If I were to write a post with tips for Start-ups, I don’t think I could get much better than Neil Patel”s recent post – 10 Business Mistakes That Will Nearly Break You… Literally. The first 5 are especially spot on. My favorite:
2. Get Out of Your Cave
Do you have an idea of where you want to take your business? I hope you don’t because your vision is probably different than your customers.
You have to get out of the mindset of “I want” because it doesn’t really matter what you want. All that matters is what your customers want.
Start surveying your customers to figure out what they want and more importantly understand why they want it. This will help you create a product where customers would be very disappointed if your product or service didn’t exist. Having this will help you make more money.
I certainly don’t have a list of things it takes to succeed, but one thing I generally recommend to entrepreneurs interested in starting a company is you need to take action.
Planning is fine, but without action there is no way you can succeed. Plus, planning only goes so far and too much planning likely won’t help you.
The way to learn what the market wants is to dive into it and figure out what works, what doesn’t, what is needed, and what isn’t needed. Tweak and continue on your quest. This leads to another point by Neil:
Agility is what you have that a bigger company doesn’t.
Act. Reflect and get feedback. Revise. Repeat.
John Tozzi has a post on Business Week’s Small Biz blog regarding the trend of an increase in angel funds. I think one reason for this trend is a result of some angel investors who are excited by the idea of investing in startups, but are not able to dedicate the time to be an active angel investor.
Angel investment networks had a larger growth period a few years ago, whereas previously, individuals dominated angel funding and invested on their own (or with a small number of other people). It may be possible that many of these angel investors were more interested in the investing part than they were interested in other aspects of angel investing such as being “smart money” where the angel investors provide a large amount of advice and guidance. In addition, many angels would prefer to let others do the screening, due diligence, negotiations, and other work associated with getting a deal done.
One of my favorite books, “Founders at Work“, has inspired a speaker series. If you are in the New York area, be sure to check it out. You get to hear the stories of a variety of founders and what they did to succeed.
It is great to hear stories about success since, at the very least, it can provide the inspiration to take action. Even if you don’t learn what it takes to succeed, hopefully you can discover ways to avoid failure or be reassured that nearly every entrepreneur struggles at some point.
For the third time in as many weeks, I have come across an entrepreneur with great software but is struggling to monetize it.
The problem is that a lot of software targeted at consumers is starting to become cheaper and cheaper to the point of where people have access to an amazing amount of great, free software.
These entrepreneurs, along with countless others, only consider 2 main monetization options…
However, many entrepreneurs get so focused on trying to be the next facebook (or insert the name any other site that has a large number of users) they only focus on going after the consumers.
Doing so not only requires the entrepreneur to figure out how to acquire customers, but also determine how to monetize the users.
The good news is that there is an often overlooked option that addresses both of these issues. Entrepreneurs can license software to larger companies. Larger companies will then provide the software to their customers (either for free or for a cost). This does a few things:
1) Comes with its own distribution channel
2) Allows you to make a few big sales as opposed to thousands (tens of thousands or even hundreds of thousands) of smaller ones
3) Will likely require much less start up capital.
A recent deal involved an entrepreneur that licensed his software to a company for $100,000. He is now looking for angel investments to raise money so he can take try to sell the software to consumers. My recommendation…. try to sell more $100,000 deals. Then, if you would like, you can take that capital and develop your direct to consumer offering.
The WSJ had an article today about personal finance tools.
Taking our monetization method of licensing the software, one of these financial software providers could license their technology to a bank or financial services firm who could provide it for free to their customers.
The bank or firm would then be providing a great tool and adding serious value to their services. Also, many print publications are trying to figure out how to adjust to the online business model. Maybe a publication like Smart Money could license the technology and provide all subscribers with a really valuable tool for being a member.
This is by no means a new idea, it just happens to be one that gets overlooked far too often by developers seeking 9 figure valuations.
Quicksprout posts some great resources for Entrepreneurs in his posting titled Entrepreneurs Handbook.
I Plan to follow the Bill Clinch Trial
Frank Peters has a great podcast on early exits with an interview of Basil Peters.
Basil talks about some reason why it may disadvantageous to receive large sums of VC money.
The WSJ did a brief A post on angel funding.
It includes 3 tips when looking for angel funding:
Gigaom has a post discussing Lookery’s recent round of funding that was raised entirely from Angel’s. Lookery’s CEO, Scott Rafer (former CEO of MyBlogLog), talked about 5 reasons why getting angel investing is better than VC money:
1) Focus. “Angels can concentrate on the individual strategy of your company, rather than the larger portfolio management strategy a VC must bear in mind.”
2) Deal Terms. Angels generally don’t demand as much in liquidation preferences and other deal terms.
3) Future Funding Rounds. You will generally have more control over future negotiations in getting additional funding.
4) Transactional Control. “You won’t have to seek permission from investors who aren’t on your board or worry about what a VC needs to have happen vis á vis managing his limited partners… Angels have no LPs, so their agendas tend to be far more transparent.”
5) Exit. “Angels aren’t compensated in ratios. Angels get 100 percent of the profit they generate with their investment in your company. A VC only gets a fraction of the ‘carry’ generated on your deal. This is one reason a VC might be motivated to urge you to sell bigger.”
Rob Conway, a well known “super angel”, follows up with 3 more reasons why Angel money is more attractive than VC money.
1) The due diligence process will be less rigorous since angels are acting in their own interest and not investing OPM (other people’s money).
2) Angels are generally more vertical specialists than compared to VC’s.
3) “Angels have one-degree of separation from people in their professional network — not two, or three, or four. But because angels tend to be operational types, the business relationships they bring to the table are personal, not transactional. ”
Finally, Allan Leinwand, follows up with a counterpoint on why Entrepreneurs should prefer VC money over angel money. He claims VC’s will be better able to stick with the startup over the long term, if things don’t work out quickly. However, Tom Perkins, of Kleiner Perkins Caufield & Byers, says they put companies in the “ICU” if they are not performing well. They either see if they can get out of it or they shut off everything right away.
The Seattle PI posts an article posing the question whether the market conditions will negatively affect angel investing.
Investors are likely to get more cautious as the market suffers since they are seeing their investments in the market decline. However, regardless of the economy, it is never a bad time to start a company. Markets are cyclical and it is unlikely you will achieve great success within a short time frame. There is a good chance that once things get going for your company, the markets will have shown some improvement. (I am not trying to predict the markets here, but throughout history after every down turn, there is at least some sort of up turn.)
Inc Magazine had an article a few months ago about this topic – Starting Up in a Down Economy. They mention several reasons for why a down market is a good time to start:
So market conditions should not deter entrepreneurs from making the decision to start a company. And even though some angel investors may be a but cautious, there are plenty of others that are always looking for good companies regardless of market conditions.
Trevor Blackwell has an interesting post on how some companies generate creative myths for how they started their companies in order to generate publicity.
Ebay and the pez dispenser myth comes to mind as an example.