Selected ideas and assistance to entrepreneurs and startup founders in finding business ideas, funding, executive mentoring, and business networking to incorporate a business, file patents, add an advisory board, and address operational issues.
It’s great to start with a big dream as you contemplate a new business, but finding the money you need takes more than dreaming. As an advisor to young entrepreneurs, I find that many are a bit naïve about how the investment process really works. For example, I just read an otherwise impressive business plan last week from a first-timer who asked for $10 million to get started.
In my first working session with this entrepreneur, I suggested ways to break this request into stages or tranches, based on showing traction, with the first amount in a more affordable range of $50 thousand or less. Even with that, you should expect your first seed investment from friends, family, or business associates, who know your capabilities and believe in you more than the idea.
In fact, according to a classic article on Fundable, and other statistics, friends and family are still the major funding source for new ventures, investing over $60 billion annually, more than all professional sources combined. Of course, the average beginning amount per startup is low, and usually in the form of a convertible loan, rather than an equity investment.
Large amounts from professional investors come later, when you have proven yourself, and are ready to scale the business. To me, this is a logical step function, and confirmation that the right founders are always more important than the right product. Yet, even with friends and family, as well as professional investors, you need to approach them right to be viewed as the right people:
Ask for a specific amount based on a specific milestone. Shy introverts may be great technologists, but they won’t be entrepreneurs until they learn to respectfully ask for funding, after nurturing relationships, and practicing their elevator pitch. Waiting for someone to offer you a gift with no specific objective is likely to be a long wait.
Be prepared with a formal agreement and a thank you. The vehicle of choice is most often a convertible note, which is really a loan with a specified duration and interest, with an option to convert it to equity when professional investors come in later. Review with an attorney to make sure the terms are fair. This shows respect and professionalism.
Pitch your personal investment and commitment to date. Friends and family are quick to differentiate between a passionate hobby and a sincere effort to change the world. Show them that you have done your homework with industry experts and potential customers, and convince them you are not asking for charity or a donation.
Get started first on your own time and money. We all know people who are good at talking, but never seem to risk anything or find time to get started on the implementation. Every good entrepreneur needs to invest skin in the game, to show credibility and leadership to others. Even family investors want to be followers, not the leaders.
Be sensitive to the limits your friends can afford to lose. In other words, don’t be greedy, and remember that you value relationships with these people even if your startup fails. Ask for the minimum amount you need to reach a significant milestone, with some buffer for the unknown, rather than the maximum amount you can possibly squeeze out.
Communicate your plan and the risks up front. Remember that no investment is a gift, and everyone who buys in deserves to hear what you plan to do with their investment, and expects regular updates from you along the way. Be honest with naïve friends and trusting family members, since more than 50 percent of startups fail in the first five years.
Focus first on friends with relevant business experience. A wealthy uncle may seem like an easy mark, but a less wealthy friend who has connections and experience with startups in your domain can likely help you more than any amount of money. Remember that you are looking for success, not just money to spend.
Tie investment return to revenue rather than a fixed date. Rather than set a date-driven repayment schedule, tie investment returns to a percentage of new product revenue, or a plan to convert the debt to equity. Use the minimum viable product concept to get revenue early, and allow market and product pivots at minimal cost.
In my experience, if you can’t find any friends or family willing to take the plunge with you early, or you have none of your own skin in the game, professional investors will likely take that to mean they shouldn’t be risking any money on you later.
In any case, I’ve never seen a new venture yet that couldn’t be started for less than $10 million. The challenge for every entrepreneur is to come up with creative ideas for financing, to match their innovative solution. Every investor I know believes funding creativity is what separates successful entrepreneurs from the dreamers. First impressions are everything in this business.
In my years of advising startups and occasional investing, I’ve seen many great ideas start and fail, but the right team always seems to make good things happen, even without the ultimate idea. That’s why investors say they invest in people (bet on the jockey, not the horse), rather than the idea. Yet every entrepreneur I meet wants to talk about the idea, and rarely mentions the team.
Thus I was happily surprised when I found the classic book, “The Tech Entrepreneur’s Survival Guide,” by Bernd Schoner, PhD, and cofounder of ThingMagic, which leans heavily on the people side of the equation. He gives a wealth of practical advice on building a successful technical startup, including some specifics that I like on what constitutes a dream team of partners:
The technical guru. You need to have a technical genius on the team to get your startup product off the ground. Outsourcing your core competency does not work. The technical skill can be highly specific, and the person may be a prima donna, but the role is required. If you’re lucky, your guru also brings some commercial contacts to the table.
The trusted leader. Running a new company cannot always be a consensus-driven process, especially when hard decisions need to be made that affect everybody’s lives. Being the leader doesn’t mean more equity, nor does it mean the leader will necessarily be CEO. It just means that the cofounders trust one of their own and are willing to follow.
The industry veteran. It takes a long immersion in the marketplace for someone to be a true insider, understand the subtleties of the competitive landscape, recognize the people who are true assets (independent of titles), and look through the propaganda of technical collateral and PR campaigns. These people also have the credibility to attract investors.
The sales professional. Young high-tech startups are at constant risk of forgetting that they actually need to sell the wonderful technology they invented. A sales fanatic on the founder team helps to contain that risk. The combination of technical insight, founder authority, and sales experience is a hard-to-beat advantage in a competitive market.
The financial suit. You need a trained CFO to fill the financial gaps on your team. Outside professionals are always available, but they may have their own agenda, such as building a career, making money quickly, or managing up the stock price for a quick exit. If one of your cofounders has the necessary skills, your team will make the tradeoffs.
The operations superstar. In the midst of high-tech development, funding, and selling, someone has to keep the office network running, get processes documented, and manage to keep everyone happy and busy. Fortunately, no combination of eccentricity, nerdiness, and charisma is required. Hard work and attention to detail are the key.
I’m not suggesting that you need all six of these as cofounders initially, but I always recommend a minimum of two founders with different perspectives. The rest can come from early hires (with stock options to assure commitment), equity investors, or even strategic partners. Outsourcing any of these critical roles is very expensive, and usually not very effective.
If you can’t recruit all of these onto your direct team, the next best alternative is to build a first-class Advisory Board of outside people, with the requisite skills and a wealth of experience. These should be hand-picked, come with a proven track record, be willing and able to help, and be completely trustworthy. The best startups have both strong cofounders and strong advisors.
What if you are convinced that your idea is great, but you just can’t seem to pull together the team and advisors you need? It’s time to think about licensing what you have to an existing company already in business, and give up developing and marketing it yourself. Remember the old adage that a small percentage of something is better than a large percentage of nothing.
Their success with your idea will at least give you the connections and the credibility to get the right team together on your next idea. Another alternative is to rely on that famous first tier of support, called friends, family and fools. Or you can always bootstrap the idea yourself, get some traction, and build your first startup organically. It’s a longer road, but may be more satisfying.
We all love the dark horse who comes from the rear to lead the pack and win the race, but very few of these really happen. Schoner and ThingMagic are now part of JADAK within Novanta, a multibillion-dollar public technology company, so success is possible without that initial dream team. My message is that it can be a lot more fun if you engage the right team at the beginning.
There is an old saying that good lawyers run away from risk, while good businessmen run towards risk. Entrepreneurs see “no risk” as meaning “no reward.” In reality, all risks are not the same. Many risks can be managed or calculated to improve growth or provide a competitive edge, while others, like skipping quality checks to save money, are recipes for failure.
The challenge is to avoid the bad risks, while actively seeking and managing the smart risks. There are no guarantees in business, but it pays to learn from the experiences of entrepreneurs and business experts who have gone before you. As a long-time mentor to entrepreneurs, here is my collection of smart risks that investors and I look for in new startups:
Focus on a tough customer problem rather than a fun technology. Investors hate technology solutions looking for a problem, due to the high risk of no customers. If the customer need is obvious and large, the calculated risk is in the quality of your solution, your team, and marketing. These are risks that can be mitigated with the right resources.
Schedule frequent updates to your solution to maintain growth. Assuming that you can quickly recover after competitors kill your cash cow is not a smart risk. You need a plan to regularly obsolete your own offerings, with continuous innovation, before customers send you negative messages. It’s hard to recover from a tarnished image.
Plan to deliver a family of products, rather than a one-trick pony. Even a great initial product, with no follow-on, won’t keep you ahead of competitors very long. A smarter risk is to build a plan, with associated greater resources, that will put you in position to expand your product line and keep one step ahead of competitors.
Implement a modern real business model. Providing everything free, and growing users to the max for years, like Twitter and Facebook, is a high risk approach requiring deep pockets. Risk is more manageable with subscriptions and even freemium pricing. Even non-profits need revenue to cover their costs, and continue to provide services.
Find a strategic partner to accelerate growth. Everyone wants to forge ahead all alone, and kill every competitor in sight. Almost always, risks are more predictable when you use coopetition for access to new customers, economies of scale, and shared resources. Finding win-win deals is a manageable risk, versus a battle with one winner.
Use metrics to measure results of marketing initiatives. Too many entrepreneurs put all their resources in one big make-or-break effort they can’t measure, or they count on word-of-mouth and viral marketing, which are totally unpredictable. I like marketing plans that come from both inside and outside the box, but have milestones and measurements.
Recruit the best team members and provide incentives. Trying to save money by recruiting family members, or hiring only interns, is a bad risk. Great team members may take more time to find, and cost you stock options, but a qualified and highly motivated team that stretches your budget is a good calculated risk.
Build your business with minimum outside funding. More money is not more likely to solve your problems or reduce your risk. Investors know that startups with too much money fail just as often as those with not enough. Strategically, you need a plan to survive through organic growth, with outside funding to effectively accelerate scaling.
Don’t rely on conservative forecasts to reduce risk. Investors don’t fund conservative forecasts, nor wildly optimistic ones, since both imply a lack of commitment or homework. Opportunity and revenue projections based on deep market and customer analysis are a smarter risk. Measurements and business intelligence along the way also mitigate risk.
Be a leader rather than following in the footsteps of another. Many entrepreneurs think they can reduce and predict risk by emulating previous winners like Google and Twitter. But stepping into a crowded space to steal customers is more risky than attracting new customers looking for a solution. Customers like leaders, not followers.
The risks you want to take are the ones that you planned for in your resources, set up metrics to measure, and manage on an ongoing basis. All the rest are bad risks, including problems you didn’t anticipate, competitors you didn’t know about, and customer expectations that you can’t meet.
An age-old measure of startup health is how much time top executives spend on containing bad risks, versus proactively exploring new risk opportunities. If the majority of your time is in recovery mode, your whole startup is likely a bad risk.
The market is changing so fast these days, and if you are not planning a solution today for tomorrow’s customers, you may be setting yourself up for failure and don’t even realize it. There are always new competitors who are planning their arrival tomorrow. As an angel investor, I routinely toss business plans that focus too much on today, and don’t talk about tomorrow.
As an example, I was just reading a plan for a new dating app with a tagline of moving users quickly from the virtual world into the real world of offline dating. That may be a boon to dating today, but if your business is making money from apps, it seems like your success will convince users that they no longer need your product tomorrow. Tomorrow is never mentioned in the pitch.
I was happy to see a real focus on preparing for tomorrow highlighted in a new book, “Start a Successful Business,” by Colleen DeBaise, who has made a career of studying and writing about entrepreneur challenges. She offers seven ways that business owners can identify and evolve with future trends, which I agree with and amplify here:
Take advantage of industry research and trend reports. I often hear entrepreneurs who seem to rely wholly on their own passion, and the view of a few friends. With today’s Internet instant access to all the latest reports and white papers of industry experts, there is no excuse for not staying current with outside perspectives, to temper your own views.
Regularly follow reviews and influencers in your industry. Of course, you may not have the time or desire to read through every document in your space, but it’s not so hard to find and follow some key influencer blogs on social media. These experts will curate the information, point to the best sources, and summarize implications for you.
Use tools and analytics to identify trends and directions. There are many free generalized tools, including Google Trends, which can be used to track customer behavior in looking for things that don’t exist yet. In addition, most advanced CRM systems will help you analyze your specific customers for directional behavior.
Make it a point to surround yourself with smart people. An easy way to connect with people you can learn from, and keep your pulse on where things are heading, is to hire team members who are smarter than you in complementary business areas, including marketing and sales. Spend more time with people who can help, rather than be helpers.
Build and listen to an effective group of advisors. Find mentors and advisors who have more relevant business experience, insist you see things that aren’t on your radar, and spot what’s coming around the corner. A good advisor will tell you what you need to hear, not what you want to hear. You don’t need friends and family as business advisors.
Ask the right questions, and listen to your customers. Don’t be afraid to ask current customers what’s on their wish list, and what they see as future needs in their areas. Beware of linear thinking on their part, so it’s your job to expand their scope with ideas outside the box, and ask them for a view of the business several years down the road.
Learn to accept, and even schedule change regularly. The alternative is to be into the mode of playing catch-up, which can cause you to make mistakes in execution, or even get there too late. Sometimes you have to kill the cash cow, or make personnel updates before the crisis, to assure long-term business health.
I once served on the Advisory Board of a technical software executive who refused to believe that his product was no longer competitive, and insisted that sales and marketing were no longer doing their job. Unfortunately, we were unable to convince him to initiate a broad product upgrade, until the damage was severe. Thus no amount of input will help, if you are not listening.
In today’s market, it takes more than listening to stay ahead of the crowd. It takes initiative, a mindset of planned obsolescence and innovation, and a concerted effort to “see around the corner,” to see things that your customers will need, even if they don’t realize it yet. What have you done lately in your business to survive against the next Steve Jobs?
Sometimes entrepreneurs are so focused on making change happen for customers that they forget that continually changing themselves and their company is equally important. Some get stuck in a rut and get run over by competitors with new technology, like Eastman Kodak, and others get pushed into a crisis, like Apple did, before they reinvent themselves into a new market.
Everyone and every company needs to continually learn from their experience and adapt to a changing world to thrive. “If it ain't broke, don't fix it” is an old adage that really doesn’t work in today’s business world. If you don’t plan to reinvent yourself regularly, your competitors will make you obsolete, and any success to-date will likely be short-lived.
In his classic book “Invent, Reinvent, Thrive,” Lloyd E. Shefsky, Entrepreneurship Professor at the Kellogg School, highlights this message, and provides some expert insight on how entrepreneurs can apply the principles to their own career and company. Here are the key recommendations from both of us, based on my own business mentoring insights:
Re-launch using your enhanced core competency. Use that same technical and business expertise that served you well on this startup to find the next opportunity. I’m sure you have seen many new ones, and now understand even better the due diligence required to validate the opportunity, and the executions steps required to make it happen.
Ignore the voices of dissent again. Negative advice on an unknown is easy and safe to give, so every entrepreneur hears it over and over. As an entrepreneur with some success, you had the confidence to prove them wrong once, so don’t lose your nerve and try to play it safe now. Proven problem solvers only get better with practice.
Listen and act on the ideas of others around you. Take advantage of the fact that you have surrounded yourself with key people who have good ideas, but may lack the skills or confidence to act on them. Skip the arrogance of “not invented here,” and re-invent your current company, or start a new one, before a crisis occurs.
Move to a higher platform. Many entrepreneurs get their first taste of success running their own consultancy or practice. A few are able to move to higher platform, like moving from a sole practitioner physician to create and run a much larger medical organization. That’s a type of re-invention that can give you a major advantage over competitors.
Changing times call for a new skill set. Smart entrepreneurs in any given industry, like publishing, recognize the appearance of new technologies which threaten their survival, including digital publishing and print-on-demand. The best immerse themselves in these technologies, and invent new businesses, rather than fight in the old one to the death.
Seek out customer trends before they become an avalanche. Don’t stop doing the in-depth communication with customers that brought you initial success. Plan an annual set of customer sessions that you don’t delegate to subordinates. If customers don’t convince you to re-invent a part of your business each year, you probably aren’t listening.
Find mentors who have the skills you lack. Proactively seek out mentors who will tell you what you need to hear, rather than what you want to hear. Work on the new skills you acquire from your mentor, and test incrementally what you have learned. With each new skill you acquire, your likelihood of long-term success is improved.
Expand your investment alternatives. If your business success so far is based on family and Angel investors, perhaps it’s time to start working with institutional investors and external business partners. Their expectations and insights will broaden your view, and may incent you to upgrade your strategy, or re-invent a portion of your business.
Entrepreneurship is not a one-time transformation that qualifies you long-term success. It is a lifestyle, like many others, which requires constant effort to keep you ahead of the crowd in a rapidly changing business environment. Standing still is falling behind. What is your action plan to continually re-invent yourself and thrive?
Today’s customers are much more in control of their buying decision, as they have more choices and more information than ever before. Almost instantly, via the Internet or on their smartphone in the store, they can find the lowest price alternative or their favorite features, without waiting for push marketing or listening to your best sales person.
This can be an advantage to startups who don’t have the resources and brand awareness of mature businesses, if they understand and position themselves to win in the decisive moments of the new customer buying process. These decisive moments, and how to respond, are outlined in Robert H. Bloom’s classic book, “The New Experts: Win Today's Newly Empowered Customers.”
Bloom is a widely known expert on managing business growth, and he starts by summarizing the three key weapons of current customers, which include an instant summary of choices, prices, and features. His research indicates that they don’t have any old-fashioned customer loyalty, and they want precisely what appeals to them at the moment, preferably customized just for them.
New startups actually have a flexibility advantage over more mature businesses in anticipating and reacting to the four key decisive moments that Bloom outlines and I have observed in the new customer buying process:
Survive the now-or-never moment. You only get one chance to make a great first impression. If you can’t get a positive customer perception at this first moment, you will likely never get another chance – with so many other alternatives. The key to winning in that moment is to think like a buyer, not the seller. Build a relationship and trust quickly.
Win the make-or-break moment. You win here by getting the customer immediately engaged, and keeping him there, by knowing their interests and expectations better than any competitor or alternative. Avoid the extended period of evaluation and negotiation during which the customer will likely move to other transaction alternatives.
Sustain the keep-or-lose moment. The buying process is just the beginning of the customer experience, and it has to remain a good one throughout the time that your customer actually uses your product or service. Great startups manage to continually improve the relationship through outstanding follow-on support and service.
Capitalize on the multiplier moment. Of course you want your customer to come back, but the best ones also become your evangelists in bringing their friends to you, and broadcasting their positive experiences to the world through social media. This is a key moment where your customer acquisition costs go way down, and your profits go way up.
This new world is all about empowered customers. As an entrepreneur and startup, you should love this environment and cater to it. Many existing businesses see it as a big problem, and can’t adapt easily. That’s your chance to step in and compete at every moment of the customer buying process, usage experience, and follow-on events.
As you bring on employees to facilitate your growth, they have to embrace the new reality. Empowered customers required empowered employees, and your internal business processes have to be aligned with the same principles and the same smartphone and Internet technologies. Make sure you adopt the right hiring practices and training to keep your team responsive.
Then you have to trust the team to think and act proactively on behalf of your vision and mission. Of course, both you and they will make mistakes, which are the best learning experiences. Continuous innovation and change are the keys to staying current, reducing complexity, and delivering the winning customer experience to keep you ahead of the competition.
What most companies don’t realize is that businesses don’t drive customer trends anymore, customers drive business trends. Consumers are well aware of the latest technologies, and their expectations are usually ahead of even the most forward-thinking startups. It’s up to you to understand and capitalize on the decisive moments of empowered customers, or you will become a “has-been” before you even start.
Most small businesses have now forgotten the last recession, and are back to “business as usual.” They don’t realize that business as usual is gone forever. With social media and smart phone apps, real product information spreads at astounding speeds. Entrepreneurs that are not listening, not engaging, and not changing are destined to be left behind even in the best of times.
Business agility is defined as the ability to adapt rapidly and cost efficiently. It is required today for new innovation strategies, analyzing markets for new opportunities, and organizational changes. Today’s customers are much more proactive in going online for the latest information, rather than simply reacting to the “push” messages that businesses traditionally use to drive commerce.
According to a classic survey conducted by Dimensional Research for Zendesk, 90 percent of respondents asserted that positive online reviews influenced buying decisions, and 86 percent admitted buying decisions were influenced by negative online reviews. Yet there is current evidence that as many as 30 percent of businesses still don’t even have a website or go online.
If you as an entrepreneur are not “listening” to your online reviews, and not moving quickly to make changes, you are losing ground. Moving forward, you should expect the market volatility to increase, driven not only by customers, but by new technology, changing government regulations, and a surge in new competitors.
For a business, volatile markets are a source of great opportunities, as well as great risks. Every entrepreneur must be alert enough to spot the change early, and agile enough to adapt quickly. Here are some key strategies to maximize the agility required for you to survive and prosper:
Stamp out organizational inflexibility. Bureaucracy can appear quickly in startups as well as large companies. The real problem is inflexible people. Every organization must constantly review its hiring practices, training, and leadership to make sure the focus is on people who are motivated, open-minded, and empowered.
Continually watch for new opportunities. Don’t wait for your competitors to uncover new markets that you wish you had jumped into early. An agile business doesn’t wait for their current product line to fail, before planning some enhancements. The days of the “cash cow” are gone. Make sure you have a process in place to find your next big thing.
Rotate team members into new roles. If a key person in your organization has never changed roles, that person is likely limiting their personal growth, as well as the growth of your business. Maybe it’s time to find the real strength of your team by giving top performers additional new responsibilities, and rotating the lower performers out.
Define a continuous innovation culture. Innovation doesn’t happen without active leadership, a mindset of commitment from the team, and a defined process. Discipline is required to continually track results, return on investment, and customer satisfaction. Let your continuous innovation become your sustainable competitive advantage.
Foster a performance culture, and avoid analysis paralysis. A strategy of speedy execution is required. If you organization routinely thinks in terms of months or years to make any change, it’s falling behind and probably already obsolete. Don’t wait for expensive outside consultants to tell you it’s time to change, or make it happen.
Practice small change experiments often. The “big bang” theory of change, where innovations only come through huge and expensive new projects, with big rollouts, is a thing of the past. New innovations should be seen as experiments, which are inexpensive, measurable, quick to fail, and without retribution if they don’t work.
It all starts with agile leadership. If you are the entrepreneur, or the top executive, you set the model and the tone of your business. You can’t have an agile business without effective communication, an empowered team, and a constant influx of new ideas. Managing an agile business means managing change, not solidifying a status quo.
Business agility is simply to ability and intent to make small changes, on a daily basis, to penetrate new markets, add new revenue streams, reduce costs, and prune out products that are no longer carrying their weight. All you need to win with customers is to be slightly more visible and have a few more evangelists in the marketplace.
It’s time to take a hard look at your own business. Is it pulling ahead, or falling behind? Standing still in not an option.
These days, everyone wants to be an entrepreneur, pitching their latest and greatest new idea, and looking for someone to give them money. Angel investors, like me, have long figured out that asking to see the prototype is a quick way to separate the ‘wannabes’ from serious players. Talk is cheap, but entrepreneurs who show you a working model of their idea know how to execute.
In reality, it doesn’t take a huge investment of money and time to build a prototype today. If it is hardware, look for one of the ‘makerspaces’ such as ProtoStripes, with all the tools you need to prototype almost anything yourself. Software products and apps can be quickly wire-framed with free tools such as MockFlow, or even Microsoft Powerpoint to lay out the key screens.
Here are six results that you can achieve by building a prototype, which are really the reasons that investors and partners will give you a whole new level of credibility as they evaluate your startup for potential funding:
Something you can touch and feel helps validate opportunity. When you wave your arms and describe your future product, everyone sees what they want to see, and it looks great. With a realistic prototype, you can get more accurate feedback from customers on their real need and what they might pay, before you invest millions on the final product.
Quantify the implementation challenges. Many ideas I hear sound great, but I have no idea if they can be implemented. Building a prototype at least allows both of us to ask the right questions. Visions and theory are notoriously hard to implement. A prototype has to be real enough to be convincing, without looking like science fiction.
Give yourself time to pivot without dire consequences. It doesn’t matter how certain you are of your solution, it’s probably not quite right. Every entrepreneur has to deal with the realities of constant change in today’s market, and it’s much easier to pivot the pre-production prototype than to dispose of unsellable inventory.
Show investors that you are committed, and past the idea stage. Without a prototype, most professional investors won’t take you seriously. In reality, the process of designing, building, and validating a prototype does dramatically reduce the risk, and allows everyone to hone in on the real costs of going into production.
Reduce the time to production and rollout. For both software and hardware technology, multiple iterations are usually required to achieve production quality and performance. Time is money, and may be your primary competitive advantage. Don’t spend your whole development budget, before finding that you need another iteration.
Support early negotiation with vendors and distribution channels. A three-dimensional prototype is always better than just a documented specification when negotiating contracts for manufacturing, support, and marketing. As a startup, you need all the leverage you can get.
If you are not comfortable or skilled enough to build a prototype yourself, it’s time to find and engage a co-founder who has the interest and background to at least manage the work. You should never outsource the management of your core technology. At worst, maybe you can find a trusted friend to guide you, or a nearby university with expert professors and the proper tools.
Of course, there are many commercial resources available on the Internet, including the Thomas Registry, which is an online database of 500,000 specialty manufacturers, distributors, and prototype developers, across every state and country. There are also a wealth of invention support sites, such as InventorSpot and IntellectualVentures.
Unfortunately, working with any of these outside services is hard to manage, risky in results, and some have developed a reputation for taking advantage of unsuspecting entrepreneurs. The amount of money you spend on their services is never an indication of potential success. There is no magic formula for success while inventing. Proceed with your wits about you.
Overall, building a prototype is still a great way to bring your idea to life, for yourself, your team, investors, and future customers. Your target cost expectation should be one-tenth of the total commercialization cost, with the assumption that it will be throw-away. Even still, I can’t think of a better way to validate your solution early, and get credibility with the people who count.
You don’t have to be a new venture advisor like me to hear all the excuses for not starting your own business. I’m sure all of you have friends who are not happy in their employee roles, and are not shy about complaining, but never seem to get around to doing anything about it. They can cite all the myths about being too old to change, not having the money, or no business degree.
They ignore the fact that Colonel Sanders was 62 when he franchised KFC, Steve Jobs started Apple in his garage, and Michael Dell and several others dropped out of school to build billion dollar businesses. Unfortunately, sorting out facts from excuses in the new venture arena has always been difficult, and today’s information overload has made it that much harder.
To organize my thoughts, I found a new book, “Burn the Business Plan,” by Carl Schramm, who speaks from experience founding five companies, working major corporate roles, and being an active venture investor. Among many other insights, he offers a perspective on several myths of entrepreneurship, which I can now paraphrase and prioritize based on my own experience:
A real startup needs investors to get off the ground. In fact, research by Fundable shows that less than one percent of all startups are funded by venture capital and angel investors. Bootstrapping allows you to maintain full control of your startup strategy, retain maximum equity, and avoid the time delay and energy spent to attract outside investors.
You need a business degree to start a venture today. The real value of a college education is in learning how to learn, since markets and business models are changing so fast. Business strategies are best learned from experience. In today’s world, more successful entrepreneurs have built on degrees in engineering rather than business.
Working in a corporate world reduces your startup potential. On the contrary, early corporate training courses, potential future customer contacts, and getting real world marketing experience all are extremely useful for budding entrepreneurs. In addition, a regular paycheck and benefits help you build up resources before and between startups.
Most successful entrepreneurs are young and crazy. According to the Kauffman Foundation and other studies, the average entrepreneur is actually thirty-nine years old, and the success rate of entrepreneurs over forty is five times higher than that of entrepreneurs under thirty. The percentage of startups created by entrepreneurs in the 55 to 64 age demographic is now growing faster than any other.
You need quirky and more unheard-of ideas to succeed. The idea that novel products with minimal value to customers will somehow start a new trend is simply false. There is no substitute for market analysis, customer interaction, and attacking a real problem. Disruptive market changes take more time and money, and have the highest failure rate.
Most successful startups spring from local incubators. An incubator may get you over initial hesitations, by connecting you with peers, advisors, and guiding you through the process of setting up a business. I find that most good founders proceed faster on their own, with less drain on their time from peers and programs, and no equity dilution.
All successful businesses start with a business plan. In reality, Microsoft, Apple, Google, Facebook, and many others achieved success before they had business plans. The majority of startups, who don’t seek outside investors, most often choose to explore alternatives in real time, without a written plan to guide them or slow them down.
On this last point, I happen to believe that business plans, independent of investors, still have value in forcing new entrepreneurs to think through many key elements of their idea often initially overlooked – including the real size of the opportunity, cost of operations, and viable competitors. I have found that experienced entrepreneurs, who may least need plans, routinely create them.
Overall, there is no doubt in my mind that the image of an entrepreneur is at an all-time high, and the cost of entry is at an all-time low. So why would you continue to work in an employee role that you hate, and make excuses or believe the myths the keep you from starting your own business? It’s never too late to step into a new role where the definition of “work” is something you love.
Entrepreneurs and business executives seem to be even more focused on their technology than the rest of us, and less inclined to listen to the voice of the customer, even if they remember to ask. Real two-way conversations with real customers, including the all-important body language, are unheard-of these days. Being connected to the Internet many hours a day is not enough.
In fact, being connected on the Internet has taken on a whole new meaning to me, since I noticed a study commissioned a while back by PC Tools, which found that more than a quarter of people using the Internet have no problem with staying online during sex. Others admit to surfing the web even during religious services. I doubt if any of these are really listening to their customers.
If you are looking for a way to get a competitive edge, now is the time to start building a relationship with your customers, which includes active listening. In a business context, here are some old-fashioned guidelines for effective listening, for you and the members of your staff who have been distracted by all the things you can now do online:
Forget selling while asking for customer feedback. It’s easy to focus first on selling, and to treat all customer input as objections to be overcome. It’s harder, but necessary, to resist the response urge and actively listen to customers, while logging their input for later analysis. Customers will sense the relationship being built, and both of you win.
Observe customer body language, as well as words. Whether it’s while listening or talking, some studies show that as much as 60 to 90 percent of the communication is nonverbal. This means meeting personally with real customers, in an environment friendly to them. Email surveys and voice response units are not effective listening.
Eliminate pride and ego from the equation. If your customer senses your ego is talking, they know you won’t be able to listen. Pride is good, but can easily be heard as selling. You can’t listen if the customer isn’t talking, so make sure more than half of the conversation is input rather than output.
Always ask open-ended questions. Questions that start with “why” invite a defensive response, and usually don’t lead to a productive dialog. You are not looking for one-word responses. More effective questions usually start with “what,” and focus on that person as a customer, rather than you, your product, or your service.
Pause thoughtfully rather than reply immediately. People sense that you are not listening, when you respond too quickly. Even with the best of intentions, responding on the spur of the moment often results is something we wish we had not said, or said differently. Always listen carefully for nuances, and think before you speak.
Respond to general comments with focused questions. Forget the script, and think on your feet to go where the discussion leads. This requirement for effective listening is why customer satisfaction online and phone surveys may identify big problems, but don’t really address customer needs for future of your business.
Make social network contacts into two-way conversations. Social network streams that are all output, or all input, are not effective. You need to post non-defensive responses to all inputs on a timely basis, to show you are accessible and listening. Requests for input that are thinly disguised sales pitches won’t work.
Customers want and expect two-way personal relationships with their providers, and they know that the technology now allows for this. “Push” marketing messages are perceived as clutter, and are often simply ignored. Business relationships build loyalty, in the same way that personal and peer-to-peer ones do.
My final message is that you need to be listening online and offline to what customers are saying about your competitors. Listening more effectively to current customers will maintain their loyalty, and listening more effectively to the customers of your competitors will bring you the new ones you need to grow. Talking too much can cost you both.
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