more personal and adds a much higher level of understanding and trust - but ask yourself: Why do you go to an event? Usually the answer to this question is: To find as many interesting people as possible.

And the very same behavior I see again and again with European startups (mind you - not all, but a good chunk of them behave in the exact same way as described above). They go to networking events such as the excellent OpenCoffee Club and spend the whole morning speaking to one person - most of the times someone they already know.

So please - when you are at a networking event, tradeshow, and actually pretty much anywhere: Meet as many people as possible. Measure your success by the amount of contacts you made (and DON’T forget to follow-up - otherwise the whole exercise is rather pointless).

I was kindly invited by Microsoft to join their UK launch of BizSpark - a worldwide initiative from Microsoft in which they will give participating startups three years of free software licenses, mainly to their development tools, server and database software as well as Microsoft-powered cloud hosting. Further Microsoft provides some level of additional support through their network partners and selected people within the broader Microsoft organization, as well as some sort of visibility on Microsoft’s website and through their communication. After the three years startups are asked to pay a $100 program enrollment fee and (obviously) purchase the necessary licenses for your, then hopefully humming, business. Participation rules are simple: Your company must be less than 3 years old and generate less than $1m in annual revenue.

Sounds good? Even great? Ready to enroll?

Well - not so easy my dear friends. Consider what the program really means for your company on the one and evaluate the real benefits on the other hand.

Let’s start with the benefits: You get development tools, server and database software for free. Well - big deal. My companies (and many, many more) are developing software with free tools since the dawn of the Internet. The magic sauce is called Open Source - Webserver happily hum along using Apache, databases run smoothly under mySQL, applications are served by PHP, coders spend nights happily hacking away using Eclipse. And this is only one set of possibilities. There are nearly endless options for you to have all the best (literally the best) tools in the world for free. So - what I get from Microsoft is something I would get for free anyway.

Ah - I forgot. Cloud hosting. Well - I get really cheap and reliable hosting from a whole stack of companies. And great cloud hosting from companies such as Amazon (with their amazing S3 and EC2 services) or Mosso (which is essentially RackSpace, one of the great hosting companies out there). So - yes, Microsoft is offering me something for free which I would otherwise pay a few dollars per month for. But at which price?

Now this brings me to my second point - the true costs of the program: What Microsoft is obviously trying to do here is lock you in. Just as they locked you in with Windows and Office, they lock you in their .Net framework as well as Microsoft server and database systems. Even the rather long period of three years for the benefits of the program are really cleverly chosen - after three years you are normally at least at version two of your software. Which makes it really unlikely that you will switch the technological backend anymore.

What does vendor lock-in mean for you? Hmm… it might not mean anything for you and your business. It might mean that you will need to pay dearly for licenses at the end of the three year program. It definitely will mean that your options in this evolving world of technology are reduced - you put your bets on a single horse and have to go with it.

In essence I applaud Microsoft for their program - I am all for every support the startup community can get. But you have to weight the advantages and disadvantages of a program like this - and personally I will continue to build companies who’s servers run on Open Source software. Simply because it’s a better business decision for me.

Have you been thinking about PR lately? Maybe some cool, viral guerilla campaign? Eager to get on TechCrunch? Or at least your local TechCrunch equivalent?

Well… Think again. And this time - think about your target audience!

It baffles me that nearly everybody in our eco-system seems to be so eager to get the word out - within our eco-system (the web economy that is). But what good does an article on TechCrunch do you, if your business is aimed squarely towards dog owners? Or fitness enthusiasts? Or even travel buffs?

I’m pondering about this phenomen for a while now - it somehow feels like the same mania we fell for when we were in Bubble 1.0: We believed that the Internet in itself is this massive value generating thing. Turned out - we were wrong (a mistake which cost me my company).

So here’s the deal - to make your company successful you need to have your target audience buy your products (hey, that was obvious!). To reach your target audience you need to be where your target audience is - and if you don’t happen to provide products or services for startups, your target audience is most likely not on TechCrunch (sorry TechCrunch folks - this is not against you, you are simply the best known example). If you’ve build a social network for dog lovers - that’s where you need to be: Animal magazines, other animal related websites, etc.

And while we are talking about it - there is an excellent book out there which talks about this complicated transition from early adopters to the wider audience: Crossing the Chasm. Go, get it, read it - it’s a true classic which every entrepreneur should have read.

P.S.: One last word about TechCrunch - if your target audience for the moment is the VC and angel community, it certainly helps to have a nice write-up on there. It just won’t bring you a lot of dog owners to your site…

This is officially my 100th blog post (with my first post being published a mere 6 months ago on May 21st). There has been a lot of change since then - personally I moved from focusing full-time on FoundersLink to a terrific new role at Mozilla; on the macro-economic side of things we moved into the biggest recession in recent times.

Now - time to crank up the dial a bit and make this blog a tad more interactive: Let’s create more of a dialog on this blog - thus I ask you to send me any questions or thoughts you have around the topics of entrepreneurship, funding, management and any other area you find of interest and I will try to give you my perspective on this blog.

Put your questions into an email, post them in the comments or ping me on twitter - I am very much looking forward discussing topics with you, which are truly close to your heart.

This post is dedicated to all startups pre-money - the ones which didn’t receive their first round of real capital yet (grandma’s donation doesn’t count). If you already received either a round of professional angel/seed capital or are even through a VC round - stop reading! You’ll be bored to death! If you are in the situation that you are trying to raise your first round - read on…

So - you thought long and hard about your business plan, your presentation and feel ready for the pitch (and to do so you’ve read Guy Kawasaki’s “The Art of the Start” cover to cover - and back). You’ve got all the pieces together and you know how much money you ideally want to raise. But wait - have you also thought about the valuation of your company? I mean - thought about it deep and long? Really deep and long?

A lot of early stage startups haven’t (at least the ones I tend to see - which might be a problem originating from me) - and run into trouble the moment they pitch. At the very least they show that they haven’t understood the fund raising process. At the worst they make fools out of themselves and won’t get any funding.

But before we go into details, here’s a super short primer on valuations: The valuation describes the monetary value of your company. With an established company the value of the company is often calculated on something like x-times yearly revenue or some other more or less crude formula. As you have a startup which often doesn’t have real revenues, customers or even a finished product, your valuation is more like a fantasy. There is no right or wrong - the value of your company lies in the eye of the beholder. Which is the exact reason why valuations are tricky - you think your company is the next Google and thus already worth at least half-a-gazillion. An angel investor might see this slightly different - he sees a single guy without a product or team - and certainly no customers or revenues. For him your company might be worth anything from nothing to “a little bit”.

Now comes the really tricky bit - time and time again I see entrepreneurs with barely anything else but a business plan and (if lucky) a half-way working prototype asking for anything from 250,000 to one million in funding. They did the maths - and their plan clearly shows, that this is the amount of money they need. Only - they never really thought about valuation.

Let me explain: If you are asking for let’s say half a million and are willing to give away 20% of your company for this money, your pre-money valuation is a whopping 2.5 million. Not bad for a company which doesn’t have any revenues. A sane angel investor will value your company probably with something like 750,000 - which means that for half a million he would need to get 2/3 of your company. Not very realistically - is it? This is the moment when you demonstrate that you haven’t understood the rules of the game.

Now it gets worse: More often than not I see entrepreneurs asking for half a million in exchange for 5%. Their reasoning: It’s an angel round - and everybody knows that angels only get small stakes. Now - 5% for half a million values your company at a totally insane 10 million pre-money. In a word - you just proved that you are a clueless fool. And nobody invests into a clueless fool.

So - think about your valuation. As a rule of thumb: If you have an idea, a business plan, a half-way working prototype and the foundations of a team your company might be worth somewhere in the range of a million. If you have less - your company will be worth less (and yes - there are obviously exceptions to the rule; but believe me - they are rare).

Here’s a thought (partially based on observation): We all talk about starting your company on a shoestring, boot-strapping yourself, your fellow co-founders and your company to the max, starting ‘ultra-lean’ companies. This all sounds great and makes a ton of sense - on paper at least.

But here’s the question - does this actually work? And I am not talking about the exceptions but the norm. Certainly it has become much cheaper to start your company - pretty much everything is cheaper these days (server, hosting/housing, bandwidth, software, blah). But you still have some hard costs - at the bare minimum you need to feed yourself and possibly your family and there are some business costs which you simply have to shoulder (tax accountants and lawyers anyone?). And then you have costs beyond the sheer costs of running your business - marketing, PR, things you want to do in terms of business development.

Now - all the proponents of the ‘lead’ fraction (and most likely I am one of them) will tell you: You can do this yourself; build a great product and customers will come; PR now is “blogosphere only” anyway and so on. But - does that really work? I have a hard time coming up with many examples where this really worked (and with really I mean: a company which crossed the chasm, is financially stable and managed to grow to a decent size). But I know tons of examples of startups who made it (or are on their way to making it), who certainly were frugal with their cash - but they had some to start with.

As mentioned in the beginning - this is more a thought than a well-formed opinion. What do you think? How much better are my chances if my company has a decent runway in terms of financing versus the anorexic ones? I would love to discuss this with you…

Recently I shared a couple of discussions with founders whom I follow for quite some time and who, for numerous reasons, didn’t manage to close a financing round so far. What struck me in all these discussions was the persistence these founders showed - although they were drip-feeding their startups for months and months and spend considerable time and energy with their companies, they were still enormously upbeat and going. And although we all say that this is one of the core features an entrepreneur needs to bring to the table I have seen more founders who throw the towel much earlier than these guys.

Now here’s a personal story - when I had my first startup we managed to hit the dot-com bust head on (yupp, timing is everything); our customers shut their doors or simply refused to pay their bills, our investors were a pain in the neck, morale was low and I was very happy that I managed to sell the company in the end. Funny enough - if I would have stayed persistent, if I would have fought longer, if I would have had more of this energy these founders have, I am rather sure (with hindsight - which is always a nice thing to have!) that I would have managed to turn the company and command a significantly better exit. Well, well - you live and learn.

So - if you are out there, struggeling and wondering if it is all worth it… As long as you have a working business model (yeah, I am not saying that you should throw good money after bad money!): Hang in there! Be persistent! The companies which will come out of the current downturn are the ones which will reap the huge benefits in the end.

I read a lot of books (yeah, Amazon must love me!). I strongly believe that you can learn a ton by reading the right books - most books I read are therefore either business books or in related areas. Every now and then I come across a book which I think is really worth reading. Whenever this happens I tend to blog about it. Very seldomly I come across a book which I think is a must-read. If you are a regular reader of my blog you will know that the last book which crossed this benchmark was Guy Kawasaki’s “The Art of the Start” - which I consider a definitive must-read for every entrepreneur.

Now Guy’s new book “Reality Check” arrived - and it doesn’t disappoint. “Reality Check” follows an interesting concept - it basically is a collection of ‘essays’ (in lack of a better word) providing battle-proven advice on topics ranging from “The Reality of Starting” via funding, planning & executing, innovation, marketing & sales, hiring & firing to “The Reality of Working” and ends with a chapter on doing good in the world. The individual pieces provide short and precise advice as well as great food for thought - and are either written by Guy (often based on stuff he wrote on his blog before - so if you are intimately familiar with his blog you might find some stuff repetitive) or by co-authors who are authorities on their respective field of work.

The book is an amazing read for every entrepreneur - in Guy’s  own words: “I wanted to provide hardcore information to hardcore people who want to kick ass [...]“. And that’s exactly what it is - so now you have two books to buy: “The Art of the Start” to get your company off the ground and “Reality Check” to kick some serious ass (without the usual bull shiitaki or fuzziness which so many business books share).

And now for the best bit - I have a spare copy of the book which I will give away to a reader of my blog. Just send me an email till Sunday Nov 9th, I will draw a name Monday morning and one of you will get their free copy of Guy’s latest book.

Okay, this will be a bit of a rant (I will make up for it at the end with some real-world advice)… Recently my intolerance for pitches which state that company X or product Y is “revolutionary” seems to have increased - same goes for bull shiitaki (wonderful new term borrowed from Guy Kawaski’s new book ‘Reality Check‘ - more about this later this week) like “unique”, “game changers” and so on.

Frankly - I understand that you truly and fully believe that your idea and thus your startup is simply revolutionary. I did the same when I had my first startup back in 1998. But trust me - unless you have a working prototype of a cold fusion reactor or just cooked up a pill against cancer your product is in fact not revolutionary. And pitching your company as revolutionary in your first email to a VC will not win you any friends. Instead of the intended reaction “Uh, wow - a revolutionary company. I need to read this email and get back to this guy!” you will more likely get a reaction along the lines of “Revolutionary? Prick. Lets delete this email immediately and get on with life.”

So - what to do? Easy - strip your email from all bull shiitaki (this alone will win you a lot of friends) and focus on talking about the customer benefit instead. An email which clearly tells me why your product solves a real world problem will certainly be high on my list of things I want to know more about.

This just in: The team from Amazon’s Webservices (EC2, S3, etc) are coming to London on November 4th to discuss cloud computing, how it can help your startup to scale while keeping costs in check and how you actually implement their offerings into your product.

In their own words:

———

The AWS Start-Up Tour

What does every successful leader need, besides a great idea? The ability to scale their business and their infrastructure - on demand. Amazon Web Services provides its customers access to Amazon’s robust infrastructure and technological resources via services such as Amazon EC2 and Amazon S3. Utilizing these AWS solutions, you can compete on ideas, not resources, and turn your idea into a successful business. Come learn how Amazon Web Services empowers entrepreneurship, innovation and sustainable growth.

Who should attend:

• Entrepreneurs, founders and leaders of start-up/early-stage companies and venture capitalists

Reasons to attend:

• Understand how to integrate Amazon Web Services into your business
• Find ways to cut fixed infrastructure costs while increasing reliability and scalability
• Network with start-up leaders and investors from your area
• Learn from successful start-ups about their use of Amazon Web Services

Agenda:

• 2-5pm: Presentations from Amazon Web Services and from local start-ups on how they built their businesses on AWS
• 5-7pm: Networking/Cocktail Reception

Where/When:

• London, Nov. 4, ExCel London, Canary Wharf

Please RSVP here.

———

I’m a huge fan of cloud computing - and Amazon is certainly the 800 pound gorilla in this space (personally I have been involved in projects which utilized both Amazon’s EC2/S3 infrastructure as well as Rackspace’s excellent Mosso scalable cloud computing platform). If you are attending the event, make sure to spot me and say hi!

p.s.: Don’t forget to drop me an email if you are interested in some free advice on your pitch - see my blog post from yesterday.

It seems to be a sad truth: European startups are not terribly well versed in their pitching skills. Which is not only ‘too bad’ but a real problem as pitching your startup (and yourself) is so unbelievable important to get money, make those biz dev deals and simply survive in the shark-infested waters of entrepreneurship.

During Web 2.0 Expo I had some great conversations about this topic with Mike Butcher of TechCrunch fame, sat in the really well done PitchCamp x.0 session (my write-up is here) and had a great conversation (via Twitter of all things!) with Ted Shelton, one of the organizers of PitchCamp.

Now - here’s the deal: We all seem to agree that there is a lot to be learned on the pitching front. We all lament the current quality of most pitches (this explicitly includes myself - I love to moan about this topic!). Now I will put my money where my mouth is (well, there is no actual money involved) and will run an experiement: I will give a team/startup two to three hours of my undivided attention and will work with them on their pitch. We will do this at my house (which is in North-London), I will make coffee, provide cookies and we will make you pitch better. If this works I promise I will work on a way to scale this effort to help young startups hone their pitching skills.

If you are interested to join me for a morning or afternoon of coffee, cookies and intense discussions about your pitch, email me at [pascal at finette dot co dot uk]. If there is more than one team, I will rather randomly select one. We’ll do this sometime next week - so please send your emails with one to two sentences about your company before Sunday.

This is something I wanted to do for quite some time now… so here we go:

You are new to my blog? Hey - welcome! To get you started, here are couple of my better articles (yeah, this is arguable… at least I like ‘em) - most of them center around the broader topic of entrepreneurship.

• Startups beware - Which type of company do you want to be?
  [Link | 15/10/08]
• Mind the Capital Gap - a Post-Seedcamp Insight
  [Link | 13/10/08]
• Why FOCUS is the SINGLE most important thing for your startup
  [Link | 09/10/08]
• What trainers can teach your startup…
  [Link | 01/10/08]
• In a startup? You better follow-up…
  [Link | 29/09/08]
• Advertising is not a Business Model (for Startups)
  [Link | 22/09/08]
• Mozilla’s CEO John Lilly on Management
  [Link | 12/09/08]
• Guy Kawasaki on Funding
  [Link | 04/09/08]
• Start-up for Start-up’s Sake
  [Link | 10/07/08]
• The 10x Factor
  [Link | 04/06/08]

P.S.: I will add and make changes to this list, so feel free to bookmark this article and come back from time to time.

It is yet another weekend and you don’t know what to do? Here’s a great book for all aspiring entrepreneurs (and pretty much everyone else too): Jessica Livingstone’s ‘Founders at Work‘.

‘Founders at Work’ is a collection of interviews which Jessica - who by the way is a co-founder of Y Combinator (!) - with a ton of the great, great founders in Silicon Valley. The list includes mavericks such as Steve Wozniak (Apple), Max Levchin (PayPal) or Sabeer Bhatia (Hotmail) - the interviews often reveal not only what makes these people tick (which is in itself super interesting) but also pratical advice for your startup.

The book has a solid 4.5 stars rating on Amazon and should be on the bookshelf of everyone who toys with the idea of starting a tech company. Definitely a great read.

P.S.: This is offtopic - but I think I should add some more color to my blog; so from now on you will get wonderful Polaroid pictures alongside my blog posts.

Inc - one of my favorite magazines, published a great article full of valuable advice for every entrepreneur. It’s a quick 10 point list with guidelines on how to build a successful company. Some of my favorites are:

• Numbers run a business.
• Forget about shortcuts. Run a business as it’s forever.
• Cash is hard to get and easy to spend. Make it before you spend it.
• Don’t focus on the top line. Gross margin is the most important number on the income statement.

There are many more great tipps - plus explanations for all of them. So go ahead - read it. It makes a very good weekend read.

It’s nearly done - three days of Web 2.0 Expo excitement are over. Web 2.0 Expo was a conference which would have cost you a whopping EUR 1,300 if you want the full deal and didn’t book ahead, held at the fabulous Berlin Congress Center, was very well organized and turned out to be simply… boring.

I don’t even think it was the fault of the organizers - somehow most sessions (at least the ones I attended - which might be a problem of adverse selection) missed to inspire, missed to create a connect to the audience and too often defaulted to ’state the obvious’. Now this all might not even be the fault of the speakers - it might as well be the audience.

It definitely has been a while since I saw such a rather uninspired crowd. Gone are the days when you literally could feel the buzz, the energy to create. Now all you can see, hear and feel is the looming gloom of an economic downturn… or was it the simple fact that we are all sooo fed up by the damn Web 2.0 buzz?!

Anyway - I leave this place rather uninspired, yet knowing that these are great times: It’s a time where we will build real companies for real people with real business models. I - for one - am looking forward to this. It will be tough. It will be hard. But it will be good.

Now - back to London and get some real work done.