If your plans to start a company require an investor and you’ve never purchased a stock, please do so now. Start a portfolio, and even with small purchases of public company stock, you’ll better understand the role of your angel investor or venture capitalist. You’ll better understand what they’re looking for and what your business has to do in order to become a success.

Portfolio Rant

Around last fall, I started trading with an E*trade account to better understand other investors using Wikinvest.  Prior to that, I had spent some time positioning a 457 account, but nothing more than that. Just a few months into my time at Wikinvest, though, it was hard to not want to invest.  I’m constantly reading investment reports, finance blogs, news, and generally talking about the markets and investment ideas.  It was a perfect fit and, lucky for me, I decided to start my investment portfolio right around the time of one of the greatest stock market crashes ever.

Investing since Wall Street’s collapse in October (and then Geithner’s bobble in March) has its benefits.  With valuations seemingly at the lowest they’ve been in decades, it felt like a good time to be greedy (or as greedy one can be when purchasing 10-50 stocks at a time).

Flash Player 9 or higher is required to view the chart Click here to download Flash Player now

Investing has since fascinated me.  I’m in awe of the thought that, for $9.82, I can own part of American Express (it certainly helps that their dividends offset some of my credit card interest too) or Tata Motors for $4.42.  Ownership can be addictive, and I certainly throughout some of the markets lows.

Since this is an entirely new portfolio of mine, I have a long horizon.  Unless we go into a 1990s Japan-like slide, I’m assuming that a monkey could make money with a long-term investment just after the Oct 08 to March 09 fall.  That said, I’m certainly not willing to count on that, and after markets rose this spring and summer, I’m now looking for quality companies.

I like a good, low debt-to-equity / high ROA / low P/E combo if it’s to make it into my portfolio.  From all the opportunities out there, I start with sectors and regions and work my way down to companies.  I stay away from retail in the U.S., but I embrace it in India and China.  I like companies that build things, or build things that are used to build things, or transport things, or dispose of the wreckage from buildings things.  I like financial institutions — a few of them at least, the ones I haven’t heard much about on television.  Before I invest in a company, I look at recent earnings reports, annual reports, investment reports, and read news associated with the company.

The Investment Portfolio as Venture Capital

It’s not long into this process that I realize what it must take for a VC to part ways with several million dollars of their and their client’s money for an unproven idea and company, all the while knowing they can only, maybe, get the initial investment back in three to five years.  If they’re incredibly good and lucky, they’ll get that investment back with interest.  It’s no wonder it’s hard to get money from a VC.

Flash Player 9 or higher is required to view the chart Click here to download Flash Player now

I’ve found I have certain tendencies with my portfolio similar to a VC.  For my stable investment — the IRA — I’m less willing to risk an entire company’s collapse.  I focus on ETFs like ADRE or QQQQ that follow big emerging market and major technology companies, respectively.  On the other hand, I’ve come to think of my trading account as my “extra” savings where I can take chances.  It’s where I’m going to prove my investor worth.  I’m OK with it disappearing over night.  I’m willing to be risky with multiple small cap companies, looking for one explosive stock.  I spread those investments around; some work while others don’t.  I do what I can to be good and hope to get lucky.  Sometimes, it’s no wonder it’s so easy to get money from a VC.

Portfolios for Founders

The other part about running your own portfolio is — you learn to understand the levers for building your own business.  Create more value than you require.  Give away equity for cash; take on debt for cash.  Purchase people / space / machines.  Convince someone to give you more cash and continue the loop  It’s all there within your portfolio.  You expect management of your portfolio companies to control costs, increase their cash, and demonstrate health by increasing earnings, milestones, dividends, etc.  Management has to preach to employees and investors, alike, with probably a slightly different story for each.  It all sounds like start-up world to me (except those dividends, of course).

As an early founder, you’ll be stuck in the details of your business at all times.  Your investors won’t.  They’ll expect you to step back from the conversation about the misalignment of that button by 5px and figure out whether your market strategy is going to withstand this economy given your cash on hand.  They’ll want it in digestible figures and metrics.  Further, they’ll want you to put your thousands of hours a year into a half hour phone call and presentation.  They just want the basics — are you creating more value than you require?

It makes you understand both the weight of the founder and the risk a venture capital takes investing in a start-up.  Both parties are flying blind in this arrangement.  There’s no easily accessible “Sell” button like there is on my E*trade account, and a bankrupt start-up is worth even less than GM.  Investments are designed for a three to five year exit (at least) with only a hope and a prototype to go on.

Founders, it’s up to you to figure out the rest.  You should understand what your investors are going through (employees are investors too — but that requires another post).  Just remember to create more than you require.  Start from nothing and be willing to lose everything.  Create ownership.

Related articles by Zemanta

• Cheap equities are an opportunity for investors (telegraph.co.uk)
• Dipping your toe into international waters (money.cnn.com)

There are myriad ways for you to build traffic to your website.  At a high level, you can buy advertising.  You can create something sticky that people can’t stop using.  You can create something that plays nicely with search engines and win the SEO game.  You can become a social media star, build a popular blog for your website, or even (gasp) use offline promotions or advertising.

Beyond that, you can go deeper into your expertise.  Learn how to effectively target your ad campaigns, reduce your CPCs for your online ads, or find free ways of advertising your site.  Measure what your users use most, build human-friendly URLs, write keyword rich content.  Start your Twitter campaign, Friendfeed account, and Facebook account — then, link them all.  Now, take all of the various ways I’ve just described, throw in all of the techniques I’m missing, mix and match, and, well, you’ve got innumerable ways to build traffic.

Please, please, just don’t use the automated email request for a link exchange with other sites as a way of building traffic.  Anyone that’s ever run a barely popular website has seen one of these things:

Hi

My name is NAME. I’ve just visited your website
enterventure.com and I was wondering if you’d be interested in
exchanging links with my website. I can offer you a HOME PAGE link back
from my Business and Marketing website which is WEBSITE URL HERE
with page rank #.

As mentioned, your link would be placed on the site HOME PAGE, not on
any “links” pages which may be buried in the site somewhere. I’m sure
this exchange would be benefitial for both of our sites, helping
towards increasing our visibility in search engines.

If you are interested, please add the following information to your
website and kindly let me know when it’s ready. I’ll do the same for
you in less than 24 hours, otherwise you can delete my link from your
site.

I’ve only recently begun receiving these emails at EnterVenture.com, but I’ve seen an almost bi-weekly message like this one while working at Wikinvest.  (Remember what that feedback email breakdown looked like.)  Quite honestly, I don’t know for sure that these messages don’t work (some people must buy into them or else they’d have died out by now); however, I’m fairly certain that any site worth it’s page rank isn’t going to respond to this message.  More importantly, if you’re relying on this stategy, or are relying on a “web consultant” employing this strategy, it’s very clear you’re fishing for an easy path to success where one simply doesn’t exist.  By virtue of using this strategy, you’ve already predicted your site’s future demise. 

There’s only one free lunch you’ll find at a startup — the one given to employees to keep them in the office working longer.

A while ago, I wrote about how you should use feedback to your advantage — particularly when it comes to running a website.  Without the person to person contact of a brick and mortar business, website owners will take all the feedback they can get.  The truth is, though, it’s incredibly hard to get good feedback online.

Where’s the feedback?

How hard is it to get meaningful feedback online?  I recently took a look through all of the feedback emails sent to Wikinvest

since I joined.  Without actually counting them, here’s the rough breakdown of emails in order of email “market share”:

1. Classes and Conference invitations
2. Complain letters to company executives (i.e., someone goes to the Honeywell page and writes a nasty feedback letter “to Honeywell” — only, Honeywell doesn’t get it, we do.)
3. Requests for link exchanges
4. Advertising / Partnership inquiries
5. Feedback of the Useless Variety (everything looks great!)
6. Feedback of the Useful Variety (complaints)

There’s no better feedback than complaints.  Of course, we all love the pat-on-the-back feedback email, but its’ the “what the hell’s wrong with you?  No one can read that font!” email that really gets us moving.  At Wikinvest, total feedback — both useless and useful — probably only equates to 5% of all emails to our feedback address.  To take a great example, today Wikinvest released a whole slew of new features, including a bit of press to go with it.  What sort of volume did we see in our feedback inbox?  We had five emails — despite the fact that traffic today was multiples higher than a typical day.

Despite the huge Get Satisfaction Feedback buttons that have been popping up all over the web, it seems like most often, feedback emails are anything but.  That first time you put up the feedback button, you think, “Hey, someone’s going to email us and tell us they love that widget 13 pixels above the comment box.  It’s much better than the 5 pixels we argued about for half an hour.”  Surprisingly enough, it doesn’t work that way.

So, how do sites actually get meaningful feedback from their users?

Analytics

There’s no better way to understand what your users do and don’t like data and analytics.  You can get an unlimited amount of information about your users if you know how to pimp out your Google Analytics the right now.  If you’re not going to tell us what you like and don’t like with your words, well, we’re just going to figure it out with your clicks.  The only problem with analytics, though, is that it only tells you what people like and don’t like.  The “why” people like and don’t like your service is up to you to figure out.  Maybe some of these other methods help…

Social Media

Like I said, after today’s Wikinvest launch, we saw four meaningful feedback emails; however, the TechCrunch article had 19 comments.  The Giga Om and Wall Street Journal articles had a few more.  On Twitter, the flood of Wikinvest references certainly helped too.  Users are talking about your site, they’re just not talking to you so you have to go out and find them.

Group Protest

This one’s exclusive to sites that allow it’s users to form groups around certain passions.  That’s right, I’m talking to you Facebook.  Who knew you were so lucky to have groups you could go to like, “The New New NEW Facebook Redesign Sucks — Boycott Facebook! — Oh wait, no, we actually like it now.”

Power Users

At Wikinvest, we’ve discovered a novel way of getting feedback from our users — talking to them!  On the phone even!  A group of power users helps propel Wikinvest’s content, but, almost more importantly, they’re invaluable to feedback about new products and features.  They tell us what we should and shouldn’t be doing, help fill in gaps in our team’s knowledge base, and often, they just know what they want better than we do.  You might call them consiglieres; oh wait, we do call them consiglieres.  Thanks guys!