The importance of creating a brand for your startup business

March 31, 2009 Leave a comment

 

There are few certainties when it comes to launching a new business, but one of them is starting with zero customers.  This fact alone is what deters many would-be entrepreneurs from taking the plunge.  Without customers there is no income, and without income…well, you know how that story ends.

For those who press ahead anyway, good for you.  Now the sales cycle begins.  And for your prospective customers that cycle includes an information gathering stage, a shopping stage, and a purchase stage.  The key for your startup is to stand out in each of these stages, gaining a measure of relevance along with way.  How do you do that?  One important way is to insert your brand into the mix.  That’s because your brand makes selling easier.  It conveys a promise – before, during and after the sale – that builds trust around what you do and how well you do it.

The benefits of branding to the sales cycle are numerous.  Your brand builds recognition and name awareness in the marketplace in advance of the sale, which leads to increased selection of your product or service over competitors.  It also builds equity for your business in the form of premium pricing and customer loyalty.    It raises your product or service above the level of being a commodity, which helps reduce churn and protects your profit margin.  And finally, it increases the odds that your business will survive and prosper.

So make sure that building your brand is a part of your business plan.  Weave it into your product definition, your positioning, and your messaging.  Realize that shaping your brand’s perception requires persistence – so stick with it.  And know that there are lots of people who can help you with your branding strategy including PR and advertising firms, logo designers, and web-site developers to name a few.  But remember that you control the key ingredient, which is what your product or service stands for and the benefits it transmits.  That is your brand.  Others can help you message it, but you need to be it first.

Filed under advertising, Business, Marketing, PR, Sales, Startups & Entrepreneuring Tagged with , , , , , ,

Basil Peters talks about early exits for entrepreneurs and angels – sweet spot $10m to $30m

March 9, 2009 Leave a comment

 

In an interview with the Angel Capital Education Fund, Basil Peters, fund manager for Fundamental Technologies II, encourages angel investors and entrepreneurs to recognize the opportunity for earlier exits.

His target opportunity is an angel-backed company under 5 years old in the $10 to $30 million exit range sold to a large corporation.  Because companies can be started on a shoestring and grow to be quite valuable in just three or four years, the old days of needing to heavily capitalizing via a Venture Capital round isn’t an automatic requirement anymore.

Peters says that large corporations are better at buying technology than developing it in-house and they know it.   The goal of the big company is to take that $10 to $30 million business and 10x it into a $100 to $300 million business unit.

He cautions that although angel investors are already receptive to such deals, entrepreneurs are slower to catch, especially if VC money was always a part of their plan.   But he counters that the introduction of a VC round extends the entrepreneurs commitment to the business several more years, and the required $100m sale needed for the VC to hit its multiple limits the upside (and eagerness to buy) on the part of the acquiring buisness unit.   

For more information and to read the entire interview, click here.

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Even in hard times, some VC firms investing in student entrepreneurship

March 9, 2009 Leave a comment

As reported by the Wall Street Journal, the bad economy hasn’t dissuaded two high-profile VC firms from stimulating efforts to enhance collegiate entrepreneurship. Highland Capital Partners has opened the call for applicants for its third annual Summer Entrepreneurship program, which gives selected student/university-affiliated entrepreneurs a financial stipend, complimentary workspace in Highland’s offices and advice from investment professionals. Deadline for applications is April. 9.

Meanwhile, True Ventures is doing something similar this summer, inviting a group of students to take part in the first True Entrepreneur Corps program that will let them spend eight weeks with a portfolio company and work on a variety of projects. Deadline here is April 19.

Scott Austin says in the article, “Here’s to hoping more venture capital firms offer such an opportunity.” I couldn’t agree more.

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Venture Capital vs. Angel Investors – These Facts Might Surprise You

February 3, 2009 1 Comment

 

John Huston, a leading light in the Angel investing community, recently shared some very interesting information that’s hard not to get your attention.  According to data from both the National Venture Capital Association and the Angel Capital Association (2004 to 2007), Angels invested just as much money and had a higher 20 year rate of return than Venture Capital firms.  VC’s invested $24.4B over the 3 year period while Angels invested a nearly equivalent $24.3B.  In addition, when looking at 20 year return data (through 2006) VC’s earned an average of 19% and Angels 22%.

vcangelOf course, there are structural and timing differences between Angels and VC’s to factor in.  The investment focus for Angels  is pre-seed (pre-revenues) while VC’s are cash-flow break-even.   As such, the average deal sizes are different (Angels average $473k and VC’s $7.5M) as are the volume of deals  (51k for Angels and only 3k for VCs).  

In a time of tighter and tighter capital and credit markets, the magnitude of dollars flowing into new businesses from Angels and the returns they generate are worth taking note.  Angels now number over 225k high net worth people, 10k of whom are in groups.   The latest angel study from November , 2007 showed that a typical deal is now earning a 2.6x return in 3.5 years, for a 27.7% IRR.

Filed under Finance, Market Research, Startups & Entrepreneuring Tagged with , , , , , , , , , , , ,

Evaluating Online Venture Opportunities – Industries and Markets

January 24, 2009 Leave a comment

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When launching an important new online product or business there are several questions to ask.  First and foremost is this: Does your new idea change the way people will live their lives and work, or is it an incremental improvement only?  If the latter, then beware in terms of ginning up investor or media interest – you probably have a lifestyle business on your hands that will be hard to garner attention.  If the former, then get your pitch ready because investors and the press may want to hear what you have to say.

 

In terms of evaluating prospective markets, here are 5 additional questions where an affirmative on the former suggests you have a high-growth, investable business on your hands and the latter suggests a lifestyle business.  They are:

 

1.      Does your idea encompass a market-driven recurring revenue niche, or is it an unfocused, one time revenue play?

2.      In terms of customers, are they reachable by you or are they loyal to others?

3.      In terms of user benefits, will they see a payback in a year or less when adopting your product or will it take three years or more for them to receive a positive ROI? 

4.      Is there a high value-add where customers will pay in advance, or is the value-add low with minimal impact on the market?

5.      Finally, is the product a durable one or is it perishable?

 

Shaping your new online business and pitch towards a reachable, market-driven audience with recurring revenues, one year payback, high value-add, and durable products will increase your chances of success with both investors and customers.

Filed under Business, Startups & Entrepreneuring Tagged with , , , , , , , , ,

Are You Talking to Angel Investors? Understand Common vs. Preferred Stock

January 24, 2009 1 Comment

 

Ok, you are a budding entrepreneur with a great idea for a new online business.  To fund that idea you begin with founders contributions such as cash, credit cards, your ideas (fancy term is intellectual capital), and sweat equity.  And if that isn’t enough you seek out your family and friends.

stockBut if you are lucky, at some point your idea becomes bigger than the wallets of your relatives and neighbors.  At this point, the next step in the funding process is for you to seek out local angel investors.  Angel investors are high net worth individuals or clubs who invest their own money in startup enterprises.  Their motivations for doing so vary, but they all share one common goal – an “Exit”.  That means the sale of your business or a buyout – at a profit – and in a timely fashion.  What Angels don’t want to invest in is a “lifestyle” business for you.

So here is where common and preferred come into play.    Common Stock is generally reserved for founders, employees, friends/family.  The problem for Angels is that common stock rights are hard to protect (read dilution) in future funding rounds.  Preferred stock on the other hand offers a series of unique rights which can only change with the consent of the series holders.  These include the aforementioned dilution, as well as liquidation options and downside protection. 

If your business is successful, Angels understand that the next step up in the funding food chain will be Venture Capital firms.  VC’s are sophisticated investment companies who will definitely require Preferred Stock, stripping away some common rights.  In addition, VC’s will often protect management at the expense of Angel common through option programs, etc.

Just remember that the difference between an Angel investor and a VC is that Angels are investing “their own money” while VC’s are investing other people’s money.  Sophisticated angel investors need to be sure that a) their money isn’t unnecessarily diluted, b) that management doesn’t decide that they like their high salary and never want to sell the business at any price, or c) that they are the “last out” in the unfortunate circumstance that your business needs to liquidated.

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Startup Advice: Know Your Business Model And Be Able to Say It In 15 Seconds

January 23, 2009 Leave a comment

So you have an idea for a new business, one with an online component, and you are looking to raise money.  Before any investor pulls out their checkbook they are going to ask you “what is your business model? ”  What they mean of course is ”How will you make money?” 

business-modelUnfortunately, what often happens next is the source of high comedy (or tragedy depending on your perspective).   The would-be entrepreneur launches into a long recitation complete with 5 year pro-forma forecasts and detailed sales plan.  The prospect nods their head appreciatively along the way, but in reality you lost them the moment you said “Glad you asked!” 

Here is a simple piece of advice:  Be able to express your business model in a way they can understand it in under 15 seconds.   And the best way to do that is to identify the business model type to which you are most closely aligned, as well as sharing an example company to reinforce the point.  In doing so you give the prospect a clear and immediate mental framework they can use to pin everything you say after that. 

To get a better idea of what I mean, here is a short list of business model types and example companies:

•          Subscription business model                     WSJ – Online Edition

•          Razor and blades business model             Gillette

•          Multi-level marketing business model      Amway

•          Network effects business model               Facebook

•          Cutting out the middleman model             Amazon

•          Bricks and clicks business model              Barnes & Noble

•          Loyalty business models                            Nordstrom

•          Servitization model                                     IT Services

•          Low-cost carrier business model               Southwest Airlines

•          Auction Model                                              eBay

So work this into the opening line of your business model elevator speech.   You will be glad you did.

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