Does your business model need tweaking?

Jun 19, 2012

Looking for some advice on a new business, or need help fixing an existing one? Elana Fine of The University of Maryland's Robert H. Smith School of Business was online to take your questions.

Hi, I'm Elana Fine, Director of the Dingman Center for Entrepreneurship at UMD.  We help launch student ventures and run the Dingman Center Angels investor network.


Looking forward to chatting with local entrepreneurs today.  Feel free to ask questions on any range of topics from funding, building a team, selecting advisors, selecting target markets, etc.  I'll try my best to give you valuable advice! 

My partner and I are working on developing a beta version of our app. He says since it's functional, we should release it to our beta testers. I say we need to make it much better before we let anyone see it, so that people are vowed and dont' get a bad first impression. What's your take on this?

That is really the purpose of the beta test.  Early users know that this is in early stages -- but they can provide you very valuable feedback.  Many local startups have been extremely successful in launching companies following Lean Startup principles -- get your minimally vialbe product out there and then get feedback early and iterate. 

What industries, other than tech, are successful starts up (currently)

Cupcakes! All kidding aside, I think we are seeing alot of activity in the food space.  Look at trends around specialy restaurants - burgers, cupkakes, frozen yogurt. Also a lot around organic, locally grown foods. 


There is also a blurred line in my cases between tech and non tech -- a lot of product companies now sell on line.  Is that a product or tech because they have a website.  Startups around improving education and healthcare have no shortage of problems to solve. 

Elana - I am a frequent business Rx reader. I would like to start a hair salon business but not sure where to start. Most of the local finance sources are for tech companies. Should I just go to a bank or can I get angel funding? I am working on a business plan. Thanks!

It is very hard to get angel funding for non-tech business -- I actually wrote a blog post recently on this very issue.  I'd suggest talking to a bank and trying to get a small business loan.  The reason angels don't invest is often because there isn't an exit strategy.  A hair salon can generate nice profits for the management, but angels typically like to see a return from an M&A transaction.


Do you notice an appreciable growth in students using iPads (tablets in general) for note taking? Are professors more accepting/embracing the technology, or finding the devices disruptive? Scott Bryan - Founder of CaptureNotes for the iPad (Vienna,VA)

I still think the limitations on the keypad may limit ipad use currently vs. laptops b/c you still can't type that fast, but I can see how the penetration of ebooks might change that.  I'm seeing  a lot more people use ipads in meetings, so I imagine students will be adopting as well. 

I have a lot of great ideas, but I don't know which one to pursue. Do I follow what will be the most profitable? Or what I'm most interested in and passionate about, even if it may end up not making a lot of money?

The one that will be the most profitable will be the one you are most passionate about.  I don't mean to sound cliche -- but starting a business takes a lot of time and risk, if you aren't passionate about it it isn't worth it.  Talk to a lot of people and rethink possible business models that might take your idea in a different direction where it could be "more" profitable.

Often founders have to offer an equity stake in their start-up when money is too tight for competitive salaries. How early should founders start that conversation about equity, both among themselves and with early employees? What are some good guidelines when approaching the subject?

Founders should have these conversations VERY EARLY.  I'd decide what size of an option pool you want to set aside -- I'd say 10-15% and then determine what % you will give to certain hires (senior management, developers, sales) for your early highers.  This will give you a set amount of equity to play with and help guide your hiring/grant decisions. 

Do your network of investors ever invest in non profits?

Our network does not -- there is a local venture firm called DC Community Ventures that looks for double bottom line -- for profit but socially impact.  There are some "philanthropic" funds that don't seek a return but invest in non profits.  NewSchool Ventures is an example of that kind of fund.  Most investors give philanthropically to many causes, but see investing as a for-profit activity.  That being said, Ryan Seashore from CodeNow presented to the Dingman Center Angels and made a great impression!  I'm hoping to see a number of our angels get involved with that organization.

A cousin and his wife recently started a business which is now, months later, on the verge of failing. (i.e. they haven't paid rent on their office, laid off most of the employees, owe money to the IRS for taxes not paid, etc.) This is not a surprise as he did not have a good or vetted business plan, and ignored common sense things like talking to the free advisors available in our city's chamber of commerce program, setting aside money for start up mode, making an appointment with an accountant to plan for taxes, etc.


In the meantime, he is sending out lots of emails asking for us to vote for their business in a contest or refer our friends - I don't mind clicking a link for a contest, but I won't refer them for work as I can't be confident they will be around to follow through. They also convinced dozens of family members and friends to invest in their business to the tune of several thousand dollars (or more) each - if this business goes under, none of this will be repaid, is my understanding.


I did not invest, other than friendly emotional support, knowing this would likely fail, but my question is - when it comes to this point, what can family and friends do, if anything? When it goes under, the folks who invested will likely drop them, so I might be one of a few people they have left who will still talk to them! I love my cousin, but he's an idiot who never should have gotten himself into this mess.

Sounds like you'd done well keeping your relationship family-only with this cousin. I'd stick with that and not make references (sorry cuz) BUT try to help him think through what has gone wrong this time and what he could have done differently.  Most successful entrepreneurs have failed at one point, but they want to prove they can succeed the next time.  He just may have to find new investors this time around.

Thank you for taking my question! I have been working on a great idea that will revolutionize the way people shop online. Problem is, most investors or prospective customers refuse to sign a non-disclosure agreement and I don't feel comfortable talking to anyone about my idea without a certain level of protection. How do I protect my idea from being stolen?

You are welcome.  This issue comes up very often, so you are not alone in this dilemma.  Investors at all stages rarely sign NDAs because they often speak to so many companies and can't be precluded from an investment opportunity.  If you aren't already in prototype or beta testing stage, you are probably too early to even talk to investors.  Select advisors that you know and trust for early feedback -- and then conduct market research to determine if you are solving a problem or creating a product that potential users will find valuable.  I think there are very few example of investors stealing an entrepreneurs idea -- they have reputations on the line as well.

It can often seem like investors have the upper hand when it comes to equity conversations -- after all, they've got the money. How should entrepreneurs approach conversations with financiers about how much of the company they turn over in exchange for an investment?

Before you start talking about valuation, startups need to find early investors that share their vision and can also add value to the company.  Finding angel and VC investors is a 2 way street -- you are selling them on the investment opportunity and they should also be selling you on what they bring to the table.  Most angel deals are done at $1-4M pre-money valuation, so you need to think about how much you are willing to give up in equity and how much you really need to raise to get company to next milestone.

My company is currently looking for angel funding. I am the brains behind the business, but I am horrible at pitching. Will investors be turned-off if I bring in someone else to pitch my business for me?

I always suggest the CEO should pitch b/c at the end of the day you are also the chief selling executive.  Investors want to feel comfortable that you will be able to sell to customers or other partner who you need to sell on your vision.  Like anything, pitching takes A LOT of practice.  We spend a lot of time coaching students and local entrepreneurs on their pitches b/c it is for more than just raising $$.  Find some advisors and coaches who will help you -- you'd be surprised how much progress you can make.  Also, find the venues where you feel comfortable.  Pitching investors doesn't have to be in a crowd, one on one meetings are also very successfuly in buiding rapport. 

My family is considering opening a pizza restaurant, but we are not sure what is the best way to look for location? My brother seems to think that we should look for a place with cheap rent, however most cheap places seem to be in locations far away from busy places. My point is that we need to be in a busy place to get more people in. My brother seems to think that our pizza is so good that people will be willing to travel to get it and there is no reason to pay extra for rent. What would you recommend?

The local restaurant scene is very competitive, so the old adage on location holds true.  If you are in a less desirable area, you'll have to spend more $$ on advertising to drive traffic.  If you already have a brand, then I'd say you could sacrifice location, but as a new restaurant you could end up with cheap rent and a lot of leftover pizza. 

There is a big different between planning and implementing a model. How may one best tell if the problem is with the model or with its implementation?

This is a hard question without knowing more about the business.  I think you can learn more by talking to your customers -- do they like your product but aren't comfortable with price or delivery? Are customers happy to try something for free, but don't see enough value to pay for it?

How ambitious should a start-up be when it comes to capturing one or two markets versus getting really big quickly? We've seen examples of local firms that have taken both approaches. Obviously money can be a limiting factor, but are there other considerations?

Startups always need to think big -- but execute smart.  Think about splitting your time so that most of your time is focused on your top 1-2 markets, but that you allow some time to be opportunitistic.  You need to focus on creating a replicable sales/custsomer acquisition model -- that is often easier to do by focusing on one market.  You can learn what works/what doesn't and then move on to other or larger markets.  $$ is not the only limiting factor -- you don't want to dilute your expertise either.  One step off your path is okay, but sometimes it takes you 2 steps off focus which can be hard to find your way back.

Hi, I have always wanted to start my own business -- especially something that will help me stay busy through retirement -- but I have no idea what kind or where to start. Are there any resources that could help nudge me in the right direction or help me find what my strengths/weaknesses are? I need some inspiration!

There are a couple of ways to go about it -- think about the things that you are most passionate about -- and the things that drive you crazy.  What are your "I always wish there was a place to do this..or a way to do that?" Where do you see people waiting in lines...and why? Talk to your friends and colleague about the businesses they've always wanted to start.  My mom is a great example, she retired and started getting into writing because she always kept a journal.   Now she is thinking about starting a business that gets groups of people together to write about shared experiences. 

Do you think an advanced degree helps in starting a business or not necessary?

I know the answer "it depends" is not very satisfying, but hard to give a blanket answer.  Any startup can benefit from a variety of experiences and expertise -- some from school, some from working in different types of organizations.  For highly specialized and high tech industries, advanced degrees are obviously valuable and add credibility.  MBA's can be valuable as startups grow and need to be able to analyze new markets, analyze strategy and help grow organizations. 

I am often approached for help in raising start-up capital, etc, from family and friends. Is there a graceful way of saying no? Sometimes it's a matter of not caring for their business model, other times its a matter of personal finances...

Entrepreneurs have thick skin, so they usually appreciate the "no" rather than thinking they have a committment.  Answer in the same way you'd answer in a typical professional relationshp, give reasons but perhaps also offer to give some advice or feedback if you are interested.  Also give honest opinion, particularly around the business  model.  You aren't doing any favors by sugar coating b/c I'm sure they value your advice. 

What resources would you recommend -- Web sites, books, organizations, etc. -- for entrepreneurs who are interested in starting a business but need guidance? 

The DC area has a number of great organizations to name a few, (for resources), all the VA and MD economic development organizations, StartupMD/DC/VA, DC Tech Meetups, DC Tech Facebook group plus all the university resources at UMD, Georgetown, George Washington and George Mason.  I'd also suggest the Business Model Generation Book for getting started.

I have an idea and am ready to sit down and write a business plan. How long should it be? Are there any resources that can help me? Thank you!

I had recommended the Business Model Generation book in one of my previous posts.  The planning canvas is a GREAT way to get started before writing a full business plan.  Business plans are used more for internal planning, while a shorter executive summary or canvas can be used to get early feedback on your idea.

This has been a great discussion and look forward to doing it again.  Our region has a lot of startup activity so it is an exciting time to work with entrepreneurs.  As you build your business you will see there are a lot of resources and experienced entrepreneurs willing to help .   Good luck!

In This Chat
Elana Fine
Elana Fine joined the Dingman Center for Entrepreneurship in 2010 as the Director of Venture Investments and was named Associate Director in January 2012. Her responsibilities include identifying quality start-ups, screening deal flow, conducting due diligence and providing coaching for companies presenting at monthly review days and investor meetings. Elana earned an MBA in Finance and Accounting from the University of Chicago's Booth School of Business in 2002, and earned a BS in Finance, magna cum laude, from the Smith School of Business at the University of Maryland, College Park, in 1997.
Steven Overly
Steven Overly covers the Washington region's technology, life sciences and venture capital communities for The Washington Post and its weekly Capital Business publication.
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