Never Ending Thoughts…

Every small business starts with a great idea but most of the times a really crappy (if at all) business plan. And there is nothing bad about it. The fact is that in the first two years of your small business, you’ll most probably be just “discovering” your business and will be figuring out the best business model that works. It’s only after one or two years that you’ll have a fairly good idea of how your business is actually going to take shape. This might not be true in every scenario, but is pretty much holds true for technology companies, especially if it’s related to a new concept.

So is a Business Plan absolutely necessary to get VC Funding? I think the answer depends on at what point you are lo0king for funding. One thing is for sure though – you need to have a working prototype and if you have few customers on board then it’s even better! My experience after talking with several VCs has been that it’s not always necessary to have a formal business plan especially when you are at very early stages in your start up. The idea of a business plan is for anyone (not just a VC) to get a quick grasp of what you are trying to do. You don’t have to worry about figuring out if the idea has a potential and what will be the exit strategy etc. All that can be added to the business plan later. In fact VCs have a very good role to play in filling up those parts.

People sometimes get too carried away regarding business plans and not actually spend time on building a prototype and giving life to the concept. Sure if your idea is way too complicated it might not be possible to build a prototype. However, if it is possible, that’s what you should be doing first. I think if you have something great going on and are able to get customers on board, that’s what you need to focus on. A business plan should be a by product of your actual work. You will notice that as your business plan will start taking some shape, you will actually get much more understanding of your business and your vision yourself! However you do need to have “some business” and “some customers” to attract any VC (well… almost any).

So in a nutshell, spend some time actually giving life to your idea and try getting some pilot customers on board. You should worry about a full fledged business plan when you are really ready to take your start up to the next level. Do you agree? What has been your experience?

If you are an entrepreneur, or a would be one; this article will almost certainly catch your eye. However, beware, you won’t find any answers to your problems here. One of  the lessons that you will learn (well, if you haven’t yet, only then) is that there are no “packaged solutions” when it comes to bringing an idea to life. What decides whether the idea is great or not, is not you, or your sales team or your customers. It’s pretty much a mix of all of these and “History”. If you are a VC, then this article would make you laugh; well; I hope so…

So let’s get started talking about thinking “beyond VC funding”. After trying to get every-one’s perspective on the topic of VC funding, I spent hours on various VC funding forums on Linked In. I even went to a couple of VC meet ups. Not that I am looking for any funding; but just like any other entrepreneur I was curious to find out if I was in need of funding or not. And believe me, if you haven’t been to one of these meet ups, you certainly should. There is no way you will be able to get a much clear idea about your own business otherwise. The reason is that most of these meet ups are quite intense and extremely business oriented. You will find lot of like minded people. It’s almost as if you are looking into a mirror and there are folks around you, who you might think that they have a crappy idea; but they will be there, trying to sell their idea to the VCs just like you.

Such an exposure opens up the perspective of whether your idea is good enough to be able to attract any-one’s attention? You know it’s great; or so you feel; But is it great enough? You will only be hit by this question when you are around 10 other entrepreneurs.

So let’s step back a bit. Why do we need VC funding at the first place? Let’s look beyond VC funding. Let’s forget about thinking about what VC funding will do to my idea or my current business. Will it help me get more traction, or grow my business, or simply help me bring my idea to life. Those questions have been answered a million times before. So let’s step back a bit and think about the essence of it all.

In essence, you have an idea in mind. It could be a brand new idea and you need to bring it to life from scratch. Or it could be an idea around your existing business. What you need to figure out is that what’s stopping you to achieve that idea. Is it time? Is it resources? Many times, the restriction is just about not being able to meet the right set of people. Sure money can solve most of such problems, but it cannot solve one very important thing; It cannot help you take the right decision. “You” have to come up with the “right decision”. Money can neither help you ask the right question nor find the right answer. It is just one of the mediums to do what you want to do. So think of it that way. Let’s say, in order to bring the idea to life you need a mobile device engineer. So then go look up and find one. You not only need an engineer, but someone who’d believe in your idea. The reason is that this very first team of your company pretty much decides how your company would take shape and grow in future. So you need to spend time finding the right set of people.

Luckly, the whole process of VC funding helps achieve that too. And that’s what you must focus on as much as you must focus on how much money you need to turn your idea into a great implementation that not only helps the society in certain way, it also helps VCs meet their goals.

So use VC funding opportunity to meet the right kind of people that will help you reach where you want to be. Look beyond VC funding.

cheer!

As a start up business owner, one of the biggest questions that you’ll need to answer is “Am I ready to get funded?”. In more occasions than you can think of, this question will haunt your decision making. And it’s really important to spend some good amount of time and really quantify all your thoughts before you decide anything around this. Here are some questions that you should ask yourself to decide if the time is right. Well, there is no long list. There are really two questions in a nut shell! Yes, only two!

1. How much real sales have I generated in the past one year?

One thing that you’ll realize sooner or later is that it really does take a couple of months for any idea to get converted into some real product or service. It does take a few more months from there on to refine it and finally make it at least demo-able to a small set of clients. The more radical your concept is the harder it’s going for you to implement it; It might be an easy sell once it’s developed, but the more radical it’s going to be, the harder will it be not only for you to think outside the box, but also to make your team come on the same page as to what you have in mind. Generally it does take 12-18 months for any idea to come to life and start capturing some clients. That is only if you are good in more than one aspects of your business – development, sales, marketing, etc. to say the least.

Keep a log of how much sales you have actually made at the end of the day. Come up with a business model that actually helps you generate money. You are ready for investment once you are at least making 20% more of what you are spending. If you don’t have a profitable business, you won’t get funding. Period. Even facebook and youtube and groupon had a good customer base and few clients / customers when they went for funding. If you are really looking some serious growth, you need a good client base backing you up.. Think of them as your references from your old job. When you change a job, most of the times you need to provide references. Your clients and customers are like your references. Their feedback will help you get the funding more than 1000s pages of your own business plan. So spend some serious amount of time and energy on capturing some real customers.

2. What’s stopping me to generate more sales than I could?

Once you have developed a good customer base it’s time to figure out what stopping you to grow further. And by “good” I don’t mean 100 or 1000 or 10,000 customers. It could just even be 2 customers. As long as you are making profit, everything is justifiable. Next thing you have to do is that what’s stopping your growth. Is it time? Is it the inability to find the right people to handle more support calls? People to go out and handle more relationships and bring in more sales than you can do yourself? This is very important. Investors are very much interested to find out what the gap really is. They need to clearly see where you stand right now and what’s stopping you to go where you want to be. Based on that they come up with the amount of funding  you’d possibly need and a business model that will get the returns they are looking for. However the catch is the more flexibility they have in this matter the more scary it is; because investors (and for that matter no one) likes unforeseen surprises. No one wants to shell out a million dollar just based on assumptions. So this exercise of really figuring out where the gaps are and how much money you really need and how will you spend that and how will that help you grow, how much money it will generate at the end of the day… All this needs to be detailed out. Once you have done that and are ready with some numbers, it’s time!

So here you go! Once you have answered the above two questions, you are just one step away to connect with an investor!

Hope this helps. Share your experience!

Sam has had a passion of making donuts since his early teens. He learned the art from his grand mother who used to come visit every summer. The secret ingredient is love, Sam still says the same remembering the old days and sharing stories of how he invented the “pepper donut” with his grand mother. As years passed by Sam’s donuts became more famous than just being known to a few good friends in his college dorm room.

Now Sam runs a donut shop in downtown Manhattan. And just like almost every entrepreneur learns, Sam too, is now facing a dilemma of whether to take his donut business to a large scale and involve a VC. He goes to various VC forums and has caught up with the concept of LinkedIn quite well. One thing that he doesn’t understand is that why do VCs talk big numbers and big margins when what he really needs is 250K to push him to the next level.

If you are reading this as a budding entrepreneur, there’s no doubt you’d know how Sam is feeling. If you have been round the block a few times you’d know what Sam is not seeing.

So what’s really going on? What do VCs see that most entrepreneurs fail to see?

VC, just like the entrepreneur has a passion and only puts his money on some idea or concept after not only getting convinced that there will be a return but also after realizing that the concept falls in line with his own passion and long term vision. One thing that many entrepreneurs forget is that a company or a person who is funding or willing to fund them to grow them, is not really looking for profits and returns at the end of the day. They are looking at many more things. Being able to be on the side of the table where they can decide where they should put money, VCs definitely are in constant pressure too. They are thinking in terms of how they think the future should of the Industry lead towards. They too have a long term vision and passion about products and technologies they fund. If they can’t code, or they can’t come up with the technology, doesn’t mean that they only think of the inventor as an investment to make more money.

A big misconception that many inventors and entrepreneurs have is that they think they need much less money. Imagine you are going to buy jewelry worth $1000. When you leave home, do you just keep $1000 in your pocket? No! You figure out you’d need money for having lunch, perhaps you might end up watching a movie too. And even more, it’s quite possible that you might end up buying $1200 worth jewelry even though you had a hard stop at $1000. Who hasn’t gone through that?

VCs are doing exactly the same. When they see an idea or a potential investment, they try to pad it with things that you might have forgotten to include. They understand that if they allocate $100K on something that might take $200K in the end and if at that time they wouldn’t have another $100K to shell out, even the first $100K would go down the drain. So when they calculate the costs they see it from the point of view of how much money they need to block, not necessarily spend.

Consider for example booking a conference room. You know that the discussion is going to last 30 minutes, 45 minutes tops. But if there is only one conference room available and only one hour slot during lunch hour and your discussion is really important, you’d might as well book it for a whole hour. You don’t really intend to burn up the whole one hour, but there’s no harm planning for it. And that’s what VCs are doing.

So how does a VC see Sam’s situation. A VC sees that Sam doesn’t only need money to upgrade his kitchen, he needs money to advertise, to spread the word, to hire better workforce, and to hire sales people who can go out and help establish partnerships with more bakeries. Growing a business is much different from running it and has its own set of challenges even if it’s for a donut shop! So next time when you talk with a VC, try to learn more than you share and try to share as much as you learn!

cheers!

With the recession being technically over in the USA and the overall World Economy starting to grow, well at least at a pace that’s better than the never ending downhill road that it had been following in the past months, one thing that we are hearing more often than in the last few months is Venture Capital Funding for businesses. In this post we will cover some of the aspects of this world and often what all challenges one faces when deciding whether to go for funding or angel investment of sort or a bank loan.

If you are active in various forums on LinkedIn, the ones that focus on VC Funding, you’d realize that VCs around the globe are gearing up their funding activities. They are literally throwing away their money, or so it seems, on all types of businesses, small or large, new or existing, all sorts of Industries and it’s just unbelievable to see the kind of interests VCs are showing especially considering what we went through in the past few months. Perhaps one logical reason is that at the end of the day, the money is only good if it’s invested; parked money is as bad as rotten meat. And VCs know this better than any person in business.

So what does it all mean to you as a business owner – be it of a start up or an existing small business or even a publicly traded company? It means several things.

Easily Available Money is not really “Easy”

What that means that even though you might feel that VCs have loads of money to dump and it’s easier to entice VCs with any new buzzword, the money that you are going to get is not going to be “easy money”. Just like any business, VCs too are running a business; just like you, they are also learning from their past mistakes of the boom and the busts. If you don’t have something solid, forget wasting your time; If you do, don’t think you’ll be treated as a king; there’s a lot to any business beyond just technology or the idea; you might be the creator of the idea but there are 100 other things needed to bring that idea into reality. Think of it this way: You are the creator of the diamond, but you don’t really know how to cut and shape the diamond to really give it the value it deserves; even if you knew, you don’t have the tools to cut the diamond; That’s what VCs bring to the table – the tools and technologies and the money. And so they deserve the major share of the business.

Are small business loans the best bet?

If that were true, we wouldn’t have that many VCs to start with. The problem with bank loans is that they are pretty much like your mortgage. And so there’s a limit to what you can do with bank loaned money; mainly because you don’t get a lot of it to start with. The other most important point is that even if you manage to get a good amount of bank loan, remember that no business is a smooth sail. There will be issues and that’s what VCs shield you from and that’s why they take a good chunk of your business’s stake. What happens when things go wrong and you have a bank loan on you? The bank pretty much takes away your collateral. They don’t have the know how to see what’s wrong with your business and help you fix that. Neither they have the time for that. They lend you the money at first place against some collateral; and all they care is that you return back their money along with the interest in the time you promised. They don’t really care how you do that in good or bad times. While this can be a plus for some, this is a minus for many business owners and hence comes the question of whether to with a VC or not.

So what’s best?

Well, there is no straight forward answer to that. But in a nut-shell, what has worked for us is “keep away from both as long as you can”. It’s the same old saying “any kind of debt is bad”; and so either you borrow money from a friend, a VC or bank; it’s borrowed money and so try to come up with a strategy that requires the least debt. Of course, it’s the hardest path, but it will be the most rewarding, not only for your current venture but also for your future.

Have questions or want to share your story? Feel free to reply!