Please Do Not Take This Advice

Advice is cheap...remember that the next time you're given some.

Advice is cheap…remember that the next time you’re given some.

As a start up founder, you have a responsibility to yourself, your co-founders and your fledgling company to seek out the best advice you can about how to grow and manage your venture.

I would advise you to not follow any of it.

Well, I would follow that particular piece of advice…I mean, if you don’t follow advice that says don’t follow advice…I guess you’d be following it. Right?  Let’s try this again.

If you’re a smart founder, you will seek out, and you will find, lots of good advice for how to grow and manage your venture.  Just be careful as to what advice you take.

You may have noticed that as you’ve started your tech company, you’re missing a few things. Capital? Probably don’t have enough of that, right? People? You’re certainly missing access to enough human capital.  Access to customers! Yeah, you’ll never get enough of that.  However, notwithstanding your lack of all these ingredients, the thing you’re going to need more of than anything else is entrepreneurial skill.  Entrepreneurial skill is that combination of brain smarts and gut smarts that allows you to assess the stuff you’ve got control over and the stuff you don’t.  Entrepreneurial skill is what you use to figure out the best ways to get what you don’t have, mix it with what you do have, and then arrange it all in ways that make your business grow.  Put that way, it sounds kind of complicated.  And it is.  It sounds like you’re gonna need some help.  The good news is that there are hundreds of books on founding companies.  Maybe you should read a few of those books, or apply to one of the dozens and dozens of fancy 12-week accelerators and get all the advice you need to sort this all out.

Sounds logical, but my experience tells me it is more complicated than that.  I’ve actually had clients come and tell me how excited they were after a meeting with a potential supplier or vendor who is well-known in their industry. The important thing to remember is that without the context of knowing some details about your business,  advice from these strangers might be interesting…but should not be taken seriously!  You should consider listening to advice from advisors if ALL of the the following elements are present:

1) The advisor has a track record of success.  The advisor does not need to have launched, grown and exited a business to be a good advisor, although that history certainly helps.  The advisor may only be a successful investor or successful corporate executive or attorney/accountant.  Or incubator manager!  What matters is a depth of experience and track record of helping companies launch.

2) The advisor needs to know your business.  Getting a question answered on Quora by Steve Blank or David Rose does not necessarily make it good advice. It might be good advice, but it might also simply be 80% advice…that is advice that is probably good in 80% of the situations…and the chances of your business being in that 80% is only…what? Like 80%? Not 100%.  No matter how experienced the advisor, it is difficult to provide good specific advice if the advisor is not familiar with things like your balance sheet, your sales pipeline composition, the capabilities of your team (i.e., both your dedicated team and those team members you think are dedicated but may actually not be), etc., etc. etc.  I don’t believe any advice from a single one-hour meeting should be taken all that seriously…especially if the meeting came about from you asking something from the advisor…like advice from a VC with whom you’ve had your first meeting.  I can’t tell you how many clients have come back from that first meeting with a VC and tell me “They told me I’m not raising enough money”.  For the record, this is probably true…you probably aren’t raising enough money, but that has little to do with how much money you SHOULD raise!

3)  The advisor begins making his or her network open to you.  In my experience, when someone who fits #1 above, and begins establishing a relationship with you along the lines of #2 above, and THEN makes an earnest introduction to someone else in their network, that advisor is making a longer term commitment in you and your venture.  This is a sign that this advisor is not just thinking about the 80% advice, but is really thinking about your business and how this advice lays into it.

Good advice comes from good advisors who have at least an intellectual commitment to your business.  The smart entrepreneur knows how to sift through good advice, bad advice, well-intentioned advice and contextually relevant advice.  An entrepreneurial skill that can’t really be taught is how to mix all those together and pull out the threads of relevant actions for you to take.  After all the advice…actions are all up to you!

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Venture Tips Update….Make Your Business About Your Customers, Not Your Technology

It's your customers!

It’s your customers!

I originally published the majority of this post back in January, 2012, but I was reminded of the issue again today…twice.  So I updated the post on why you should think of your business in their terms.

A founder came to see me yesterday to give me an update on how 2011 went and to bounce some ideas off of me for where to take the company next.  The company is a small business that is approaching $1 million in revenue.  Their software serves a very narrow market niche currently and has generally been an installed piece of software until the last 12 months or so when they offered up a web-based version.  In looking at their market and segments within it, we figured they’d probably landed about 10% of the target customers.  And they’ve sold the boxed version of the software to about 3,000 customers and the online version has now been sold to about 200 more.

Their software application, with a bit of investment and a new hire or two, could be adapted to a couple of other niche industries.  And the founders love their little application.  Their potential new market niches seemed to get the founders pretty excited and they had basically defined their fundraising needs so that they could build the new product and start marketing it to the new customer base. A customer base they know nothing about.

I asked him why he would want to do that.  He said it was because “the application is just so darned flexible.”  I told him that I thought his 3,000+ customers deserve more from him than that, and so do the next 3,000 customers!

Now I’ll be honest.  Many of the clients I work with have, well, zero clients.  So my rather dull eyes immediately focused on all those shiny customers.  I felt it was obvious that he was in danger of ignoring the most important asset his business had accumulated over the years…his customers!  The first version of the software he built was built on an ancient platform and very difficult to use, as evidenced by the support document which was a 500 page, photocopied, ring-bound tome. And this unsophisticated mess was released not 20 years ago, but in 2003!  And guess what…?  People were buying it!  And now he has managed to begin converting his customer base to the online version of the site, which they’ll have to visit every single day their businesses are open.  He landed one of the largest companies in the industry as a client at the end of 2011.  And yet, somehow, he was fixated on the other potential markets for the software and not the customers.

There are certainly opportunities to pursue the development of other market applications with their platform.  However, these should be opportunistic at best and will not likely involve his company directly, but perhaps through some licensed version of the code.  Without a doubt, for some other companies, pursuing new niches is a good idea strategically…especially when your current niche ain’t buyin’.  So every company is different.  But when you’re having the kind of success mining a mountain that this company is having, and you’ve only mined 10% of the gems, why would you go looking for a new mountain?

Another client and I had a conversation today about a strategic decision he is facing. His business has entered a bit of growth phase and has been approached by a foreign company about a strategic relationship…possibly an investment to allow the foreign company to enter the US market with a line of products that are similar and complementary to my client’s products.  For a variety of reasons, it is a tempting option, but one with risk. We spent about an hour discussing the other company and its product line and finally we got around to discussing the target market of my client where he is beginning to gain increased traction. I said “have there been companies in your targeted industry and size range that you lost but might have won by including this foreign company’s products?” When he said “maybe, but probably not,” the decision regarding the foreign company got easy.  If you think in terms of your customers and not your technology, it becomes easier to make clear decisions with no regrets.  There is always the chance that the road not chosen could have led you to the promised land.  But you have to play the percentages…and I’d bet on my existing customers every time.

Also today, I met with a brand new start-up and we were going over their investor deck.  It was pretty good, but just didn’t sit well, overall, with me until we went back to slide 3 where the company had their one-sentence elevator pitch.  It said something like “Our company is a cloud-based, crowdsourced platform that generates new sources of funding by leveraging…something, something, something…for medium sized companies in the publishing industry”.  When we went back to that, I realized what was wrong…the first words they used to describe themselves were about their technology, NOT their customers! PEOPLE! If you want to develop cool technology, go to a hackathon.  If you want to build a business, solve a customer problem!

The outcome for all of these companies is still uncertain.   But my advice to you as you build your business is the following:

1) If you are a relatively small business (<$5 million in revenue) and can evaluate your customer base and see that a meaningful majority of it can be described in a certain way (eg., medium-sized US clinical laboratories) and you haven’t even landed half the businesses in that segment…go dominate that segment! Don’t start changing your product or service to chase an unknown segment yet. 2) If you’re starting to penetrate an easy to define market segment, evaluate every strategic decision about product development, partnerships, new hires, etc. with the eyes of that customer segment in mind. “How will this help me dominate this customer segment?”  3) If you’re just starting out and don’t have any customers yet, pick a target and define your business as one that serves that target, not as one with a particular type of technology.

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Why I Loathe Tumblr.

No caption necessary.

No caption necessary.

I loathe Tumblr.

But not for the 1.1 billion reasons that you think. Sure, I’m a little professionally jealous that I’ve never had a client sell themselves for $1.1 billion. But it’s not like I had a chance to invest in them and passed. Heck, I had hardly ever heard of Tumblr until about 18 months ago when they raised $85 million on an $800 million valuation and had no customers. I admit to scoffing then…probably even blogged about valuation bubbles. But I didn’t loathe them then…like I do now.

I loathe Tumblr because they made me feel stupid.

Granted, it isn’t the stupidest I’ve ever felt. I mean, there was that time when I volunteered to clean our oven…Step 1) spread newspaper over the oven burners; Step 2) thoroughly spray the inside of the oven with the spray-stuff; Step 3) turn oven to “high” to activate the spray-stuff; 4) See smoke coming from the oven and rush the forgotten (and now smoldering) newspapers across the kitchen to the sink and douse the flames. Tumblr doesn’t make me feel THAT stupid.

No, Tumblr makes me feel stupid because I now realize that all the business advice I’ve ever suggested… is wrong.  Not sure how my clients feel about this, but I’ll apologize now for the following stupid pieces of business advice I’ve probably given you over the years:

Bad Advice Step 1) “Start a company that delivers a product or service that solves some problem that a large set of customers has.” It’s good that Tumblr didn’t take that advice. If they had taken that advice, they never would have come up with such an incredibly useful social media platform that allows me to gaze at pictures that people share with each other, even the borderline pornographic ones. Of course, there were several dozen other platforms out there already allowing this to occur and I would have been wrong to keep blabbering on to them about “I think you need a better customer value proposition”. So identifying a customer problem and then building technology to solve it was bad advice. I should have suggested developing technology to solve no known problem.

Bad Advice Step 2) “Obtain customers.” Pretty naive. I definitely would have told founder David Karp that since he didn’t at first follow my Step 1 advice above–solve a customer problem first, build the technology second–that he should now find a customer base where his nifty, scrolly technology might be useful. Look for a revenue model that would allow you to build a business. Instead, he simply went out and let users, (by the way, users are the exact-opposite of customers), pile on the site and jack up hosting and serving and support costs. Business model, schmizness schmodel.

Bad Advice Step 3) “Don’t raise more money than you need.” Duh. Nearly as stupid as leaving the newspapers inside the oven when trying to clean it! Tumblr raised somewhere in the neighborhood of $125 million on ever-higher valuations. Increasing valuations, mind you, for a company that basically burned increasing amounts of cash for every new user at the site. Apparently the old joke about the CEO who lost a nickel on every dollar of sales but who would “make it up on volume”…wasn’t so funny after all.

Bad Advice Step 4) “Yahoo’s offer is just the tip of the iceberg…I’ll bet AOL will pay $1.3 billion” Ok, I probably wouldn’t have given that last piece of advice. Of course, I also wouldn’t have advised Yahoo to pay $1.1 billion. They basically paid $10 for each of the 108 million Tumblr tumblebloggers on the site. But that includes my Tumblr blog, even though I haven’t visited my Tumblr blog in many months. I think that clearly proves they overpaid by about $10 at least. The good news from the acquisition is that I hope, soon, my Yahoo! home page will have the ability to scroll a news feed for crying out loud.

So, I loathe Tumblr because they’ve proven I have little in the way of good advisory powers. How am I ever again going to be able cast a skeptical eye at a prospective client’s customer growth curve? How am I ever again going to dare suggest a “bottoms up” approach to revenue projections? And how can I ever again offer up my conservative capital-raising sensibilities in answer to the question “how much money should I raise?” (See related post “How Much Money Should I Raise…$29,542?)

No, Tumblr has ruined not only my outward reputation but also my inward self-confidence. Tumblr (and Instagram while we’re at it) have shown the entrepreneurial community the way the new economy works and clearly showed that this old-school incubator manager only ever really got one thing right…that Color Labs never should have taken that $41 million in 2011! Wait a minute…it can’t be…that car that just pulled up in front of Color’s office…isn’t that a Google car full of Google-Glass-wearing Google guys??

Oh, the loathing!

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The Search for Serendipity…And Why It Matters To Your Venture

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Kirk, Scotty and Sulu…the pre-Google Star Trek crew searches inefficiently, but serendipitously.

I turn 48 this week and like most people passing from one year to the next, I find myself a bit nostalgic for the way things used to be.  One of the things I miss…a little at least…has gotten extremely difficult to find.  Ironically, the thing I can’t find is a good search.

Like many people over the age of 40, my parents spent a boat-load of money when I was a lad to buy me a set of encyclopedias.   I had the Encyclopedia Brittanica and the sales guy convinced my parents to buy another set of books called the Annals of America, an outstanding set of 20+ books, chronologically bound, with writings from authors of the day, on the issues of the decades of America’s existence.  Unfortunately, like many things in American life, the series ended with the Nixon Presidency. I distinctly remember casually flipping through the encyclopedias when searching for information about some piece of homework or term sheet I was completing.  I can’t tell you anything specifically that I learned, but I credit these wasted hours browsing  and searching for my success at answering questions from Trivial Pursuit and Jeopardy.

The same was, and occasionally still is for me, with the dictionary.  Geekily, I was in the habit of highlighting good words I found while I was looking for some other word.  My vocabulary is definitely better than that of my dog, Jethro, because of this “wasted” time looking for a particular word but perusing the plethora of others in the lexicon (see what I mean?)

Phone books, those marvels of small font sizes and garish ads on extremely thin paper,  provided an opportunity to make chance findings of new repairmen and home improvement specialists. I’m not sure that any modern digital attempts have been as successful at helping businesses “get local” as the yellow pages were.  There was tremendous knowledge to be gleaned about your neighborhood and community from flipping through the pages on the way to the little business you were seeking.

Without question, the internet gets us where we’re going faster than paper ever did.  It’s like the express train to your destination.  The internet allows us to search and find the precise thingy we’re looking for.  Click-Click-Pow—Knowledge.  All of the companies formed in the Google generation are fortunate to skip the time wasted while tracking down precisely what they’re looking for.  Today’s web based companies can certainly get up and running quicker than companies from the 20th Century, mostly because the software is easier to build and deploy and distribute than in the era before Google.  But there are also fewer dark alleys of knowledge and connections…LinkedIn alone must save dozens of sometimes fruitless hours searching for the right contact to make.

Google-era tools are obviously also making communication more constant allowing more entrepreneurs to believe they can build a company virtually. When I challenge the strategy of some recent college grad insisting that he can build a company with buddies in various locations…I see that look.  That little sideways glance at the gray in my goatee.  That subtle raise in the eyebrows that says “Oh…you’re older than I thought you were, because you probably don’t spend 7 hours a day on Google Hangout.”  It’s ok.  Not your fault kiddo…you just didn’t understand the serendipitous power of Encyclopedia Brittanica.  In a virtual team you miss too many opportunities to accidentally discover your next opportunity.  There is solidifying value to spending 40+ hours per week together with your new venture ship-mates.  Humans are wired with sensory perceptions beyond what can be accepted over the internet miles. No latency issues.  No crappy pixelated choppy images and “hold on, let me text John and see if he can help us get Sam access to the powerpoint”.  Just a couple of founders in a room, with a whiteboard and chemical-odor-emitting markers…hashing their way to a solution and discovering serendipitous knowledge while doing so. Like the bridge of the Starship Enterprise…we’re all in this search for intelligence together.

Soon, very soon I think, kids and an entire generation of entrepreneurs under 25, will not know the pleasure of accidentally learning “stuff” while roaming their way to their destination.  If apocalypse comes, will they know how to forage for food?  Or will they be lost without the ability to wikigooglezon.com for it?  Will they ever try some restaurant they’re walking by in New York, without checking it out first on some website?  Will their life be pointed and direct with all their routes carefully mapped and presented by pleasant digital female voices telling them where to go?  Or will they allow themselves to be exposed?  Will one thing just…lead to another?  Will they be vulnerable to things that aren’t quite what they were looking for but… just adjacent to them?   We’ve tried to teach our kids, and now I teach young entrepreneurs, that the adventure is partly in the journey…but I don’t know if we’ve been strong enough to overcome the inexorable power of a precisely delivered digital vastness.

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My Podcast with SSTI – Ben Franklin wins National Entrepreneurial Capacity Builder of the Year 2012

 

ssti award with Dan Berglund

We were delighted to win this award last year and had a chance to talk about it with Phillip Battle of SSTI.  SSTI is a national nonprofit organization dedicated to improving government-industry programs that encourage economic growth through the application of science and technology.

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Scalawags, Scoundrels, and Other Corporate Partners

dirty-rotten-scoundrels-tope-10-films-by-genre1

Steve Martin and Michael Caine…charming scoundrels or true partners?

If you only quickly scan this post, you may get the impression I’m suggesting that relationships with companies larger than your start-up are not a good idea.  If you are getting that impression, please keep reading.  For almost all B-to-B types of start-ups, corporate partnerships can help in a variety of ways.  They can provide investment, credibility, a path to customers and important supplier relationships and you SHOULD seek to formalize them.  My clients have had many successful corporate partnerships in all these areas…and many unsuccessful ones as well!  The impression you should get from this post is that, although probably unintentionally (but not always), some partners can turn out to be dirty rotten scoundrels.

The prospective partners take you to the brink of forging a formal and enthusiastic business relationship, or sometimes even do formalize the relationship and then – poof – all those promises turn out to be false. Were they really scalawags…or were they just victims themselves of complex competitive businesses?  Ultimately, to your start-up, the reasons are irrelevant when the realities are so important.  Here is some advice for finding and managing your corporate partner relationships.

TechonomicMan Guideline #1: Don’t get fixated on one potential partner.  I’ve seen numerous clients land the attention of one big potential partner, work that relationship for 9 months under the impression that the partner and “start-up” were in love, only to have the partner evaporate.  Big partners have internal complexities that your start-up cannot imagine.  If they’re publicly traded, the complexities are compounded.  Big corporate strategies and fortunes and personnel can change overnight inside a large partner and your little start-up is certainly in no position to handle the strength of a stormy wind of change from a single corporate partner by which you’ve set your sails. Never stop prospecting for new corporate partners.

TeconomicMan Guideline #2: Let your love blossom inside your corporate partner.  If your relationship with a corporate partner begins advancing, develop multiple other relationships with individuals inside that corporation. Some of the best potential relationships can run aground when your start-ups sole champion inside the corporate partner disappears.  Your champion can get promoted, demoted, relocated, or in the occasional headline-making change, arrested! If that person was the only one inside the partner who really knew what your company does, you’re doomed.  Your champion, in truth, becomes your weakest link to that corporate partner.  You must work with that person to begin deepening your relationship network inside the partner and this usually means that you need to be able to explain your value proposition in ways that appeal to an ever-wider array of people and roles inside the partner.  In other words, the Head of Engineering who is so stoked about what your technology can do probably isn’t the one who can turn that excitement into money for you.  You’re going to need help from product managers, business development people and, probably, higher echelons of executive management.  Ask your champion for help in making these connections happen and for help keeping them moving.

TechonomicMan Guideline #3: Guard against trophy hunters!  Large companies sometime get the strategic urge to pursue new technologies.  Competitive forces inside industries change and occasionally, being able to make headlines for acquiring and generating new technologies can help one large company compete more successfully for customers, and so they are drawn to your start-up.  Sometimes this strategic direction is not fully or deeply backed inside the partner.  Your relationship may allow them to say to their customer base, through public relations and marketing, “Look at our new wild and crazy technology.  We’re actually old and shriveled, but man don’t we look good standing next to our new tech?!”  In these cases, your partner’s love for you is not likely to last…it is only skin deep.  Their sales force might never be fully empowered or engaged to sell your stuff.  The biz dev team may quickly move onto other sexy technologies and have decided to impress the market with quantity rather than quality of new tech rollout.  In your agreements, do all that you can to create “take back” clauses so that only a limited amount of time can pass between your marriage and a chance for annulment.

TechonomicMan Guideline #4: Develop a set of targeted partner characteristics that would be desirable.  The best bet is to determine what a perfect partner would look like.  They have to be the right size, so that your opportunity provides them with enough incentive to sell it. If the partner is too big, they won’t be motivated.  If the partner is too small, they won’t be effective.  If they don’t have a history of successfully rolling out partner capabilities…they probably won’t get better with your stuff.  Target partners who are experienced in your target industries.  Target potential partners in the same way you would target potential customers.  Just because they found your website and called you does NOT mean they are the perfect partner.  Evaluate each new opportunity critically.

Like the Steve Martin and Michael Caine characters in Dirty Rotten Scoundrels, appearances are not always accurate representations of reality.  Most professionals working for large potential partners do not intend to cause you strife.  But they can tie up your technology, keep you out of markets and burn your limited resources even if they mean well!  Partnerships with larger entities are probably critical to the success of your business.  Do not trust such a critical factor to chance…take a proactive approach to targeting and securing these relationships.

Here are a couple of other related posts/thoughts on building your start-up:

Don’t Overlook your Customers as your Most Valuable Asset

How NOT to Negotiate…lessons from former Washington Nationals manager Jim Riggelman

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How Much Money Should I Raise…$29,542?

Hilarious scene…serious question.

Hilarious scene…serious question.

Hopefully, you remember the classic TV show Taxi and its despicably lovable character, Louie DePalma.  In one memorable episode, the unforgettable Jim Ignatowski accidentally burns down Louie’s apartment. Jim’s wealthy father sends Louie a signed blank check to cover the damages and Louie faces the question that every high-tech entrepreneur faces:  How much money should I ask for?” (Trust me, you’ll like the rest of this post more if you spend the 4 minutes to watch the clip!)

It’s a classic strategic question asked by every entrepreneur that I’ve ever worked with.  And it is obviously a good question to spend some time thinking through because the amount you ask for reveals how much logic and business savvy you have in your bloodstream.  By the way, you will always be wrong in the eyes of at least half the experts you ask.

I certainly can’t answer your specific “how much” question in a single 1,000 word blog post.  But I will suggest there are only three main buckets in which to place your answer generally.  Once you’ve placed your trust in one of these buckets, then you can get to work on your specific amount:

  1. “raise no money now, keep bootstrapping” (~20% of deals should do this)
  2. “raise only what you need to get the current job done” (~70% of deals should do this)
  3. “go big or go home” (~10% of deals should do this)

Understanding the value of your business is a major factor in raising money.  Remember, that investors typically obtain ownership in your company in exchange for their investment.  If, like some that show up at my door, you are only part-time at your venture and the product isn’t quite built and you have no prior experience in a market, your business is not going to be worth more than $1 million in all likelihood.  If you were successful at raising $2 million, the new investors would own 2/3 of your business.  You probably don’t want that and believe me, THEY don’t want that.  These early-development stage companies should continue to bootstrap until they have created some value.  It’s also possible that your company may fall into this category and not be so early-stage.  If you’re just beginning to find your way in a market, or have discovered some traction after a strategic pivot, grinding it out for another 12 months at less than optimal cash positions may be the right path. Developing a proven business model, even the earliest stages of one, is a sign that it may make sense to raise some outside cash.

Raising capital when you shouldn’t is extremely frustrating.  Most experienced investors understand that they may not be the final investors in your company.  If more money is needed later, those later investors will get to set the rules and those rules may not be friendly to earlier investors. This awareness adds to their reluctance to invest so early and, rather than ask for more onerous terms from you, they simply decline to invest.  And you are likely to spend a lot of wasted time and face a lot “no’s”.  The smart founder knows the difference between dogged persistence and foolhardiness.

If you’ve decided that raising money NOW is the only way to go, I find that a majority of early stage companies should probably be raising a moderate, specific inflection-point-inducing amount of capital (#2 above). This is true whether your company has no revenue or millions in revenue.  And this is really where the Louie DePalma conundrum takes hold: How much to ask for?  Here is how I typically go about helping my clients figure out how much to raise.

I take the founders best assumptions and projections for 2 years after I’ve begged them to be as objective and cold-calculating as their entrepreneurial minds will allow!  Then we spend about 4 hours talking about a much more modest set of assumptions for both revenue and expenses.  Then you add up the shortfall and add 6 more months of burn rate to get your total.  Now stand back and stare at the number and assess what that number means for ownership in regard to the current value of the company. Evaluate what that number means in terms of milestones you’ll achieve and what timeframe is targeted for them.  Be sure to tie these…amount, milestones, timeframe…together in your investor pitch as you start to consider whom to approach and it should yield a rational and credible amount of cash to seek.  Yes I know…you hear that devil on your shoulder saying “go big or go home” and you’re afraid you’ll regret, like Louie, not listening to that voice when he discovers $200,000 was possible.  (To be clear…if you are offered a larger amount of money…consider it and its implications, of course.  What I’m talking about here is what you go out there asking for).

Trying to raise a distractingly large amount of money…say enough to pay for operating shortfalls AND enough to pay for a new round of product development AND get through regulatory approvals AND begin making product in quantities AND launch the sales effort on that new product…is a “go big or go home” strategy.  I do not advise this strategy in most cases, especially in the past 5 years or so.  The funding climate and valuations have not warranted it.  If your company has gotten to 1) rapid revenue growth (10-20% per month?) and 2) operational normalcy (i.e., predictable margins) and 3) you are facing a very large market opportunity for which you’ve  placed yourself at the forefront in your industry and 4) the external funding winds are in your favor then a “raise as much as you need to get you to an exit” strategy may be worth considering.  I’ve often heard this strategy espoused by very respectable people who understand well the dynamic in raising capital.  They say it this way, “You’re not raising enough money.” Maybe you set out to raise $500,000 and they say “you should try to raise all $4 million you need for your plan.”  There are times when this could be true, but usually, I find that founders are blinded by the flattering nature of this comment. “Yeah, I deserve to raise more.”

As I said at the beginning of this post, what your company should specifically raise can’t be handled by the advice in a single blog post.  You should seek out some objective advisors who can help guide you first to the right “high level strategy” and then within it, figure out the detailed strategy.  I’d also suggest that you create a strategy for each…that is, know what you would do with a bootstrap, middle-of-the-road or go big strategy amount of money.  Don’t present each scenario, pick your preference.  But do be prepared to discuss each with investors.  Or, at your own peril, follow Louie’s lead, just stick a finger in the air and ask for a number between “whoa” and “meh”.

Check out these other posts on starting and financing your venture

Ohhhhh. I Get It Now. You Said Valuation…I Thought You Said Value.

Every Top 10 List Deserves a Few Cautions

Let Us Begin with the Beginning

Posted in Business Planning, Entrepreneurial Advice, Seed/Venture Capital | Tagged , , , , , , , , | 2 Comments