2010 Answers To The 20 Questions Every Startup Should Answer

The results are in for the 2010 startup company survey recently sponsored by Kevin' Corner. The survey included 20 questions designed to uncover how startups are approaching their businesses, funding and operations. The response to the survey was great with more people participating then I had originally expected. The results are intriguing and in some cases unexpected. The participants were selected from the Kevin's Corner contact list. Over the past two years the Kevin's Corner blog has attracted thousands of visitors from 75 countries. Many of these visitors are entrepreneurs, business owners and investors.

The objective of the survey was to provoke thought amongst the startup community about how best to approach a startup and to solicit real opinions on how startup participants manage the startup process. The long term goal of the survey process is to see how startup trends are changing based on market and economic conditions.

The following are the results of the survey. I have added my own interpretation of each question to provide a context and hints as to the purpose of the question.

I would like to thank everyone that participated and took the time out of their busy schedule to answer the questions. I was extremely impressed by the honesty exhibited by individuals that provided comments and reasons behind their selections.

1.) Should you craft an exit strategy in the early stages of a company.

71.4 % Yes
14.3 % No
14.3 % Other

I was not surprised by the heavy skew towards the support of an exit strategy early in a startup's life-cycle. Many startups have a preconception of how and when they exit. They also have notions of how much they are going to profit from an exit. The problem with this is that savvy investors that I have spoken to can be turned off by this focus. What they really want to hear is how the founders are focused on creating a solid successful company. In reality making a company a success is hard work that could take a long time. If an entrepreneur goes into a venture with unrealistic expectations those expectations could have a impact on the startups ability to execute. With that said startups are build on dreams and many dreams are fueled by the big payout.

2.) Are conflicts and disagreements amongst co-founders good or bad for a startup.
50% Good
21.4% Bad
28.6% Other

I asked this question because conflicts inevitably occur in a startup and founders need to be prepared for them. Some discord is a good think because it stimulates creative thinking and challenges the team. To much of it and it will start to have a negative impact on the team. The comments from the survey support this position.

3.) All Internet related startups can be started and launched with little or no investment capital.
21.4% Yes
78.6% No

Most of the participants answered this question with a resounding no. I was surprised to see this because many people believe that you can bootstrap your way to Internet nirvana. The survey participants are obviously seasoned entrepreneurs and realize that this is more myth then reality.

4.) Startups should have a time line for milestone achievement.
85.7% Yes
0% No
14.3 Other

The majority of survey responders agree that setting milestones and seeking to meet or exceed them is a good idea. This is good advice for people just starting out with a new company. Unfortunately, many entrepreneurs do not break down their startups into measurable achievable goals so they never really know where they stand.

5.) Establishing business metrics in the early stages of a company is an effective management tool to measure progress against goals.
78.6% Yes
21.4% No

This is a follow up to question 4. Setting goals is great but being able to measure progress is better.

6.) A startup should always be engaged in fund raising even if the startup has proper funding.
71.4% Yes
07.1% No
21.4% Other

In general most entrepreneurs understand that continually being in the hunt for investment capital is necessary part of an entrepreneur's life. The comments did bring out that not everyone is good at this and it does eat up a lot of time and effort. These last points are well taken and does imply that someone in the startup needs to be a good fund raiser. In many cases this is all that member will be doing allowing the other members to get the real work done.

7.) Equity only compensation is an effective way to attract staff to a startup company.
26.6% Yes
50% No
21.4% Other

I was surprised by the results for this question. The answer does indicate that founders are now realizing that real cash is required to get a company up and going. One interesting comment was that equity is actually a very expensive way to compensate participants. I found this to be a very good comment because there is so a finite amount of equity in a company. Also the legal fees to continually allocate equity for compensation can add up to a significant portion of a startup budget.

8.) Are venture capitalists a good source of advice in the early stages of company formation even if you are not seeking their investment.
57% Yes
14.3% No
28.6% Other

The majority agrees that there is value to a VC's advice and comments even if theire is no investment capital coming from the VC. The comments themselves reveal that the individual VC's you talk to make a big difference in whether there is or is not value to the advice.

9.)What should your reaction be to an investor when they decide not to invest in your startup.
0.0% My idea and company are not worthy of investment
14.3% The investor does not know anything about my business
07.1% The company should change its strategy
28.6% The investor is not knowledgeable about my business sector
00.0% We are asking for too much money
64.3% Other

Clearly the answers to this question were not adequate to answer the question properly. The majority of the respondents answered this question with comments. The responders do not come away from an investors lack of interest with one take away. There are many things that can be derived from an investors lack of interest. One theme consistent amongst the respondents was that this reaction is not cause for panic. Investors are not all knowing and do have their own prejudices.

10.) What should you do if your working capital runs out.
0.0% Close the company
0.0% Mothball the company
14.3% Scale the company down
21.4% Change the product or service
57.1% Seek new investment sources
14.3% Put all of your own money into the company
28.6% Other

The majority of the responders indicated you should carry on and seek new capital sources. The comments themselves were heavily skewed in this direction.

11.)All startups should prepare a business plan even if they are self funded.
85% Yes
7.1% No
7.1 % Other

It was great to see that most startups do create some form of a business plan to sort out revenue, expenses and staffing.

12.) A commitment to a startup lifestyle will have no impact on an entrepreneur's family or close friends.
07.1% Yes
92.9% No

I have to admit that this was a leading question on my part. You never fully realize the impact of a startup on your family or friends until you are involved in the venture. A commitment to a startup has a significant impact on your personal life that can not fully be understood unless you have started your own company.

13.) If the majority of the people you survey think your business idea is a good one you should start a company based on that idea.
21.4% Yes
07.1% No
28.6% Ask them why they think it is a good idea
64.3% Ask them if they would invest in the idea
35.7% Other

The really important question is would a person invest in the idea.

14.) Startups should assume that outside(non-founder or friends) investors will invest in their company.
42.9% Yes
42.9% No
14.3% Other

I do not know what to take away from this dead heat. It certainly indicates that the entrepreneurial community is split on the role and commitment of outside investors.

15.) Institutional(Venture Capital/Bank Loan) investment is required for a company to reach its full potential?
21.4% Yes
50%% No
28.6% Other

The preferred answer to this question appears to be somewhat inconsistent with the answers to questions 3 and 7. Apparently, the crowd believes you need external working capital to run a startup. However, it they are not keen on institutional funding.

16.) Founders should invest all of their savings into their startups before seeking external funding.
0.0% Yes
78.6% No
21.4% Other

Clearly the participants do not suggest investing all of a founders cash into a business. This answer plus the answers to several other questions indicates that the preferred form of startup funding is angel or individual investor funding.

17.) Startup teams should be multidisciplinary including business, finance, legal, domain and technical expertise.
92.9% Yes
08.1% Other

Everyone agreed that in a perfect world you need a diversity of skill sets in a startup to make it work. This dispels the myth that a couple of geeks in garage can start and launch a successful company.

18.) Startup founders should have a preset time line for when a business will be successful.
50.0% Yes
21.4% No
28.6% Other

The participants generally agreed that a time-line of some kind should be established as a benchmark and guideline. Some of the comments indicates that things naturally happen that upset the plan. However this does not mean you should not have a time line.

19.) Startup entrepreneurs should get approval form their family members before starting a company.
14.3% Yes
42.9% No
7.1% All close family
14.3% Direct family members
14.3% Husband or Wife
28.6% Other

This one was very interesting based on the fact that the answer to question 12 indicated that the majority agreed that a startup lifestyle has a big impact on family and friends. Despite this close to half of the responders indicated they would go for it without family approval.

20.) Should a company's original business plan or idea be modified before the company receives market feedback.
35.7% Yes
35.7% No
00.0% If A Company Can Not Receive Investment Capital
14.3% If Too Hard To Bring To Develop And Bring To Market
21.4% Other

Most the comments in the Other category support the notion of changing direction based in different sources of information. This pushes the general consensus into the yes category.

In conclusion, this survey pointed out some very interesting startup characteristics, attitudes, operational approaches and funding preferences. All good portion of the entrepreneurial community that responded to this survey where seasoned entrepreneurs that appear to have at least one start-up under their belt.

It also indicates that entrepreneurs are beginning to change their notions about how much investment, the form of investment and the time-line for success are changing. It will be interesting to see if next years survey will differ from the current results.

Once again I do appreciate the contribution of the participants and the valuable information they have provided.. Having real life feedback to tough startup questions will help newly minted entrepreneurs, people considering a startup and existing professionals.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about startup companies. Kevin is a long time entrepreneur having started, sold, IPOed and operated a number of startups in the US and Europe. Kevin currently advices startup companies on technical, funding and business operations. Kevin is a frequent speaker at conferences in Asia, Europe and the US.

How Do I Structure My Startup For Investment And Acquisition?

I recently attended one of the usual Silicon Valley conferences where a group of startup CEO's, lawyers, bankers, VC's and entrepreneurs get together to keep the dream of the holy grail sale or acquisition of a startup company alive. It was interesting because one of the newly minted entrepreneurs immediately asked the question "How do I structure my startup for an easy exit?".

I will have to admit that I chuckled under my breath and thought to myself "wrong question". You should be thinking about how you are going to keep your company above water to survive long enough to get to the point where someone actually cares about you and your company. With that said many entrepreneurs do make decisions early on in the life of their company that impede their ability to sell or go public.

The following are approaches that entrepreneurs can take in the early formation of their company that will make the company more attractive for sale or investment.

LLC Versus Incorporation - Many entrepreneurs start out forming their companies under the LLC form of business organization. Frequently, entrepreneurs are driven to this approach because they have concerns about the reporting and expense associated with incorporation. They also harbor the hope that their company will be profitable one day allowing them to distribute those profits(profit interests) to the founders. These are all good reasons to start a company as an LLC. However, they are not good reasons from an investment and exit perspective.

Realistically, revving up your startup to profitability is no easy task. Secondly, even if you get there you are more likely to plow those profits right back into your company to keep it growing. For investors or potential acquirers the reinvestment behavior is what they are looking for in an entrepreneurial company.

From a structural perspective investors and acquirers do not like the LLC format because it is inconsistent with the format they are accustomed to investing in and purchasing. They prefer the vanilla corporate structure because it is well understood when it comes to merger and acquisition.

Yes, you can convert your LLC over to a corporation if a sale or investment is imminent. However, why go through the hassle and expense. Start out as a corporation to make your company more attractive to potential buyers.

The Team - Unfortunately investors are subject to being influenced by impressive resumes. This is unfortunate because many successful companies are started by people that have great ideas and good business skills that never went to designer label schools or worked for Fortune 500 companies. Despite this well known fact, investors and potential acquirers may overlook your startup and even pass on an acquisition if they do not see well known labels attached to team members. If you or your company fits this description I suggest you add someone to your team that has "credentials". Even if the credential holder is an adviser it will help your cause.

Investment Categories - Interesting enough investors and acquirers are not that creative when it comes to the investments and acquisitions that they make. Even in the high flying Tech/Internet world investors have a tendency to only invest in areas that they deem to be "hot". This means that even if you have a great idea, good growth and even some profits to prove it investors may overlook you because you are not in a space that they care about. Before you pick an idea, product and or service to form a company around determine what investors care about. This is easy enough. Take a look at their portfolios and track recent IPOs. Granted, this may be difficult if you are looking for an exit two or three years away. However, most investing trends have a history and a trail you can follow and extrapolate from to determine where investment is headed.

Conclusion - Asking the questions how do I structure my company for exit at the start of a business may not be the best thing to be thinking about at that stage in your company's history. However, there are actions you can take early on in your company history that will make you more attractive to investors when the time comes to cash out.

Common Startup Misconceptions And Mistakes - Forgetting The Original Business Plan

Entrepreneurs typically spend a lot of time developing an original business plan in preparation for the launch of their business. Some excellent thinking, analysis, research and collaboration goes into this plan. Unfortunately, after the business is launched the plan is usually forgotten. Entrepreneurs get caught up in the day to day operational aspects of their business and rarely stick to the discipline and self assessment associated with the preparation of the original business plan. This is unfortunate for a variety of reasons.

Structure And Discipline - It is extremely easy to become distracted and pulled in many directions during the startup phase of a business. Investors begin to suggest alternative business plans, adding contractors and employees requires personal attention, financial challenges require changes to original planning, day to day operations require time and energy, etc. This plethora of distractions can result in a loss of focus on the overall goals and basic premise of the business. Digging back into the original plan from time to time can bring a business and business owners back into focus and in some cases back on track. The simple discipline of periodically reviewing and possibly changing the business plan is a reminder that the business is based on certain fundamental principles and assumptions. Periodic business plan review will force the entrepreneur to take a step back from operational management and engage in critical business assessment.

The Business Is Not Going According To Plan - A startup very rarely goes as planned. Ironically, entrepreneurs understand this. However, they typically fall into react mode without gauging how the company has diverged from the original plan. Without a baseline it is very difficult to understand where the business is going and what success really means. A review of the business plan and a critical assessment of what has changed will reorient the business owner and the company providing an organizational, marketing and financial assessment of the current business environment and how it impacts the future success of the business.

Setting Goals And Objectives - Without a baseline it is hard to set and measure success goals and objectives. The original plan implicitly or explicitly contains very clear goals, objectives dates and milestones for the business. It is important for a business to maintain this focus. If the business has changed since inception (and it always will) reset the goals and update the business plan with those goals expressed in concrete financial, marketing and operational terms.

Communication Tool - The business plan is a good communication tool to unite the company around common goals and to communicate to employees and to investors how the company is doing. The original plan is the starting point for this process. It is not that difficult to periodically update the plan and use the plan as a tool in regular employee and business meetings. Using the plan as a communication tool will provide continuity and a regular baseline for an audience to assess and contribute to discussions about the state of the business.

Conclusion - In the initial stages of a business a company spends time and energy on developing a plan for a business. When a business gets started this investment can be lost if the business plan is not continually assessed. Leveraging this investment continuously throughout the life cycle of the business will keep the company on track, identify areas that need attention and provide the company with a communication tool to keep employees and investors on the same page.

Common Startup Misconceptions and Mistakes - Dependence On Contractors

I have started and worked with a number of startup companies. My personal experience growing businesses from early stage development to sale, IPO and closure has taught me that there are common mistakes that entrepreneurs make and misconceptions they hold that frequently impact the long term success of their businesses. These misconceptions and mistakes are the result of the entrepreneurs being new to the process of organization building. The use of contractors is very common for startups. Contractors are a great resource if used properly and a real challenge if not managed properly.

In the early stages of a startup temporary contract workers are commonly used to bootstrap a company. Contractors are used because funds are limited, the business is not organized in a way to bring on full time employees or the business is not sure how long it will take and what effort is required to accomplish tasks. Initially, using contractors to get a prototype completed or to explore what it will take to build a company may be the only option. Despite these objectives and constraints entrepreneur also need to realize the consequences of using a temporary work force to bootstrap a company.

C0-Dependency - In the long run relying too heavily on contractors without planning for a transition to a more permanent workforce could have a detrimental impact on a startup. Many entrepreneurs do not think about the consequences of building a company based on temporary workers. In many ways they treat temporary workers as permanent employees relying heavily on their expertise, allow contractors to be the knowledge depository for the business and build organizational structure and communication channels around a contracting staff. When a company is required to transition to a more permanent structure the processes created using contractors may be inadequate for the long term growth of the company.

Transition Planning - Frequently contractors can only commit to so many hours or for a fixed duration of time. People become contractors to allow them to float between projects and to control the amount of hours that they dedicate to each project. Startup's can quickly evolve from a temporary worker need level to full time commitment levels. If the contractors cannot transition to full time roles the business will have to start the hunt again for other individuals to full their role. The search for resources takes time, energy and money resulting in lost productivity for the company and a distraction for the management team. The best advice for a startup is to create a transition plan to a full time staff in the early phases of company growth. This will help to constrain the work contractors are expected to achieve and put in place processes that assure that the work contractors have done is optimized and the new staff is capable of picking up where the contractors left off.

Knowledge Loss - In most cases contractors are temporary. This means that all of the knowledge and processes that they acquire or create from a technical, operational or business relationship perspective could be lost when they depart. This loss of knowledge can have a detrimental impact on an organization causing it to take two steps backwards before it can move forward again. In some cases the loss of a technical contractor could require a future redesign of a product or platform because the contractor did not document or communicate the architecture of the system to anyone in the company. Also, even if the design was document the new technical resource may not understand the design or agree with it. An entrepreneur should make sure that all contractors adequately document their work, save their code is a source control system and are contractually obligated to spend time with new contractors or permanent employees. Operational processes, marketing arrangements and business relationships should also be held to the same standards making sure that all parts of the organization are protected from knowledge loss and to avoid misunderstandings with external entities when the temporary workers depart the company.

Explicitly Establish Tasks To Be Completed - Frequently a business owner will give general direction to a contractor to achieve a task. A contractor can easily interpret a goal and task in a way that is very different then the business owners understanding. To avoid this the business manager or owner should draft a document that explicitly outlines the task to be completed, the hours to be expended on the task and the desired results. This could be in the form of a specification, ways of measuring completion of the task or expectation of how much time it will take to complete.

Quality - Most startups place an emphasis on speed to market with an implied and assumed but not stated emphasis on quality. The assumption that a contractor understands the assumed value of quality in their work could be an incorrect assumption. Contractors are frequently expected to "get it done" and to "code faster" to show results quickly. There is an inherent trade off of getting something done fast and the quality of the output. If the quality component is not explicitly communicated the contractor will get it done quickly and then go off to another task causing the process to spiral into a constant feedback loop addressing output quality issues with previously developed products and processes. Eventually, this could result in a expensive reset for the company. The best way to deal with this is to articulate quality exceptions and to have a way to measure the quality of output.

Cost - There is a common misconception that contractors are less expensive then full time employees. This is usually not the case unless the entrepreneur is constraining the contractor's hours. In my experience when a business gets going the hour constraint goes out the window potentially resulting in sky rocketing labor costs or the lack of completion of key components of the business because the funds are not available to complete tasks. To avoid this from happening businesses should establish fixed budgets for all items and contractually hold contractors to adhere to those budgets. This may require some work on the part of the entrepreneurs to budget and work with the contractor to determine the actual cost of a project. Even with a contract in hand situations may occur that require a contractor to invest more time and effort into a project then originally estimated. Despite this the business should stick to its overall budget potentially taking funds away from one project to fund another. The worse possible scenario is that no projects are adequately completed. A prioritization or projects is required to assure that only the highest priority projects will be addressed with the available funds.

Conversion To Employees -There will be a time when the company is in a position to take on permanent employees. In general, contractors have good reasons not to become full time employees. There rates may be high enough to exceed a salaried job, they prefer to be independent and not tied to any one company or they may have other interests outside of their contracting duties. For these reasons it should not be assumed that existing contractors will automatically convert to full time employees. When a contractor is hired determine if they will be willing to transition to a permanent position. Work out the proposed compensation and details of the transition with the contractor making sure everyone agrees on the details of the transition. This will help mitigate the ransom effect where a company becomes dependent on a contractor allowing the contractor to negotiate a deal that is disadvantageous to the company. If a contractor will not be able to transition to a permanent employee start planning and searching for potential employees early in the company's development. Finding good employees takes time and effort.

Team Building - Team building is part of the process of building any company. Team building includes the creation of a "culture", communication processes, knowledge retention mechanisms, ethical guidelines with the goal of creating common goals and vested interest in making the company successful. Team building is difficult to accomplish with a staff of temporary consultants. This is not the fault of the consulting staff. Some business owners can become frustrated by the fact that a company built around temporary workers is not generating the culture and attitude they desire. Certainly the business owners should articulate the desired company culture, goals and long term objectives of the company. Most contractors will respect this. However, if a company is predominantly staffed by temporary workers the company culture will reflect the values of the temporary workforce.

Conclusion - Inevitably startups will use contracted resources in the early phase of the company's formation. There is nothing inherently wrong with using contractors as long as the business owners understand the implications of this decision, adjust accordingly, maintain the proper expectations for the contractors and plan for the future transition from a temporary workforce to a permanent staff.

2010 Entrepreneurship And the Realities Of Self-Funding

Entrepreneurs enter the business world with many preconceptions. My previous blog on the "Value Of An Idea" and the subsequent feedback reinforced the fact that entrepreneurs hold a diverse set of opinions about the true nature of the business environment as it relates to ideas, valuation and funding. One of the most debated topics for new ventures in the current economic climate is sources of funding for early stage companies. The climate has made it exceedingly difficult to find investment capital forcing entrepreneurs to be creative in the financing of their businesses.

The necessity to self-fund a business has become almost mandatory for startup ventures. The current economic climate exacerbates the financing challenge. However, even in relatively good economic conditions an entrepreneur will most likely have to self fund the early stage of business formation.

I have started or participated in the formation of many businesses and there has never been a time when the early stage of the business did not require some level of self funding. This is an important point because many startups believe that the current economic environment is unique in its stingy attitude towards funding early stage companies. In my experience this is not necessarily the case. It is a matter of how you define "early stage". The current economic climate is stretching the definition of what early stage means resulting in financiers expecting far more product and business development before they express interest in putting money into a business.

So how should an entrepreneur approach the early funding of a company? How does the current economy make this period of business development different than in years past?

1.) There Are No White Knights - Do not approach a business assuming that a white knight or bank is going to invest until substantial progress has been made with the business. The current economy has made this more apparent.

2.) Friends And Family - If the current economy has significantly changed one aspect of fund raising it has been friends and family as a source of early stage working capital. The economy has hit individuals more so then many institutional investors resulting in this sector of funding being an unlikely place to find funding.

3.) How Much Money Do You Need? - Do not underestimate the investment required to start a business. Make a calculated assessment on how much money you are going to need/invest. A common mistake is making an investment too small to make enough progress before external funding or profitability. Current economic conditions require a business to show much more progress than in the past before financing can be secured.

4.) Business Planning - Create a business plan even if you are self funded. The plan will help guide the business and act as a benchmark to determine if the business is viable at certain points in the business life cycle. Certainly reality very rarely tracks a plan. However, the plan is a good guide for how far you veer from your original plan and what additional funding will be required to reach you business goals.

5.) Know Your Limits - Many enthusiastic entrepreneurs will continue to invest their own funds beyond the initial planned investment. This is dangerous and potentially damaging to your family and your personal finances. Make a decision on how much you are going to invest and hold to that decision. Any investment beyond the initial plan should be thoroughly evaluated. If an additional investment is made there should be clear goals and objective associated with that investment.

6.) Early Investor Commitment - Although an institutional investor will very rarely invest in the early stage of a company they should be consulted prior to the start of a business to determine investor interest. There is no reason to invest your own personal funds in a business if there is no institutional interest in your idea or business. An important business milestone is an investor's expressed interest in investing in a business based on a set criteria. Investors are great sources of information about the business categories that investors are interested in. Your idea and company may or may not fit into one of these categories. If it does not you should reconsider and attempt to reposition the business in such a way that it fits the investor profile.

7.) Spread Financial Risk - Form a team of individuals to start a business. Do not go it alone. This approach has many benefits but for the purpose of this subject it spreads financial risk. The disbursement of risk reduces the pressure on you to carry the company on the back of just your wallet and makes for a much easier sell to your family and supporters.

8.) Get Family Buy In - Any investment of personal funds should be vetted with family members. Your decision will have a big impact on your family requiring buy in before moving forward.

9.) Live To Fight Another Day - New business ventures are tough sledding and the majority of them do not reach their intended goal. Set specific milestones that allow you to determine if the business is on the road to success. If it is not have the courage to move on. If the business does not work out you will certainly learn useful lessons that will come in handy when starting and managing future ventures. Very rarely does an entrepreneur come out of a business venture without some positive life and business experiences.

The current economic climate makes it difficult to obtain early stage funding. Some self funding is going to be required to get a business to a stage where an external investor will participate.

The funding environment for 2010 will improve but will continue to be challenging. There are key business areas that will attract "early" stage funding. Make sure you know what those are and position yourself to take advantage of the opportunity.

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Re-Startup Formula For Success

A re-startup is a company that evolves from an unsuccessful startup. Many startup companies never achieve their initial objective to grow and become successful. The conventional wisdom is that these companies are failures. This assumption is not entirely true. Many startups fail and have the potential to succeed in a new form. In many ways a "re-startup" can have advantages over pure startups making them more likely to succeed then the original startup.

There is plenty of documentation and literature on how to start, fund and manage a startup. However, there is very little advice on how best to manage a re-startup. There are similar challenges to running a startup and a re-startup. However, there are distinct challenges associated with a re-startup that require special management techniques to position them properly and put them on the road to success.

Re-Startup Building Blocks Self Assessment

There is a yin and yang to a re-startup. Certain aspects of a startup's history can work for or against a re-startup. Re-startups are best characterized as a natural evolution of a startup sharing common components that need to change over time. An assessment of these components should be conducted during the formation of the re-startup and a determination of how and if these components should be changed to properly position the new entity for a restart.

Staffing - If the staff has not been mistreated they most likely will continue to be associated with the company and the management team. This is a great asset especially if the company is highly dependent on scares human resources. In particular, technology based companies spend a lot of time and money acquiring technical resources. If a re-startup can retain these resources it helps to control cost and allows the re-startup to get to market quicker.

On the negative side the staff may be disgruntled and morale low. This is something that is difficult to change and may require a churn of most of the human resources in the company and rehiring to build the new company.

The staff should be fully evaluated to determine who is going to stay and who is going to go. Special attention should be given to key players that will form the nucleus of the new entity. These are people with special knowledge or skills that will be needed to get the re-startup off the ground. These are usually people that lead by example. The difficult part of the restaffing effort is removing people that have the talent and skills you need but do not have an enthusiastic attitude about the team or the new company. These people will have to be let go even if they represent a critical component to the business. The new business can not tolerate a naysayer spreading ill will in the company.

Morale - This is a big one impacting everyone in the company. If a startup has failed it leaves a residue of bad feelings, self assessment and doubt about the management team and their ability to lead the company to success. However, if the startup had recognized some success the management team and the employees may have confidence that the team can be successful with a new business plan.

The real challenge is to get the energy level back into the company. This may require the removal of some or all of the management team and an infusion of new blood and new ideas into the company. Bringing new personnel and ideas into a company can be reinvigorating especially if the old startup was not cutting it. The key is to establish a core group of people that believe in the new entity and the new personnel.

Learning From Mistakes - The initial startup failed for some reason. It could have been the business plan, the technology platform, a change in the market, the loss of funding. etc. The key is for the new decision makers is to acknowledge the deficiencies in the old model and learn from them. This alone will have a great impact on the morale of the company. This process should also make for a new and stronger company more likely to succeed.

Funding Sources - The original entrepreneurs spent time and energy making contacts in the financial world to raise working capital or to establish business relationships. These contacts will come in handy when the time comes to raise funds for the re-startup. The downside is that bridges most likely have been burned and the original funding sources are no longer an option. Also, a failed startup usually does not bode well for the managers involved in the original fund raising effort.

This is a difficult circumstance to navigate. However, savvy investors may look at a team that has failed with a startup as a learning experience for the team. Ironically, people learn more from failures then successes and really wise investor will know this. If the management team can convince an investor that they truly have learned from the prior startup and have a convincing argument for the re-startup they may very well get funded by the original investors. New investors will also be interested if the entity has an established platform, customer base and or product. Emphasis the positive aspects of the original startup's achievements and how the new team has learned from the past and is repositioning the company for success.

The Bottom-line - Many newly minted entrepreneurs and startup companies have a hard time managing to the bottom-line. They are usually run on enthusiasm and the perceived need for rapid development and time to market. This can be a formula for poor financial management that leads to overspending or a lack of appreciation for cash flow management. In many cases the original startup failed because of this problem and not because the business was not viable.

If this is the case the re-startup needs to put controls in place that obviate this problem and demonstrate to potential investors and customers that the business can be viable if the bottomline is managed properly.

Time Is Your Friend - Just because a business failed does not mean the same business will not succeed at a different time. Many new companies are ahead of the adoption curve yet spend as if they are at the cusp. A good management team will do a self evaluation of the failure. They might find that the time is now right for the model and should proceed with that hypothesis. The original team and model may require little change to relaunch the business and become successful.

Your Customers Are Your Allies - Even if a business has failed there will be customers out there that believed in the company, product or service. These same customers could become customers of the new business. Use these contacts to get endorsements for investors, to seed the new business and to potential be sources of capital as first customers or actual investors.

In conclusion, re-startups are common and in many cases will be successful because of lessons learned from the original startup. They present unique challenges that do need to be addressed. The best way to make them successful is to conduct an honest business and self evaluation to determine what worked and what did not. Launch with a new and improved leveraging the past. you might be surprised at how successful they can be.

The One Skill An Entreprenuer Has To Have

I have had the opportunity to work with many entrepreneurs and startup businesses and there is a consistent theme associated with the ones that have been successful. Startup companies face a myriad of challenges and attract extremely talented, motivated and intelligent people. These individuals have preconceptions about what is really going to make the business successful and they do have great skills that will help a business succeed. However, there is a skill and talent that stands above all that is absolutely essential for the success of the business.

The ability to raise investment capital and to do it over and over again is the magic bullet skill all successful entrepreneurs have. You may argue that the business has to have great potential, that the product needs to be innovative, the market for the product or service large and growing, the business owners need to be hardworking and bright, you have to have a great marketeer, etc. Sure these are great to haves. However, many companies led by accomplished entrepreneurs with great products or services have failed because the company was missing the key ingredient.


So what are the qualities, skills etc. that make for a good fund raiser?

Pitching/Selling: Raising money is all about how you present the business, yourself and the team. Pitching an early stage company is different from pitching an existing product or service because the product or service either does not exist or is in some form of development. For this reason potential investors will be focused on the entrepreneur trying to determine if that individual is capable of creating and operating a business.

In the initial few minutes of the elevator pitch the investors will concentrate on the presenter. Who are you? What is your background? What successes have you had? How are you qualified to run this business and manage the initial investment. The presenter should lead by answering these questions before he or she gets into the details of the business. Establish creditability early in the exchange.

Dealing With Objections and Rejection: Investors are more likely to object or challenge the fund raiser then to agree with their suppositions. This should not be taken as a negative. It is a way for the investors to dig deeper into the business. Respond in a positive way and answer the challenges with facts and figures. If you do not have an answer be honest and indicate you can not answer the question now and will get back to the investor. Never take a challenge personally. Rejection is always a big part of the process. A good fund raiser will always learn from each rejection or challenge and build responses to them in future presentations. Politely, acknowledge the challenge at the time of the challenge and commend the potential investor for pointing out any potential deficiency in the business.


Determination: A fund raiser has to be tenacious because the fund raising effort will require endless hours and repeated calls, pitches, etc. The investment community will be looking to see how the fund raiser handles the long and difficult funding process, requests for additional information, etc. Fund raising is a sprinting marathon requiring the fund raiser to be prepared for long and challenging effort.

Success History: The fund raiser has to have a history of success in some capacity. It could be academic accomplishment, business success, startup experience, etc. The fund raiser also has to emphasis accomplishments in a way that is not perceived as self aggrandizement. The accomplishments should be noted in the interest of explaining their relevance to the business. The success background expose should be interspersed with other information about the business indicating that the information is important but not the sole reason to invest in the company.

Investor Networking: The concept of networking yourself to success is a bit of a cliche in this day and age. Networking for the purpose of fund raising is different then hanging out in social networks and letting people know you are out there. Fund raising networking requires some serious face to face time with potential investment sources. In a perfect world this form of networking should begin well before a entrepreneur decides to raise funds. This method will result in a more fundamental bond between the fund raiser and the funding source. When the time comes for actual money raising the request for funding will be coming from a person that the investor already knows and has some confidence in his or her ability to deliver on expectations.

Multiple Fund Raising Source: The law of averages requires a fund raiser to have a multiplicity of funding sources. Before heading out on the official funding road you should have a portfolio of between 10 and 20 pre-qualified investors ready to pitch to. You may find that that you have to pitch and work with an even larger amount of investors before you successfully land a round.

Research: Dig into the backgrounds and portfolios of the potential investors. What are they investing in? What was their most recent investment? Talk to an entrepreneur that has worked with the investor before? What are the most likely question the investor will ask?

Flexibility: You certainly have to be agile when it comes to raising funds. Do not get hung-up on the amount and structure of a deal. You should have an amount your are looking for and a specific purpose for the funds. However, be prepared to take a greater or lesser amount of capital. During the process you will have to be willing to change your business model, change your schedule at a moments notice and be anywhere the funding source wants you to be.

Personal Investment: It is very unlikely that anyone will invest in your business unless you have invested your own money first. Certainly time invested in the business counts for something but good old hard cash ranks much higher.

Commitment: Raising funds is a full time job. . Do not kid yourself into believing that you can effectively tend to other business needs during this period. Everything else will be secondary during the process until the deal is closed.

You Are Always Fund Raising: One common thread amongst all good fund raisers is that they are always raising funds even when the business does not need the funds. During every business meeting, customer visit, conference, family and friends gathering think about how this might be an opportunity in the fund raising process.

Trustworthiness: This is where salesmanship differs from raising money. You can be a really good sales person even if your character is somewhat in question. This is not the case for a fund raiser. You have to legitimately be above board and have a trustworthy reputation. This means you actually have to believe that you can deliver on what you are promising and you make it perfectly clear to the potential investors what the risks are. Most investors will understand that there is risk to any investment. What they do not want to deal with is risk generated by a questionable business partnership.

Sources Of Capital: Many entrepreneurs waste their time seeking investment in the wrong places. This is a difficult one to sort out if you have never been on the funding road. The right funding sources are dependent on many factors; what is the business, what is the state of the business, what is the state of the economy, geography and how much you need all dictate what sources are best for the operation.

Timing: Like many things in life timing has a big impact on the success of a venture. Raising money to fund a company is no different. The current economic environment is a classic example of a time that is sub-optimal for raising funds. Even the most accomplishment fund raisers have been challenged by the events that have occurred over the past year. Sometimes it is better to hold back and get on the funding road at a different time. A good indicator of the right time is increased deal flow represented by a growth in investor's portfolios, IPO activity, M&A activity and public attention being focused on a specific economic sector that is associated with your business. Windows of opportunity open and close quickly so continuous research is required to hit it just right.

In conclusion, closing a round of funding is a skill and talent. When you are fortunate to have an investor interested in your business it is important to close as soon as possible even of you have to modify the deal terms.

Good Luck!!

Optimizing The Entrepreneur/Broker Fund Raising Relationship

Entrepreneurs engaged in a fund raising effort have a number of options at their disposal when seeking funding. Entrepreneurs are usually familiar with friends and family, angel investors and venture capitalists as sources of funding. Another way to obtain funding is to engage a broker. Broker/entrepreneur relationships are commonly used to bridge the gap between investors and entrepreneurs. Broker relationships come in many forms creating a need to fully understand the relationship to maximize the potential for fund raising and to decrease the possibility of misunderstanding between the entrepreneur and the broker.

The following are important pieces of information that should be known before a broker is contracted.

1. The broker's operational mode.
2. The range of services provided by the broker.
3. The compensation model of the broker.
4. The tasks expected of the entrepreneur in the broker/entrepreneur relationship.
5. The term of the contract.
6. How the entrepreneur funds will be used (if funds are being transferred).
7. References for the broker.
8. Funding sources to be contacted by the broker.

What Does A Broker Do? Brokers can provide a number of services including document preparation, consultation, deal negotiations and raising capital. The range of services provided by the broker influences the compensation that the broker receives. It also influences what is expected of the entrepreneur during the funding process. A funding broker acts in a similar manner to a mortgage broker. The funding broker usually (not always) is not the funding source. They make a connection between the entrepreneur and the funding source. There are exceptions to this rule. Brokers may decide to invest their own funds in a venture. However, this usually occurs after the broker has negotiated a relationship with the funding source. It is rare for a broker to take a primary or first mover position in a funding effort.

When Should An Entrepreneur Use A Broker? - There are a number of reasons why a business owner may use a broker.

1. Identify Funding Sources - Newly minted entrepreneurs frequently do not have contacts in the investment community. It certainly is possible to contact funding sources directly and is advisable even if you do use a broker. However, a broker will usually have long standing relationships with investors. Using a broker can give you a quick introduction to a range of investors that you would normally not encounter as a free lance entrepreneur.
2. Document Preparation - Investors frequently want to see a number of documents explaining the business in a way that allows them to evaluate the business from their vantage point. These documents can range from a reasonably brief overview summary (PowerPoint elevator pitch) to a complex business plan providing multiyear sales projections and operating budgets. If an entrepreneur is uncomfortable preparing these documents they may call upon the broker to create these documents.
3. Negotiations and Deal Closing - Raising capital is not much different from negotiating any large commitment financial transaction. Something is being exchanged for a significant amount of money. If you are unfamiliar with negotiating investment deals a broker can be a handy resource to help sort out what is best for both parties.

Sources of Capital - Brokers tap angel investors, private investors, VC's and institutional investors as sources of funding for their entrepreneur clients. Each broker will have their own collection of investors. The investors they work with will be influences by the "stage" of the company they are seeking investment for. For instance, if a company is a startup with no real revenue and still in the idea or development phase the broker is most likely to seek funding from individual or angel investors. If a company already has a customer base and a revenue history the broker may seek funding from traditional venture capitalists.

From the entrepreneur's perspective it is important to understand what funding sources are going to be tapped and why. The funding sources will have an influence on how long it will take to close a round and the viability of the funding source. The funding sources will also influence the likelihood of the business getting funding. For instance, if a broker is contacting traditional venture capital sources for a very early stage company then it is unlikely that the funding effort will be successful. The broker may not be willing to reveal the details of the funding source out of concern of revealing the funding source to another broker. However, they should be able to tell you that they are seeking funding from an individual, angel, VC or institutional investors.

Can An Entrepreneur Go Directly To Investors During The Broker Relationship? Unless the broker relationship specifically states otherwise yes you can. It is advised that you do not engage in a broker relationship that prohibits this activity. Brokers have a stable of investors that they contact. The stable has a finite amount of investors in it. An entrepreneur needs to cast a wide net out into the investor pool do not limit you investor options to just one section of the pool.
If you do decide to seek funding outside of the broker relationship inform the broker of what you are doing and who you are contacting to make sure there is not overlap of effort. An independent effort to raise funding will also have an ancillary benefit of increasing the fund raising experience level for the entrepreneur. It will also give them an appreciation for what the broker is doing for them.

How Are Brokers Compensated? - Brokers can be compensated in a number of different ways. They may receive cash, stock, stock options or a combination of stock and cash for their services. When negotiating a contract with a broker make sure you understand the compensation structure, when payment is required and specifically what the broker is being compensated for. If the broker is performing a number of functions including preparation of the executive pitch, creation of a business plan, formulation or financial projections, introduction to investors, closing funding, etc. make sure you associate compensation with each of these tasks. This makes it easier to establish the relationship of accountability and compensation.

What Is The Entrepreneur Responsible For? In many ways the entrepreneur is responsible for making the broker successful in closing funding for the entrepreneur. The fact that an entrepreneur is using a broker to raise funds does not exonerate the entrepreneur from assisting in the fund raising process. The entrepreneur has to make their business viable and marketable.

1. Business Plan - Even if the broker is creating the documentation for the business plan the business owner has to create the content for the plan. This plan may be massaged and reformatted for an investor by the broker. The broker may provide input to the plan. However, the business owner needs to understand the business plan and drive the business plan development process.
2. Team - A team should be assembled that demonstrates that the company cam execute on the plan when funds are raised.
3. Executive Summary - Perhaps the most important document in the fund raising process is the executive summary or elevator pitch. It is the first impression that a potential investor will get of a company. The details for this pitch will be provided by the business owner. The broker my change the format and ask for additional information.
   
4. Pitching The Company - The broker will introduce the business owner to investors and describe the business to investors. However, the investors will want to meet the business owner and the team and they will want the business owner to pitch the company. The business owner will sell the investors on the company the broker's responsibility is to establish the contact.
5. Self Assessment - The entrepreneur should conduct a self assessment as to their preparedness for the funding road. Many entrepreneurs under estimate the commitment associated with starting a business and raising funding. The funding road can long, frustrating and expensive. Only a very small percentage of companies seeking funding receive it. In many cases the initial funding is lower then expected. Ideas are seldom funded. A demonstration of the viability of the business is required before an investor will engage. The entrepreneur will most likely have to fund the first stage of funding. Make sure you are ready for the show before you jump into the pool!!

Managing The Broker Relationship - Managing the relationship with a broker is key to the success of the funding effort. In many ways managing the broker relationship is no different than managing direct funding sources. However, there are some important difference.

1. Legal Advice -It is suggested that an entrepreneur engage legal counsel to review a broker contract. Carve out what each party is responsible for and when control actually passes over to the investor.
2. References - The broker should be willing to provide the client with references. This should include entrepreneurs that have used the broker service and possibly a funding source that has worked with the broker.
3. Time Lines - Establish a start and finish time for the relationship. The funding road can be long with no guarantees that the broker can claose funding. Give the broker a period of time to close. If it does not work out move on to another source or extend the contract with a new set of objectives.
4. Exclusivity - Is is advised that a relationship with a broker be non-exclusive. An entrepreneur should be continuously looking for funding from a number of different sources.
5. Clarity of Tasks - the broker my perform many tasks for the entrepreneur. Make sure you are both clear what these tasks are and what the entrepreneur and broker are responsible for.
6. Compensation - Put a price tag on each task the broker is going to perform and what constitutes a completed task and acknowledged payment.
7. Ending The Relationship - There should be a term to the contract and a clarification of what rights the entrepreneur has to the materials created and relationships established during the funding process after the contract is terminated.
   

In conclusion, the broker relationship can be a useful option for an entrepreneur during the fund raising process. Broker relationships come in many forms requiring a clear understanding of the responsibilities and compensation associated with broker executed tasks. Clarity of responsibility and compensation reduces the likelihood of misunderstandings.

The entrepreneur is in control of their destiny and is the party responsible for getting the business funded. A broker is a "facilitator" and will only be as successful as the entrepreneur and business warrants.

The Entrepreneur's Survival Kit For The Current Economy

As an entrepreneur and an adviser to many start up companies and entrepreneurs I have first hand knowledge and experience fund raising, interacting with investors and building new teams in this economy. I have seen many business plans, have spoken to scores of investors, worked closely with new companies and have shepherded aspiring business owners through the early phases of business development. I have learned a few lessons about how entrepreneurs can best position themselves to optimize their time and effort in the current climate and hopefully experience a positive outcome for themselves and their business.

Expectations - There is no secret to the fact that investment in new companies is down. One source estimates that VC's are investing 50% less then they did last year at this time. The climate has also impacted individual and angel investors. Their own portfolios have been diminished and they are not immune to the new "economic conservatism" sweeping the globe.

The first thing entrepreneurs need to do is to adjust their thinking to coincide with the impact of the new economic reality on their proposed business. This may sound obvious yet many aspiring business owners still think that they can float an idea, get funded and become successful using an outdated formula. Sorry, but this is not likely given our current economic environment. This is not to say that you should pack up your tent and give up. On the contrary this may be one of the best times to start a business if you can weather the storm and introduce a new product or service that fits into the dynamics of the new economy.

The key is to set an expectation that raising funds is going to be harder and take longer then it has in the past. Get yourself ready for some creative thinking on how to bootstrap your company and sustain it on a lean budget until you have concrete evidence of customer adoption and sustainable revenue per customer.

What Is Being Funded? - Before you go to far down the road of building a company you should determine what investors are investing in. Before you commit money and time in a venture check to see if your idea fits into a category that investors recognize as an area that has potential for significant upside. I call this "Riding A Wave" and have referred to it in previous blogs. Your idea or business may seem to you as revolutionary with great potential. However, if investors are not interested in your space it may never get funded. You need to position your company in a way that is aligned with current funding trends.

To find out what investors are interested in go to VC web sites and look at the recent investments they have made. This will be found in the portfolio section of the web site. Investors are very concerned about investing in areas that other investors are interested in. The net effect is that the herding investment strategy creates a higher level of investment in a sector which in turn helps to fuel the market for that sector.

There is a delicate balance between investor interest and investment saturation. You want to see investors investing in your sector but not too much investment. If a majority of the investors already have representation in a sector it may be too late for you to participate. This is what I call "The Cresting Wave". Unless you have a unique spin to your business that represents an element that can enhance the initial wave investors will pass on your investment if they already have representation in their portfolio.

If you find that some investors have made investments in your area and others do not have portfolio representation you are in a good place. Just like a surfer get your board waxed and get out there. Timing is everything and in this economy even more so!! You want to catch the investment wave at the precise point that gives you maximum investment opportunity. You can not be too late or too early.

Friends And Family - Traditionally friends and family members have been looked upon as an early source of seed funding for a business. This may not be the case anymore. Your friends and family are also feeling the effects of the economy and may not have the money or the inclination to part with the funds they have. However, they are still a great support group and may be able to contribute in other ways.

Family members may have more time on their hands because they are out of work or working shorter hours. Many of your friends and family will have skill sets that you can use in getting your business off the ground. Instead of asking them for money ask them if they can help with bookkeeping, sales, programming, document preparation, investor led generation and general business advice. They may also have some extra space, computer equipment, phone, fax machines, etc that you can use to setup and run your business.

Your friends and family do want to help you. Asking them to invest their time in something that may help their own careers and broaden their skill sets will be welcome. It also fosters a better relationship. Your are communicating that you value their expertise and skills not just their cash. The long term implications of this will be invaluable.

Stage Your Business And Product Development - Seed round of funding is really hard to find these days. Generally speaking investors are not investing in ideas or very early rounds. This leaves entrepreneurs in a bit of a dilemma. So how do I get my business started with no external initial working capital?

The best way to deal with this situation is to break you product or business down into segments that get you to a point were you can fund a prototype or alpha version of you product without external funding and grow the business recognizing the uncertainty in the investment market.

• The Initial Product or Service -It is highly likely that you will personally have to fund the first iteration of your product or service. The goal for this phase is to create something that demonstrates what it is and what it can do. It does not have to be fancy or pretty but it does need to work.
• Taking On Customers - In the web world this is a bit easier then in some domains. Investors today want to see how consumers react to the product or service. Drive some traffic to your web property and get a hint of the economics of your business and customers reaction to your product. If you do not have a web based product try to get people or companies to try out the product on a trial basis. If it is a capital intensive product identify a potential business partner that will work with you to create a prototype and have them introduce it to their customer base.
• Investment Round - In the first two phases you should have been contacting potential investors making them aware of what you were doing and providing them with progress updates. Be prepared to send them an executive pitch. Your experience in the first two phases will provide you with good hard evidence and facts about the dynamics and potential for your business.
  

Preparing The Investor Pitch - I am a great believer that your first impression matters a great deal in increasing your likelihood of getting funded. It is also the one area that entrepreneurs continue to struggle with. In this day and age if you are lucky to get an investor to look at your business you will only get a minute or two of their time to skim the presentation.

Many of the plans I see are either too long, too complicated or incomplete. To combat this I have gone to the extreme of providing my portfolio company's with an executive pitch template and two year operating plan spreadsheet to help them understand how to think about their business and structure their thoughts. The executive pitch should contain the following:

• What Is It?
• What is Different About It?
• Who Are the Competitors?
• What Other Companies In this Sector Have Been Funded And For How Much?
• How Are You Going To Make Money?
• How Much Money Do You Need?
• Who Are the Team Members?
  
• When Will You Have Your First Deliverable?
• When Will You Be Profitable?
• Where Are You?
  

There are certainly clever ways to present this information that will increase its impact. However, the essential information must be there, be accurate and well formed. The presentation should be brief and to the point. If it is a slide show it should be between 10 and 15 slides. If it is an executive summary keep it around 5 pages.

Pitch Review - Never send a pitch or document to an investor without someone you respect having reviewed the presentation. It would be best to identify a reviewer that has no idea about what you are doing and get their reaction. Adjust and change the pitch based on the feedback. If possible run through the presentation verbally with someone to understand what sections should be presented in what order and to determine the proper cadence for the presentation. Also, have some experts in your field take a look and see how you compare to the competition.

Submitting The Investor Pitch - You should still create and submit an investor pitch to funding sources even if you are in the first two stages of your business development. Investors are great sources of information and feedback. Investors need entrepreneurs and have a keen sense of what is happening in the marketplace, understand technology and will tell you what you need to do to get funded. If you are not an experienced entrepreneur with investor contacts have some one that has good contacts submit your plan for you. Investors are particular about what plans they look at. Having a known entity submit your plan will increase the chance of getting a response to your plan.

• What Are Investors Funding? - Many entrepreneurs have great ideas and products. However, this does not automatically mean that investors will invest. Submitting a plan to various VC's and individual investors will help you to understand what they care about.
  
• How Do Investors Perceive Your Business? - Investors may have a very different perception of your business then you do. It is important to get your company aligned with their thinking or find a way to convince an investor that they might consider thinking about your business in a different way.
• Relationship Building - An entrepreneur should spend time cultivating relationships with investors. Submitting your pitch and engaging an investor in a dialogue is a good way to start the relationship. Their feedback may be a short e-mail response or a sit down meeting and a run through your presentation. Either way getting to know each other is important. You may be on the funding road for the duration of your business life and have to submit multiple plans. Sincere and professional relationships with investors are important. It may make the difference between a go and no go in getting your business funded.

Iteration - Do not back yourself or your business into a corner where you can not iterate on the product or business model. The business environment is changing rapidly especially in the areas of customer monetization and technology adoption. Your business organization and or your technology platform should plan for this and be flexible. The business, product and customers you originally envisage may be very different at various stages of your company. You may have to reinvent your business several time to get funded and to adjust to ever changing consumer preferences.

Globalization - There is no such thing as a local economy anymore. Doing business has changed radically. A company or product that does not have a global offering is going to struggle and miss opportunities that could have made it successful. Study markets outside your comfort zone and understand how you can create a product or service that is attractive to them.

Research - Start up businesses require tremendous energy, time and focus from all of its members to make a business work. Despite the need to get the product and service up and running as soon as possible you always need to be looking around to see who the competitors are or might be, what technology may impact your business, what new investments are being made by investors and changes in consumers preferences. This is especially the case now when everyone is adjusting to the new economic reality. Changes are occurring at a rapid pace and require a company to react quickly these changes.

Do Not Give Up - We are all being tested in our personal and professional lives. Entrepreneurs are especially challenged. However, this is not a reason to give up and not pursue your dreams. In fact, if you can figure out how you can create a business that specifically address the new world order it may be the best time ever to establish a business. The overall business environment will get better. If you can get something going now you may be surprised at how successful you will be a year from now.

In conclusion, the current economic climate requires special tactics and techniques to increase an entrepreneur's chances of success. In many ways lessons learned from launching a business in these times will pay off as the economy improves.

For more advice on how best to succeed in the current economic environment readers may want to review the following previous blog entries:

Riding the Semantic Web Funding Wave
How Do I Establish A Valuation For My Start Up?
The Ten Best Ways To Improve Your Chances Securing Venture Funding
Raising Seed Capital In the Great Recession
How Will Web 3.0 Change Your Life?

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Virtual Currency Meets Main Street

Several months ago I wrote a blog item about the emergence of a virtual currency. I received a fair amount of criticism about this prediction. I think the term "your are crazy" was used a few times. Recently, some of my early critics have reached out to me and admitted that I might actually be right. I do not know if you have been following the accelerated rate of virtual currency trading and virtual item sales but it has been intense in the last several months. Please read the information on the following links Communities Print Their Own Currency, Poker Goes Virtual, ChangYou, Investment In Virtual Worlds, SpareChange, MyCoke, Viximo, Habbo. This is only a small sample of the buzz about virtual currency and virtual items.
My current radical thinking is that the convergence of main street and wall street businesses with the virtual world and gaming environments is going to tip this phenomena over the edge and bring about a formal business exchange process involving virtual currency and traditional currency. This is the next step in the march towards a single virtual currency that acts as a trading currency bridging the gap between disparate businesses and traditional currency.

So Why Is This Happening And Why Are Traditional Businesses Going To Jump In?

Traditional Businesses Have Been Issuing And Using Virtual Currency For A Long Time - We seem to forget that airlines, hotels and credit cards companies have been issuing virtual currency for years trading in virtual currency well before the virtual world even existed. We do not think about frequent flyer points as virtual currency but they are. In fact, they are rewards for a job well done in the flying game. The most proficient road warriors receive points for their dedication and hard work.

Main Street Virtual Currency Trading History - Airlines, hotels and credit card companies have a history of trading virtual currencies within exclusive clubs and partnerships. If you own the virtual currency of a company in the partnership you can trade it for another company's currency.

Virtual Currency Monetary Valuation - The trade of virtual currency within traditional company networks has established a real monetary value for virtual currency. Points exchanged for real items such as airline seats, hotel rooms, camera's and cloths establishes a traditional monetary value for the virtual currency. These valuations float and change as the businesses change and the relative value of the items change. Essentially, these companies have created an organic and informal trading and valuation platform for virtual items and virtual currencies.

The Gamer Generation - I know many gamers and it is striking to me how the demographics for this community are changing. We are accustomed to thinking of gamers as people between the ages of 12 and 18. Not so anymore. Video games, MMOG and MMOGRP games have been around for a long time breeding an entire population of adults that have played these games, understand virtual items and virtual currency.

Virtual Items Become Real Items - The more you play games with virtual items as an essential part of the game the more you consider these items to be no different then a real sword, pair of shoes or poker chips. A person that engages in these games on a regular basis does not think that there is any fundamental difference between a physical item and a virtual one. They both have value and are used for a specific purpose. This may sound subtle but it is very important. People that play games involving virtual items and virtual currency inherently understand the value of virtual currency.

Traditional Companies Go Virtual - I was at a social gaming meet up in San Francisco recently and had the good fortune to sit next to a person building virtual worlds for traditional companies like Coke, Disney, NBC, etc. These companies have bought into the importance of providing virtual experiences for their consumers thus bridging the gap between their brick and mortar operations and the virtual world.

The Dollar Is A Virtual Currency - The dollar and many other popular real trading currencies have no physical backing. The US went off the gold standard years ago. The dollar's value is based on its trading power relative to other currencies. Scary as it sounds without this trading value it would have no value at all. Is the dollar a virtual currency?

Online Payment Option Limitations - In many parts of the world it is a difficult to buy things online with traditional currency and traditional payment vehicles such as credit cards. The phenomenal growth of virtual worlds, virtual items and virtual currency in China is directly related to the lack of good ways to buy and trade things online in a traditional manner. This has spawned the need for a different way of transacting online that inevitably drives the adoption of online specific trading and currency models.

The World Economy Facilitates The Use Of Virtual Currency - You may not have dollars, yen or rubles but you most likely have virtual currency in some form. If you do not it appears that some outfits are allowing you to create and trade some. This is all about the failure of the traditional economy to put traditional currency into peoples pockets and the large stores of point and virtual currency amassed by gamers and consumers. Why doesn't someone take advantage of this and let people use these points to drive customers to their properties. provide discounts on items, etc? What a great way to stimulate the world economy!!!



How Will This Evolve?

1. )Bridge The Gap Between Traditional and New Age Virtual Currency Issuers -I think what will happen first is companies like Delta Airlines or Disney agree to exchange virtual points with game companies like World Of Warcraft or Zynga. This seems to be relatively easy and beneficial to both worlds.

If I am not mistaken frequent flier points are considered to be an accounts payable and therefore a liability on the balance sheet. This should motivate an airline to encourage their patrons to use as many of their points as possible. If they can't take a trip then play a game online or buy a virtual item.

2.) Networks of Virtual Currency Trading Partners Emerge - What a great way to increase traffic to your gaming property. Many games sites are hungry for players and more content to provide stickiness. Why not form a coalition of game and other virtual currency sites to increase your traffic and provide new and fresh content for your consumers. The way in is to trade one currency for another increasing the overall value of all of the currencies. In many ways it becomes a game in and of itself.

3.) Networks Grow In Volume And Complexity - At some point the complexity of trading virtual and traditional currencies is going to require an intermediary step between the trading partners. Just the handshaking alone will require a common API and some standard rules so everyone is not wasting their time doing their own and creating barriers of entry in the process. It could be that one of the currency issuing companies emerges as this broker.

4.) A New Virtual Currency Trading Currency Is Born - The sophistication and volume of trading will result in the creation of an intermediary virtual currency that all currencies are converted into and out of. This would make valuation easier and more understandable.

5.) The Intermediary Trading Virtual Currency Becomes A Standalone Currency - In the final step the intermediary currency now becomes a currency with its own value and companies start using this currency as their purchase and sale currency avoiding the need to create their own.
In conclusion, the notion of a universal virtual currency could be perceived as Utopian and perhaps unachievable because of all the complexities, laws and business forces that exist in the world today. However, one should consider the business need to merge the virtual world with the physical world. In fact, the virtual world may become a larger part of GNP then most people can image. We currently do not have a good way to universally trade and value this currency. Some form of common trading currency is going to be required to make this happen.

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The 2009 Get Funded Challenge!!!

Get your company funded in 2009! Show investors that you are ready for the business challenges facing all businesses in the coming months. Does your team have the right stuff?

There is no doubt that getting funding in 2009 is going to be more difficult than in previous years. The VC's have decreased their investment outlook and individual investors are tightening their belts. This environment increases the competition for funding. Entrepreneurs need to work harder to get their companies funded.

To assist in helping aspiring startup companies to get funding in 2009 I am running a challenge through the month of February. The objectives of this challenge are as follows:

1.) Conduct A Company Self Assessment - Is your company ready for the funding expedition? There are a number of items that are critical for success in getting funding. The challenge will help you to determine if you are ready to go or if more work is required before you go out into the market.

2.) Organization - The challenge will force you to think objectively about how best to structure your company and pitch to improve your chances of getting funding. The discipline of organizing your information and asking yourself key questions well be good preparation for the inevitable investor pitch.

3.) Presentation - Appearance, articulation, command of the facts and the ability to captivate an audience matter. You may have the best idea and company imaginable but without an excellent presentation it could easily be overlooked or misunderstood.

4.) Exposure - My blog receives traffic from 47 countries. This traffic includes many investors looking to fund the next big opportunity and entrepreneurs looking for funds. When I publish the results of the competition investors will see your company and will reach out to you if they are interested.

All plans must be submitted to me by February 28. I will post the top plans on my blog on March 15^th.

I will select no less than 1 and no more than 3 companies.

All plan information will be confidential . If you want to be covered by an Advisor and Confidentiality Agreement I have posted a web version for your review.

What do I need from you? Please read my previous blog "The 10 Best Ways To Improve Your Chances Of Securing Venture Funding" to understand what it really takes to get funded. Translate those requirements into the following items.

1.) A PowerPoint presentation of no more then 10 slides that demonstrates your ability to concisely and quickly convince investors that your company can be a winner.

2.) Link to your company web site, prototype, product alpa/beta version, etc.

3.) Main contact and e-mail address.

4.) Details about your business including the following items.

a.) Company name and business organization. Is it a corporation, LC, LTD, etc?

b.) Age of the company.

c.) The country/region/state/province where your company is domiciled.

d.) What round of funding is this? Seed, A, B, etc. How much institutional or angel money has been invested in the business to date?

e.) Leadership team member details.

f.) A description of your product or service.

g.) Target customer profile.

h.) Competitors and where you line-up in relation to the competition.

i.) How much money are you asking for and how are you going to use the money.

j.) When will you be profitable?

k.) A two year operating budget that includes marketing, development, equipment, personnel and revenue projections. Please provide this in spreadsheet format.

l..) What is the cost of acquiring a customer and what is the lifetime value of a customer.

m.) What wave are you riding?

n.) What waves have you created?

o.) What makes your company different?

p.) If you have been out raising money what are investors telling you?

Please submit this information and the Advisor Confidentiality Agreements to my email address at kflood6@gmail.com.

I will review as many plans as possible during the month. I may have questions which will require your contact details. Please limit all your questions to essentials and submit them to my e-mail address only.

Good Luck!!!