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yet many aspiring business owners still think that they can float an idea, get funded and become successful using an outdated formula.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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The 10 Best Ways To Improve Your Chances Of Securing Venture Funding

In my experience as a fund raiser, entrepreneur, consultant to entrepreneurs and adviser to VC's I have developed a good sense of the necessary actions and elements that lead to a high likelihood of a company obtaining investment capital. Obviously, there is no guarantee that a venture will get funded and there are ventures that get funded that make you wonder. The following list of action items will improve your chances of getting funded.

1.) In the Beginning
The process of raising funding starts well before you even have a twinkle in your eye or a thought in your mind about raising money to start a business. This early process is all about establishing useful future fund raising contacts by establishing a reputation as a trustworthy, ambitious, hardworking and knowledgeable individual. From the point and time you do start to seek funding the first thing you are going to do is rely on the people you believe can help you through the process. You do not want to be in a position of having to initiate the process of establishing useful contacts at the point that you decide to start a business. You want this pool to be as large and influential as possible before you begin. These people will become character references for you and potentially become direct sources of funding.

University And College Contacts -University and college connections are very powerful tools. Many of your friends and associates in school will go off and establish successful careers. In addition to being direct sources of funds they will have their own contacts that you want to have access too. Staying in touch with them and maintaining a good relationship with them makes good business sense. Stay in contact with these contacts. You do not want to contact them after 5 years of silence and ask them for help.

Alumni associations are rich in fund raising opportunities. Stay in touch through this mechanism and watch for updates of people you know. Reach out to them when an update does occur and congratulate them. A donation or two to the college or university does not hurt either. This will continue to reinforce your visibility within that community.

Family And Close Friend Contacts - The friend and family fund raising stage has become a bit of a cliche. I am not sure that raising money exclusively through this mechanism is the best idea for personal reasons but it is a great way to build a reputation and a referral network when the time comes to raise money.

Work Colleagues - If you have work experience this is the most effective network of contacts. The work place is really where you prove what you can do, how you react to business challenges and how you organize and execute tasks. Co-workers are the people that will best understand your professional qualifications to own and operate a business. They will have the best relevant direct connections and could be a source of team members for your new venture.

2.) Riding A Wave
Human beings are naturally herding creatures regardless of what an individual might say. Investors like to be part of something that is acknowledged as the new best thing. There is safety in numbers and large investments in a single area can actually create their own special energy and dynamic. Also, being part of a larger movement makes your venture easier to understand. Examples of waves are mobile applications, social networks, enterprise software, cloud computing, SaaS application platforms, clean and green, etc.

Define your product in terms of a current wave that investors are engaged in. Check out the portfolios of VC firms to determine a trend in recent investments. Also, look at long term trends that are ripe for growth and business development. For example, the impending government infrastructure investments are going to create an enormous opportunity for startups.

This is not to say that a business, service or product that falls out of one of these categories will not get funded. I have explicitly been told by investors that they will invest in anything they think will be a home run and they want to see as many plans as possible as long as it is within their expertise. However, their specialty focus is usually associated with an existing wave.

3.) Making A Wave
In addition to riding a wave you should also create your own wave. Getting you and your company out in the public eye under most circumstances will help you. One of the startup companies I have been advising is about to get national television coverage. This took a lot of effort and shear determination but I am sure that after the program is aired the company will have more funding offers then they know how to deal with.

Speaking Engagements - If you get a chance to speak at an event or conference go for it. Incorporate your company or product into the presentation. After your presentation mingle with the crowd and answer questions. This gives your product ideas or persona spin that will have some viral impact and will get the word out to a relevant audience.

Attending Conferences - Go to conferences that are related to your business and press the flesh. If there is a question and answer session raise your hand and introduce yourself. I can assure you that when the session is over or during a lunch there will be plenty of opportunities to network and to create some buzz about yourself and what you are doing.

MySpace, YouTube, Linkedin, Facebook, Websites, Blogs Etc. - Get you and or your product out on the Internet. Get some traffic that creates noise and recognition around what you are doing and who you are. These vehicles are great places to forward interested investors and it demonstrates that you know how to use the web for marketing and promotion. Make sure you have a way for people to contact you.

Publications - Not everyone is a born writer. However, if you have writing skills get published in journals, web zines, etc. Writing gives you an opportunity to demonstrate your organizational skills and to encapsulate your idea or business in a way that can be understood by a select or mass audience.

Stunts - TV and Radio coverage fall into the category of what marketing people call stunts. You engage is something unique or odd that attracts media attention. This is certainly a very bold approach. An example of this is the trend for people to conduct contests to find husbands or wives. I have seen several of these picked up by the media receiving national attention.

4.) Presentation/Pitch
I have been amazed by the poor quality and composition of some of the startup fund raising pitches I have reviewed. This is arguably the most important document you will create. Do not mess it up!! This document does not have to be big or verbose. It does need to be well organized, contain a mission statement, revenue sources, competitors, amount of funding you want, etc. It does not have to be over produced and beautiful. It does need to be run through a spelling and grammar verifier. It should not be boring and have redundant statements. It does need a closer or hook that you want to leave with the audience. Before you start distributing the pitch have a number of unbiased people look at it and provide their opinion.

5.) Business And Operational Details
You need to be armed with details of your business just in case. Show me the money is going to be the obvious question. Some of these details will be contained in your presentation. However, the presentation should not be filled with details. Have good answers for questions relating to budgets, staffing, marketing expenses, P/L, etc.

6.) Obtaining Advice And Changing The Model
You will start out with an idea, expectations and a plan. Before you venture out into a wider audience with your plan have some trusted individuals take a look at it. More often then not bouncing this first approach off of friends, experts and industry specialists will generate good critiques that you should take seriously. Reach out to some existing investors and professionals that you respect and get their feedback. Most people will welcome the opportunity and provide some great suggestions. Don't be afraid to change the plan based on their input. However, do not change it every time you get contrary advice. Use the critiques as a way of testing your assumptions. If you can't defend them then change the plan. If you can leave the plan alone.

7.) The Team
Investors are investing in you and your team as much if not more as in your plan. Individuals matter in startups. Each individual will have to be resourceful and multidisciplinary working on many different tasks. The team will have to turn on a dime and manage employees under difficult conditions. Startups have the odds stacked against them and the team will have to be exceptional for the business to be successful and thrive.

Investors want to know that your team is qualified to meet these challenges. When selecting a team make sure they have the expertise, background and connections required to instill investor confidence. This does not mean that everyone has to have years of experience. However, it does mean that your team must demonstrate the appropriate level of domain knowledge and have a history of success in that domain. You should ask yourself why me? What is it about me that is going to make an investor confident that I can do the job and run this company.

8.) The Prototype Or Beta Release
The current economic environment makes the development of a demonstrable product, web site, service, etc. important for funding. Unless you are a noted figure such as Meg Whitman, Mark Andreessen, Larry Page or Sergey Brin it is going to be difficult to get an idea funded. VC's are looking for a product example, an indication of consumer acceptance or a business partnership that demonstrates that the team can execute and there is some substance to the business.

9.) Business Partnership As A Source of Funding
I financed my first startup through corporate partnerships. I chose this route because the venture market was challenging (sound familiar) and I was initially approached by a company that wanted access to our technology. In addition to the first round I financed two subsequent rounds and sold the company in a buyout of one of the companies that funded us. This form of funding is not well promoted. I am not sure why. It is a great option for a number of reasons. Another business related to your business will have a better understanding of your value and will be able to utilize your product or service immediately. It may get you to market quicker. It instantly provides credibility for your company.

When you are developing your business plan also create a list of potential business partners. Speculate on how they might benefit from an integration of your product or service into their business. Approach them with a proposition. In my case I licensed the rights to a market sector to one of the partners. In exchange I received a significant amount of working capital to develop our product and to market it into other sectors. In another case we had already made significant inroads into a market. The partner wanted access to this market and used our company as a vehicle to sell our product and theirs as an integrated offering.

10.) Timing
Despite all of your efforts timing plays a big role in getting funding. Currently, getting funding is challenging. Early rounds are particularly difficult to obtain. B and C rounds are also hard to close. There could be a host of other reasons why you are not getting traction. Be objective. If there is a consistent reason for not getting funding and those appear to be timing related perhaps the best course is to wait it out. This is a very difficult decision for an entrepreneur. However, the time spent out of the hunt for funding should be used for other purposes. Additional product development, business deal commitments, attracting public attention to your cause can all be activities that may one day benefit your business when conditions change. The good news is that conditions do change. When they do be ready to go out in the market with your new and improved business plan.

Good Luck!!!!
kflood6@gmail.com