Angel Investment Journal – Angel Investing and Entrepreneur Blog



Tips for Start-ups

Posted in Entrepreneur Advice,Startups by angel on the December 29th, 2009

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.

Monetizing Beyond Advertising and Freemium

Posted in Entrepreneur Advice,Startups by angel on the June 8th, 2009

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…

1) Charge the users per month
2) Use a freemium business model

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.

Entrepreneur Handbook

Posted in Entrepreneur Advice,Resources by angel on the May 11th, 2009

Quicksprout posts some great resources for Entrepreneurs in his posting titled Entrepreneurs Handbook.

I Plan to follow the Bill Clinch Trial

Early Exits

Posted in Entrepreneur Advice,Funding/Investing by angel on the April 23rd, 2009

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.

Not Starting a Business

Posted in Entrepreneur Advice,Startups by angel on the April 1st, 2008

Recently I have come across a few different instances of people talking about when not to start a business (E-Myth Revisited and Scott Shane talking about his book while
on The Frank Peters Show). It is a topic that does not get much coverage, probably because most entrepreneurial-types like to read things to motivate and inspire them, not things that dissuade them from going after their dreams.

It is an important concept because starting a new venture is going to require a significant amount of time and possibly a significant amount of capital. So it is vital to make sure the resources you are dedicating to it are going to be on something worthwhile.

My freshman year in college, I wanted to start a sno-cone stand. I grew up in St. Louis which has an abundance of sno-cone stands all over the place doing consistent business. In my college town, just two hours from St. Louis, there was not a single one. I was pretty confident I could start a stand and make money from it. Twelve years later, I am pretty sure it would have made money, but it would have been a foolish use of resources. Instead, my brother convinced me to go after another business we had just started in the ticket industry. That company eventually grew to a $22 million company before it was acquired. If I had started a sno-cone stand, maybe I could have expanded and had a few locations. Maybe I could have franchised it or found an exciting niche in the industry that could have been big, but the chances of it being as big as the ticket industry were very slim. And there is no way I could have gone after both businesses to the extent that was required for success.

This isn’t meant to get you to think too much about your idea before going after it. Thinking too much is a major reason people never start a business. They do too much thinking and not enough action. The point is that you should be sure to think big. If your idea has big potential then take action (DIFN) and try to validate your idea as cheaply and quickly as possible.

Don’t be Conservative

Posted in Entrepreneur Advice,Funding/Investing,Startups by angel on the February 21st, 2008

I was at InvestMidwest this week and saw some really exciting companies. I was impressed by the presentations and it seems many of the presenters were either coached on what their presentation should include or they just intelligent entrepreneurs that knew what needed to be done.

Most presentations I see include one aspect that is so common it has started to frustrate me. It happens when the presenter gets to the part of the presentation about projections. They start talking about revenue projections and they present the figures, but say that they believe this projections to be “conservative”.

I don’t know why it frustrates me, but apparently I am not the only one that feels this way. Fortunately, I only heard one entrepreneur (out of 12) claim their projections were conservative. And, upon hearing this, I saw another investor look at his buddy and smile.

Why shouldn’t you use the word “conservative” when talking about your projections?

First, when coming up with projections, especially if you are a start-up, it is extremely hard to predict what you could actually do. But you should do whatever you can to support your projections. So don’t try to say you just need to get 1% of a gigantic market in order to experience huge success. Talk about what aspect of that market you expect to penetrate. But since it is so hard to predict, you probably don’t know what is conservative and what isn’t.

Second, why would an entrepreneur that is trying to “sell” the concept of his business and raise money quote conservative numbers? It is unlikely you would, so don’t try to make the projections look bigger than what you actually believe.

Finally, even if your numbers are conservative, don’t use the word “conservative”. Don’t qualify your projections at all or maybe use a different word like “realistic” if you actually believe those projections are within reach.

The Trick to Making Money – There is no Trick

Posted in Entrepreneur Advice by angel on the February 18th, 2008

While watching Citizen Kane last night, one particular quote in the movie made me think:

It’s no trick to make a lot of money… if all you want to do is make a lot of money.

Things are not as simple as that short phrase, but it does have a lot of truth behind it. If you have one goal and one concern in your life – to make a lot of money – it is very likely you will be able to do it.

The concept requires that you are willing to sacrifice all other aspects of your life (being the type of person that doesn’t care about any other aspect of your life will work just as well as having to make sacrifices). But most people want to make money to have freedom, to be able to do fun things, to not have to worry about money, etc. Money alone means nothing. You strive to make money as a result of the benefits of having money. But it is also true that you could have money and not have those things. This is why you need to stay focused on what you are ultimately seeking. Having a lot of money without a loving family or friends is probably not your ideal goal. Having a lot of money without having any fun along the way sounds like a pretty crappy lifestyle.

There is nothing wrong with being motivated to make a lot of money. Just be sure to know what you ultimately seek. Be willing to make smart choices about what you are willing to sacrifice, because success will likely require a lot of them. I was fortunate in college to have made smart choices in what I sacrificed. I never played video games in while some guys would spend hours a day playing them. I also made sacrifices in the amount of time and energy I put into school, which turned out to be a wise decision. Instead, my brother and I ended up building a solid company while going to school. I didn’t sacrifice going out and having fun and now I wouldn’t sacrifice spending time with my family.

Be sure you know why you strive for whatever it is you seek and make sure the sacrifices you are giving up are worth it.

Easily Validate Your Business Idea

Posted in Entrepreneur Advice,Startups by angel on the December 26th, 2007

Many entrepreneurs spend way too much time planning before they actually take action. Many also spend too much time trying to raise funds too early in the process. It is generally advisable to take some action as soon as you can. This allows you to get feedback regarding whether your idea has potential. You will be able to determine if you are on the right track or if you need to take another path including making some revisions to your idea.

Testing your idea can easily be done through Pay Per Click advertising. You can create an ad campaign in less than 10 minutes. An entire blog could be dedicated to what you can do to optimize your PPC ads so I won’t get into that here (but here are a few good resources). The main things you need to do are make sure you target the right keywords, have a decent ad, and put up a landing page that will help you track interest.

You don’t need to put up an entire site, you just need a teaser on the page and then measure how many people respond to the teaser. When I say “respond”, I simply mean you need a way to judge how interested people actually are in what you are offering. Actually getting traffic is good, but if what you are offering is not what they want, then you can’t accurately judge the need for your business.

For example, we were thinking of selling and ebook on online reputation management. Before we spent the time to actually write the book, create a site, and everything else involved, we ran some PPC ads and got traffic for people looking for related keywords. On the landing page, we had a few tests going at different price points. We listed what would be included in the book and then listed a price. For some people we said “Click here to buy this ebook for $79”, other tests showed lower prices. When people clicked on the link, it took them to a page saying the book was not yet available and they could fill out a form if they wanted to be notified when it was released. We did not collect any information from people unless they said they wanted to be contacted when the book was released because we did not think it would be right, but more importantly, we were not interested in collecting info on them. We simply wanted to how many people would click the link so we could determine if an ebook on reputation management had much potential. In the end, we found out that it did not have as much potential as we thought so we never did anything with it.

Another time we considered pursuing a new type of lead (for our lead generation company). We created a PPC campaign, put info on the landing page and did something similar. In this instance we found out there was enough interest in this type of lead and we would likely be able to convert the visitors at a high enough rate where it would be worthwhile to pursue.

The idea of testing your business model via PPC ads is mostly related to online businesses, but most businesses now need to have some online aspect to them so it is likely applicable to you.

Interviewing Potential Employees

Posted in Entrepreneur Advice by angel on the November 27th, 2007

One of my favorite questions to ask in an interview is a relatively short and simple one, but does a lot to help you learn about the person. The question is “What Blogs, Journals, Magazines, or websites do you read?” If they don’t have a list, they are probably not the best candidate because they are not likely excited or passionate about their profession.

Our companies like to give intelligence tests for most positions. We are not looking for MENSA caliber people, we just want to make sure they are at least relatively intelligent. Motivation, people skills, and specialized knowledge are more important than having an extremely intelligent individual, but there are few positions where someone can excel if they don’t know which number is the smallest – 2, .6, or .18.

Interviewing for a new position is also a great opportunity to learn new ideas. When interviewing for a Public Relations position, I learned all kinds of things about PR which I had not previously known. So take advantage of the situation and try to learn from the interviewee in addition to learning about them.

The Future of Startups – Paul Graham

Posted in Entrepreneur Advice,Startups by angel on the October 4th, 2007

Paul Graham has a great post about called the Future of Start-ups. He touches on a variety of topics including the fact that starting a company is much easier today than in the past.

My first prediction about the future of web startups is pretty straightforward: there will be a lot of them. When starting a startup was expensive, you had to get the permission of investors to do it.

He follows that up with this great little quote:

Now the only threshold you have to get over is whether you have the courage to.

Another great idea included in this is a concept I think most companies shoudl try to do, but few do it:

We often tell startups to release a minimal version one as soon as possible, then let the needs of their users tell them what to do next. In essense, let the market design the product.

Most start-ups don’t want to release until they have the perfect version of the product/software. The problem is that you don’t know what the perfect product/software is until you start getting feedback from the users.

And a final bit of advice which I also like:

Instead of going to venture capitalists with a business plan and trying to convince them to fund it, you can get a product launched on a few tens of thousands of dollars of seed money from us or your uncle, and approach them with a working company instead of a plan for one.

Most start-ups don’t think they can succeed without raising money. But it is a heck of a lot easier to get money if you have something to show. In addition, if you have something to show for it, you don’t have to give up as much in equity.

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