Beyond the number of users I have, how can I prove to investors that people will really use my product?
Hi everyone - looking forward to a great mid-August chat.
Walk investors through the entire customer process -- how did the user hear about you, how did they first engage, how often have they returned, how much revenue did you generate, how did they use the product (and was it how you first intended), what kind of feedback did they give you, did they need customer support. Also explain how the characteristics/demographics of your current users, represent other likely users. The equation most investors want to understand is Lifetime value of customer - customer acquisition cost >0 (and a lot greater).
I see so many companies with business names that don?t mean anything or have nothing to do with what the company actually does. Are people just trying too hard? Do you have guidance on what makes for a good name for a startup?
Couple things. First, names vary depending on whether you are business-to-business or business-to-customer. If you are selling to enterprises, they care less about your name and more about your product. The easier it is to understand what you do, the easier it may be to get to the right contacts. When selling to consumers, your name is much more part of the brand you are trying to build, but might need to be a little more unique and sexy. That being said -- yes -- sometimes people do try to hard to be cute and witty and ends up just being confusing. Nonsensical names are very reminiscent of the dot-com era. Like everything, test your name with customers before paying for logos and trademarks. The longer you go, the more expensive it will be to change. I think there is a fine line and really sometimes just luck or instinct. If Facebook had called themselves Twitter -- would they have been as successful or did the fact that a "facebook" meant something to students help early adopters understand the product?
You are my favorite WaPo chatter (well, after Tom Sietsema). Am considering an advisory board, and giving them small equity stakes. Will this keep them motivated? Ad Board will likely be three people working probably 5 hours or less per month (bouncing ideas; strategic development; networking).
Is this my mom? :)
Similar to my previous answer on adding management, equity is a great way to incentivize new employees or advisors. I think they will appreciate your acknowledgement of the value of their time and expertise. However, like other equity grants, I'd suggest that they vest over time. You don't want to grant the equity, only to find that adviser is less motivated after you make the grant. I know that is expecting the worse -- but you have to make sure to keep all incentives aligned.
I built my software application and it's in beta testing -- now I want to build a stellar management team. Plan to raise an angel round early next year. I have two candidates in mind and they've expressed interest (one to run sales/marketing and one to lead future R&D efforts). Do you have advice on how to think about sharing ownership with these first two senior teammates?
I'd start with the percent of shares you want to allocate for a management team. You have a number of options -- including options. Meaning, you don't have to immediately grant shares, but could grant options in the company, similar to a public company but the value is much riskier. You could also grant restricted stock that vests over time. Typical management pools can be 10-15 percent - 1 percent for key hires and maybe .5 percent for other members. Definitely get advice because they all have different tax implications for the employee.
Hello Elana. I am looking for funding for my startup, but I don't feel comfortable pitching to angel investors. I know the business like the back of my hand, but I've learned that I'm not the best at effectively selling it. What are some other routes I can take to secure funding?
I only have one piece of advice - get comfortable selling it. Investors - especially early stage - are investing in you as the Chief of Everything, including head of sales. No one but you can do a better job selling others on your vision and plan to execute. We've seen companies pitch the Dingman Center Angels that have their CFO or CMO deliver a pitch. I'm pretty sure none of those companies have been funded by our angels.
That being said, pitching your business doesn't have to mean standing up in front of bunch of sharks. There are a lot of investors that prefer 1:1 meetings. Or look to AngelList and other crowdfunding sites.
I am opening a business next season in the outdoor pest control industry. We have a few competitors in our market area now. My question is: How can we differentiate our company vs. just blasting a marketing campaign like everyone else does?
I'd probably flip that question right back at you -- how do you differentiate yourself? Is it on price? Is it on breadth of services? Do you have a solution to get the gnats out of my front yard -- if so please call me!!! Do you have a specific target customer? Are you organic? I don't think a blast marketing campaign is worth it, if you have a specific target in mind. If you do want to blast -- run tests to see what kind of mass marketing works best for you. Is it online ads? Is it painting your truck with the name of your company? Is it painting your truck a funny color? Is it flyers in mailboxes?
What is the most important part of the Lean Start-up methodology for someone who is new to the concept? How would you recommend learning this concept in a fast and effective way?
Looks like there are two questions in the queue asking about books and learning new methodologies. I think the lean methodologies will/are drastically changing the way we approach startups. Key tenets are to move quickly through the build/measure/learn feedback by connecting with customers early and often. For your journey - Start with Eric Ries' "The Lean Startup," then Alex Osterwalder's "Business Model Generation" and then Steve Blank's Udacity course to understand the customer development process. I'd also then suggest Running Lean and Lean Analytics for more specific implementation tips.
Hi Elana - thanks for doing this. I see that many universities, including the University of Maryland, provide many resources for students to get their businesses off the ground. Seems like I missed all of those things when I was still in school. As an alum, what's out there for me? Thanks.
I'll admit, we have done a C job in providing accessible resources to alumni. It isn't for lack of trying, but finding the best fit for schedules and quite honestly resources (hint, hint to give back to your alma mater, whoever it is). If there isn't a specific program, reach out to your university and ask for any available mentors or advisers. We also encourage alums to participate in our existing programs and ARE (I promise) looking to roll out alumni-friendly programs this academic year. Also reach out to your alumni relations office or even reach out to fellow alums through LinkedIn. I'd be shocked if you didn't find someone willing to help.
I'm at the stage where I'm developing potential start-up costs for my new soda product. What things should I consider? How do I get started mapping out what my initial costs will be? Is there a tool or a formula to use?
So, I imagine the hardest part about a soda product is scaling. The startup costs are pretty minimal and you can probably make your first few bottles in your bathtub, if you haven't already. Question is -- where do you go next? Since I'm on a book recommendation kick, read Seth Goldman's recent graphic novel "Mission in a Bottle." Great story of how he got Honest Tea to market.
Don't forget all of your fixed costs - labor, sales, marketing, R&D, rent, insurance, whatever else. It is easy to think , "Ooh, this can't cost much, it is just sugar and water."
Any advice for someone who has a vague idea and is wondering what kind of research and information is needed to see if it can become a start-up?
Start with the problem you think you are solving and talk to the people with your problem. I know I'm a broken record on this on this chat and in my columns, but I'm just SHOCKED at how many start-ups are still building products before talking to anyone. Most vague ideas arise because you've encountered a problem that you figure others have had -- but you just don't know the right solution. Oh, and Google to see what else might be out there.
After you have created an online service, started making profits, growing business organically, but realize outside contributions allow the business to quickly scale past larger competitors, how do you begin to approach investors when money is only a small part of what you're looking for (guidance, talent, funding)?
As they say, ask for money, get advice, ask for advice, get money. I'd start to look for that advice you need and build strong relationships with potential investors before asking for coin. That being said -- any time you are taking outside capital it should be for more than funding. Your investors should be adding expertise and connections. Don't take money from just anyone. Vet your investors to make sure that your company, plus their investment, connections and collective expertise is a 1+1=6 situation. Most investors have been involved in multiple start-ups so they can help you avoid common pitfalls and learn from their mistakes. Trite but true.
I feel like I have picked all the low-hanging fruit when it comes to customers, and now my growth is decreasing. There are other customers out there, but they are not as open to the idea of introducing a new product in their organization. How do I get these new customers on board!?
Interesting, but common problem. Sounds like you had the hypothesis that after you go to some early customers, others would see the benefits of your product, etc. That is often the case, but there are a lot of very successful companies that target a niche demographic. Could this be the case for you? If so, could you increase the sales price and offer a more premium product? Are there similarities among your current customers? Could you acquire any small technologies that you could sell to this customer base?
What do you think about pros and cons of accelerator programs that want a significant chunk of equity for small amount of money, plus the promise of mentoring and networking? What factors should I consider to help me assess the ROI of that type of financing versus just raising same money from friends and family?
There is proliferation of accelerators for sure. I don't have a specific formula -- but think about whether they really are going to accelerate your company in a short period of time. There is a time value of money that comes to play (dusting off my MBA here). The idea of an accelerator is that it is worth the equity because in 3 months you will accelerate more than just cash alone. If you can get similar resources elsewhere, even if it takes a little longer, it might not be worth it. However, if there are connections and advisers that will help you generate sales or find new customers and help you exploit a small window of time to beat competitors to market, you might have given away a slice of a much bigger pie.
Talk to companies that have graduated from the accelerator you are considering -- they will likely be pretty candid about whether the investment paid off.