A friend of mine told me about a presentation he was preparing for a company event a few weeks ago. It was very important and all the other groups in this company had months to prepare for it. But he and his team were only notified the week before the event.

At first they felt unprepared and unable to get anything ready in time and on par with the other presentations. But they didn’t have a choice so they worked hard for a week and just gave it their best shot.

The result: their presentation was by far the most original, clear and professional one of all. This is an endorsement for my Deserted Island Strategy ideas but it also reminded me of another lesson from art school: If you add too many colors to a painting and mix them all up the result is a painting that isn’t bright and multi colored but muddy brown and without depth.

And muddy brown and without depth is a pretty accurate description of most company presentations, isn’t it? We all know how these things work when too much time is spend and too many people have to look at things and offer their opinion. You start out with a fresh and genuine idea but then everybody has to throw in their own original ideas too just to show that they are quite inventive too. The end result after all this friendly advice and modifications is a weak product with no identity and no sharp edges.

Sometimes is pays off to take a more intuitive approach to making a presentation, writing a document or doing anything in general. Try this on Monday:

If you have to make a decision, follow your first instinct

How do you do that? Simply by doing the first thing that comes up and sticking with it. Your second thought might be ‘That doesn’t seem logical’ or ‘that would be too funny’ but ignore those thoughts and just do what you intuitively thought was right. Post the result in the comments here.

Word of advice: when you operate a nuclear sub or work with dangerous substances or doing any other work which might kill you if done wrong please ignore this post.

When an entrepreneur pitches his or her company to a potential investor there always comes a moment where the following conversation takes place:

investor: “So how much money do you need”
entrepreneur: “About a million”
investor: “Sounds reasonable, and much do I get for that?”
entrepreneur: “10%”
investor: “10%??? So you value your company at 10 million right now? I don’t think so. I was more thinking along the lines of a 2.5 million valuation.”

I have had to defend myself a few times in this situation but also used the same argument when talking with other entrepreneurs. But I don’t like it one bit. I think we need another way to look at this and I have come up with a simple formula which I would like to call the Sliding Scale Valuation Formula.

The basic thinking goes like this: If I pay 1 euro for 10% then 100% must be worth 10 euros. Simple and clean and shown in the illustration. But what entrepreneurs and investors often overlook is that in reality each share has a different value.

One simple way to prove this is if you would own 10% and would be able to buy 1% more. If the company would be worth 1 million that one percent would cost you 10.000. Right?

Now let’s assume you have 50%. Would that extra 1% still cost just 10.000, or would you be willing to pay more for it? Having 50% or 51% in a company makes all the difference so my guess is that you would easily pay more than 10 times the amount.

So all percentages are not created and valued equal.

Another example, in the form of a very old joke: a man pulls into a gas station and asks the owner: ‘How much for one drop of gasoline? The owner replies ‘don’t worry, that’s free’ to which the man replies ‘Ok, give me a full tank of gasoline drops then’.

We all understand that there is a huge difference between one drop of a full tanks of gas. So why does this not apply to a start-up? Why does the selling of 10% for 10 imply that the other 90% must be worth 90? It doesn’t. In fact, the other 90% is completely worthless to anyone but the owners. If they would sell the full 90% there wouldn’t be a company left.

So in fact there is a sliding scale in the valuation of a start-up which I illustrated here too. Each company is different and the numbers are influenced by the percentage you sell, the number of shareholders and the age and status of your company and so each sliding scale will be different. In some cases the scale might even tip the other way which would mean that the percentage you are selling is worth less then the percentage you keep. And the more value is inserted into the company and the more shareholders you have the more likely it will be that the scale evens out and a percentage actually equals a percentage.

But for start-ups I think we need a Sliding Scale Valuation Formula.

So what formula do we use? If you find a good investor, with a great network and fantastic ideas his investment easily doubles the chance that your start-up turns into a successful company. So it doesn’t really matter if he has 5%, 10% or 35%, his investment is responsible for 50% of your success. So let’s use that as a starting point and construct the following formula:

What the investor invests is doubled to calculate the value of the start-up

Simple, elegant and effective. It helps you defend the percentage you are offering and puts a bunch of feathers up the butt of the investor because you get to explain that he is responsible for 50% of your success.

So the next time a VC or investor asks you about your valuation I suggest you tell them an old joke, about a drop of gasoline…

Erik at publicworks.nl just mailed me a link to a page for the Computing and Communications Infrastructure Futures Laboratory. They have a logo that is strikingly similar to our logo. The good news: my design looks better!

As we are finishing the alpha version of the software we grow more and more anxious and insecure about, well, everything. It’s a natural phenomenon to get nervous just before the finish but knowing that is only slightly comforting.

As I was walking home from the office today I noticed a Keyfinder in a shop. It reminded me of all the great inventions that seemed great at first, but weren’t after all. When my father first told me about this particular invention (I must have been I was thrilled with excitement over this beautiful and extremely useful gadget. I imagined never losing anything again and saved money until I could finally buy one.

But theory was better than reality as it often is. The keyfinder I got only worked if you were within 10 feet of it, it was clearly in sight and I whistled straight at it in just the right tone. In other words: it didn’t work at all.

Stuff like that scares me to death am I’m sure it has this effect on every serious entrepreneur. After all; it is our job (as entrepreneurs) to convince other people of something ‘new and improved’ and make some money in the process. But sometimes your ‘new’ isn’t much of an improvement and there is no other way to find out than to try and risk everything. And some people get so scared that they might say ‘Maybe the timing isn’t right’ or ‘It’s not perfect yet, maybe I should wait’ which is all nonsense of course. It’s just another way of saying ‘I am scared shitless’.

And still, every time when I’m nearly finished with a project I feel the same anxiety, which I will now call ‘Completion Anxiety Syndrome’. It is that feeling that slowly creeps in and starts messing with your ‘Completion Euphoria Status’…

We are looking for people in Amsterdam who are willing to test the Alpha version of Fleck somewhere in the following week. Testing will take place at the Fleck office and we will shower you with beer and pizza.

You will have to bring your own laptop (Mac, PC, Linux or any other OS as long as it has LRF support) with Firefox installed (and Wi-Fi or Ethernet) as you will be needing that to install the Fleck Extension…

Aha, so it’s an extension??? No, Fleck is more than JUST an Extension. But the Extension is an important part of Fleck and we need to test it.

Please contact us if you are willing to participate.

Today I received an email from Joseph, one of our regular Fleck Blog readers, with an interesting question. Here it is:

How do you keep a team motivated when there is no revenue. We are about to establish our Corporate Guidelines and the subject of equity came up. How do you establish who gets what piece of the company at start-up, while the site is being rolled out?

I was just having a discussion today about the same subject and spend some time thinking about it. There is no easy answer and I’m sure different people have different strategies. My strategy is simple: give away a lot, make big steps soon, try to make the circumstances as ideal as possible to grow big fast.

Now before you give away your whole company and then complain to me when this doesn’t turn out well, a few words of caution. I have no problem with making other people rich if they help me get rich faster and easier. I have always felt that way and have never regretted it. But this strategy can fail miserably too. You need to be very sure that the partners you have are the right people for the job and that they will indeed make your company or product grow faster and better.

So if you are sure that your partners are good and are going to make your company a success I would reward them well. Remember that people get motivated most by being appreciated. Respect is a much better motivator than money. So don’t try to negotiate their shares down to the last penny. Show them you respect them, care for their opinion and want to give them a fair share. Explain why the percentage you chose is reasonable and that they are valuable to the company.

I call my model the distributed wealth model: make sure your employees are happy and make a lot of money, your customers are satisfied and your investors get rich and you will do fine yourself too.