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.

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

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 , , , , , , , , , , , ,

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.

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

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