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!!

Raising Seed Capital In A Recession

Yes, you can raise capital in this economy. Individuals and institutions are investing. Yes, the environment has created some unique challenges and advantages.

So what is different about the current state of the affairs?

1.) The VC's may not be your first stop on your way to raising money. Are the VC's still investing? Yes they are but they are also preoccupied with managing there current portfolio of companies through these tough times. They are a bit more conservative with new investments and are going to have a wait and see tendency. There are certainly exceptions. If you are in one of those domains where even a turkey can fly then perhaps your first stop is a VC. VC's are herding creatures and they feel most comfortable in areas where a number of other VC's are also invested. This is perceived as the perfect storm scenario where enough intelligent and savvy investors have decided that a certain domain is most likely to capture the imagination and pocketbooks of a very large number of consumers. The iPhone application space is a classic example. This could be a big market that can support a number of successful companies.

2.) If your idea is not in the perfect storm sweet spot then the individual investor route is a better approach. High net worth individuals are in an interesting position right now. Where are you going to invest your money? Certainly the stock market appears very risky and volatile. High yielding bonds maybe. However, an investor has to have confidence that the principal will be still there at the end of the term. Also, you might get a 10% return. Is that really an investment? Where might you get a 100% return or better on your investment? A startup company might be a very good alternative investment.

Startups are transparent allowing an investor to really understand what is going on with the business. An individual invested in a small startup really gets to know the people, processes and economics of the business.

Many high net worth individuals are or were entrepreneurs and they got rich being entrepreneurs. It is their money and they are usually not beholden to an investment group. They can make decisions about their money. They are also usually very good at picking winners because they know what a winner looks and feels like. They can also move faster then a VC or an investment group. They can bring expertise and advice to your team. They usually have relevant business expertise that you might be able to take advantage of.

Overall, I am heavily weighted in the individual investor camp for raising funds in this environment. It appears to be a good way to get a seed round and a good start in a relatively short period of time. Certainly VC's should not be discounted given the right circumstances.

No matter what route you pursue to raise capital there are certain ways to have a higher likelihood of being successful at securing funding. Also finding individual investors or open minded VC's is a skill in an of itself. This is a subject for a future blog entry.

Stay Tuned and Good Luck!!!