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.

Founders at Work Speakers Series

Posted in Resources,Startups by angel on the September 24th, 2009

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.

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.

Creative Myths about your Company

Posted in Marketing,Startups by angel on the September 4th, 2008

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.

I am Too Sexy…

Posted in Startups by angel on the July 18th, 2008

I get to hear a lot of ideas from people wanting to start a company. The vast majority of the time, people want to start a “sexy” business. Whether that be the current hot online trend (at least half of the ideas I hear related to the web involve some sort of social networking) or even something more simple like starting a bar.

The problem with sexy businesses is that a lot of people are going after them because simply as a result of them being sexy or exciting. But those businesses are generally highly competitive as a result of the vast number of people going after them because of their appeal.

If you are trying to start an online business similar to what 1,000 other people are doing, you need to have a something remarkable or meet a demand no one else is meeting, which is more likely going to be a specific niche.

People also generally go after the sexy business ideas because that is what they hear about in the media. They hear about valuations and acquisitions of these companies that seem exciting. But I see many, many hundreds of million dollar deals with companies no one ever hears of and many times it is because the business is not exciting/sexy.

Look for that path less traveled.

My advice

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.

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.

Buying a Domain for your Start Up

Posted in Startups by angel on the December 21st, 2007

I generally recommend that people try to get their business going for as little money as possible. Bringing investors in too early is not the best idea. If start seeking money then you will likely spend too much time working on funding instead of building your company. And getting the funding will be harder since you probably won’t have achieved much progress. Once you see some results from your efforts, it is much easier to convince someone to invest in your idea.

Sometimes it is necessary to get funding for a variety of reasons. One of them is to get a great domain for your company. There are a variety of reasons to spend money on a good domain, one of them is establishing credibility. We started a vacation rental site and would contact people to see if there were interested in listing on our site. Most would reply saying they were already on enough sites, but when they saw our site – lakerentals.com, they were much more likely to list. When we were acquired by the Weather Channel Interactive, this was one of the main reasons they were interested in our company. They really liked the domain names we had. So an investment in a domain is usually not a bad investment anyway (as long as you don’t pay too much) because it will likely have value regardless of what happens to your company.

Building credibility is also extremely important for your conversion rates. For example, without looking at the sites, would you rather buy from SoccerPro.com or soccer-training-info.com If you start out with a bad domain name, that can potentially hurt you as long as you are in business. Having an advantage with your conversion rates is a huge advantage over the long term and is largely undervalued.

A great domain also has other advantages including some help with your online marketing. Aaron Wall has a great write up on the value of domain names for SEO purposes and you should check it out.

On the other hand, you can start your venture and validate your idea without needing the best domain name. You can get a domain that could be considered more of a brandable domain, such as wisecamel.com. And if you validate your idea and decide you would like to try to get funding (as well as a different domain), you can always for a 310 redirect to send all traffic to the new domain.

Getting some funding to help purchase a great domain is one of the reasons where getting some funding early on is not a bad idea, as long as you can find investors that realize the value of a good domain name. But it still may be a better idea to hold out on funding and the domain until you have a validated business concept.

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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