Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Use General Technology and Market Trends to Define the Future for Your Start-up Company

The stock market always looks to the future.  This should also be true for first time entrepreneurs.  When defining your start-up company’s business proposition, you need to look at both the general technology and the general market trends of the future.  Why, because it is these general trends that will define the future market place for your technology, product or service offering.  General trends are often over looked by entrepreneurs, but venture capitalists always take a “big picture” view as to what technologies and markets will be pervasive five to ten years out in time. As is often the case, what is true and certain today regarding technologies and markets will not be true and certain five to ten years in the future. Therefore, as an entrepreneur you need to have a “big picture” view of the future and make sure your technology, product or service offering will have a role to play in the future, when defining a given market “problem” or “need”.  This article discusses the importance of creating this future frame work, based on general technology and market trends when presenting your technology, product or service offering to your potential investors.

Develop a Clear Understanding of the General Technology Trends

General technology trends change over an extended period of time.  Unlike the predictions often set forth by the technology pundits, a new technology does not take hold in the market in a year’s time frame. It often takes five to seven years or more for a new technology to take hold.  It even takes longer than that for a new technology to become pervasive and accepted by the general public.  Why, because there are many issues that come into play when rolling out a new technology.  These include the following:

  • Initial costs of new technologies are generally high,
  • Infrastructure roll-out takes time and is very expensive,
  • The new technology may not be ready for prime time, and
  • End-users do not always readily embrace new technologies.

These issues can substantially delay the rollout of new technologies.  But in the whole scheme of things, the entrepreneur must be aware of new, general technology trends, their timing and availability to the market.  In this context, having a good understanding of general technology trends, their availability, and how they can affect your start-up company’s product or service offering, in a positive or negative manner, is key to positioning your start-up company and its product offering in the future markets. Knowing and properly presenting your start-up company’s technology product or service offering in the context of these general technology trends will not only gain you credibility with your potential investors, it will provide the underlying and necessary credence to overall potential value of your start-up company and its technology, product or service offering. This is important, as investors need to know and believe that your start-up company’s technology, product or service offering has the ability to create long-term value in the context of the general technology trends of the market.

Review and Understand the General Market Trends

Knowing the general market trends is often a key to positioning your start-up company’s technology, product or service offering to your investors.  General market trends provide the “big picture” of what the future markets are going to look like.  What are the long-term market growth areas?  Will these market growth areas be the same as those markets today? What will the population look like in five to ten years? What will drive the long-term economic engine of the US and world economies?  These high-level general market trends need to be considered, understood and addressed by entrepreneurs looking to define the future for their start-up company’s technology, product or service offering.  Knowing and being able to appropriately define the general market trends of the future will provide potential investors with the necessary context as to how or why your start-up company’s technology, product or service offering will be important to addressing the “problems” or “needs” of future markets.  This is very important to investors, as they need to understand the “big picture” and how your start-up company’s technology, product or service offering will impact the markets of the future.

Define Your Start-up Company’s Product Offering in the Context of These General Technology and Market Trends

As an entrepreneur, remember you are trying to sell your technology, product or service offering to potential investors.  To properly do this you need to sell a vision.  Why, because a vision necessarily provides context, looks to the future, and requires an appropriate presentation of how your start-up company’s technology, product, or service offering fits within the general, future technology and market trends.  This vision necessarily needs to define your start-up company’s product offering in the context of both future technology and market trends.  Not doing so will necessarily hurt your efforts to convince investors of the potential future value of your start-up company and its technology, product or service offering.  By properly painting both the general technology trends and associated general market trends and how your start-up company’s technology, product or service offering provides an opportunity to secure a unique position with regard to these general trends, investors will then buy in to your vision and are much more apt to invest in your start-up company and its technology product or service offering.  Therefore, take the time to step back from your start-up company and its technology, product or service offering and take in the “big picture” in terms of both general technology and market trends.  This will allow you to develop the necessary context and associated vision for your start-up company. It will also allow you to provide the “big picture” contextual view to your potential investors, providing the necessary road to securing funding.

As an entrepreneur looking to present the future to your potential investors, you need to necessarily have a good handle on both the general technology and market trends.  This will allow to you provide the appropriate context as to how and why your start-up company’s technology, product or service offering will be both important to addressing these trends and how at the same time you are solving future “problems” and “needs” in support of these overall trends.  The bottom line is that by addressing these general, future technology and market trends, you will be providing your investors with a vision that allows them to see the future appropriately and how your technology, product or service offering will create value and play an important role in this future.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

September 28, 2009 Posted by | Business Planning, concept, Venture Capital, venture finance, Venture Funding | , , | Leave a comment

Entrepreneurs, A Breath of Markets Approach Will Lead You to the Right Conclusions

Having a business “idea” or “concept” does not necessarily provide the entrepreneur with much direction in getting started in developing a valuable and fundable business proposition.  This beginning point in the development of a start-up company often leaves first time entrepreneurs in the dark as to which direction to proceed forward with regard to their proposed technology, product or service offering.  They often ask themselves: “Where do I start?”  The best answer here is to begin by focusing on the markets.  Why, because it is the markets where you will sell your technology, product or service offering.  It also the markets that will determine the “problem” or “need” you will be solving.  This focus on the markets will also help you determine how to position your technology, product or service offering against your competitors.  In short, by focusing on a broad breath of markets and the possibility of potential opportunities they represent, you will come to the right conclusions as to where to take your initial “idea” or “concept”, how to develop a value added product offering, what your product offering will ultimately look like and it will in the end provide you with the ability to determine the best return on investment for your venture investors. This article addresses this breath of markets approach in determining how to take your product “idea” or “concept” into reality of a valuable business proposition.

Look at a Broad Breath of Markets

In the beginning of your product definition process, all markets look the same.  Why, because at this point you do not have any details on the size of the market, the growth of the market or the potential “market needs” you will be addressing for any particular market.  Therefore, you should look a broad breath of markets that can potentially be addressed by your technology, product or service offering.  Don’t pick a favorite market at this time.  All you need to do is to determine the baseline market characteristics (size and growth), and potential “needs” or “problem” you will be addressing for a given market.  This analysis will provide you with a high level overview of the market opportunity and at the same time give you the necessary background to determine if a particular market or a number of different markets may be of interest to you and your start-up company.  Remember, this is not the time to discount a given market.  Why, because you do not have enough information on the details that will make your product competitive in this space.  All you are trying to do is to determine, from all the markets you could address, which set of markets are of potential interest and why.  This preliminary market data will be useful in drawing your final conclusions as to which markets are of interest and how to prioritize these same market opportunities.

Review the Competitors for Each Market

Once you have a list of the targeted markets that are of interest, you should next look at the competitors in your potential target markets and review their positions and product offerings.  As such, the competitors for each market will most often be different and have unique product offerings to address the market needs and requirements for that specific market. Pay particular attention to the details of each competitor’s product offering by market. Why, because different markets will require different product features, functions and capabilities, and each given competitor’s product offering will provide you with the appropriate insight as to the necessary key differentiators that make their product offerings competitive for a particular market of interest. These key product differentiators are often unique to a particular market or they may be common across a number of potential markets.  This is something you need to pay attention to since you generally at this point are looking to address as many markets as possible with your product offering.  In addition, you are looking to determine the features, functions and capabilities that will give your start-up company’s product offering a competitive advantage over your competitors for a particular target market.  Here, it pays to be very detailed.  As it is these details that will ultimately lead you to the right conclusions in determining the competitive advantage of your start-up company’s technology, product or service offering.

Define the Product Requirements for Each Market

After you have had time to review the various competitor product offerings for each potential target market of interest, you need to spend time sweating the details on the necessary product requirements for each potential market of interest. Here, you need to develop a product feature, function and capability list for each potential target market. Why, because it is this product requirements list that will provide you with the necessary insight as to what it takes to not only be competitive in a target market of interest, but what it will also allow you determine what additional product capabilities are necessary to make your product a “complete” product offering.  This often requires you to add capabilities (e.g., software, hardware, services) to your start-up company’s “core” capabilities that are well beyond the scope of your company and will require you to secure these capabilities through a strategic partnership or by other means.  In the end, you will have a compelling and “complete” product offering that addresses the needs of each particular target market. This is your goal.  Finally, it is through this market driven product requirements process that you may determine that certain markets cannot be addressed by your start-up company or will necessarily need to be addressed in the future, with follow-on product offerings, once you first establish yourself in other markets. Therefore, defining the detailed product requirements, for each given market will give you the insight you need to not only determine the necessary feature and functional requirements, it will given you insight so setting your start-up company’s targeted market priorities.

Develop Focus for Your Targeted Markets

Once you have looked a breath of markets, reviewed your competitors’ product offerings and defined the product requirements for each potential market of interest, you need to focus in on your target markets.  Here, you need to first identify which markets you believe, based on the above information, you have a clear competitive advantage.  Then you need to identify which of these markets have the highest potential for return on investment for your potential investors.  That is, which markets are the largest and have the highest long term growth.  Finally, you need to prioritize these markets in terms of total financial investment requirements and associated risk.  Some, target markets may be attractive, but will require substantial up-front investment and result in much longer time-to-money and profitability. Alternatively, other target markets may not be as attractive, but are easier to penetrate and will allow you start-up company to generate early cash flow and at the same time provide higher potential near term returns while you establish your start-up company in these target markets.  The point here is to take a look at the whole breath of markets that are available to you and your start-up company and develop a focus for a given, limited number of target markets that make sense logically, strategically, financially and opportunistically. Doing so will provide your start-up company with the focus necessary to move forward with a targeted market driven plan and at the same time provide your start-up company with higher potential for success.

As a first time entrepreneur with a product “idea” or “concept” it is not always easy to see how to move forward to develop a compelling, value added business proposition.  To take this leap forward it is always necessary to start from the markets. This market focused approach requires the entrepreneur to identify a broad breath of markets that have the potential to use their start-up company’s technology, product or service offering to solve an unmet market “need” or “problem”.  Following this market opportunity analysis with a both a review of the competitors product offering and the development of listing of the product requirements for each potential targeted market will provide you with the necessary insight to determine which target market you will ultimately have a sustainable competitive advantage.  In addition, it will provide you with the ability to prioritize these same markets, based on market opportunity, investment requirements, potential risk, and projected overall return on investment.  So, take the time to use a breath of markets approach in the development of your start-up company’s “idea” or “concept”. It will lead you to the right conclusions and provide your start-up company with necessary focus to be successful in your final target markets of interest.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

September 21, 2009 Posted by | Business Planning, Competition, Competitive Analysis, concept, Customers, Target Markets, Venture Capital, venture finance, Venture Funding | 6 Comments

Three Things Entrepreneurs Absolutely Need to Know Before They Talk To Their First Venture Capitalist Investor

Being an entrepreneur is not a guessing game.  Like any successful endeavors in life, starting a business as an entrepreneur, which depends upon third-party venture investors for its ultimate success, requires time and lots of hard work, as well as considerable planning and preparation.  Much of this planning and preparation process is often overlooked by first time entrepreneurs.  Why, because many of these same first time entrepreneurs believe the following: “Hey, I have a business idea and why shouldn’t I receive funding from a venture capitalists no questions asked.”  This thinking will not get you too far with potential venture capitalist investors.  They expect you to be prepared, and have thought through your proposed business idea from all angles.  In this vain, as a minimum, there are three items you need to answer before you step foot in front of any venture capitalist investor.  This article addresses these three items and outlines why by answering these three questions, you most likely will succeed in getting a follow-up meeting with these same venture capitalist investors.

What Problem am I Solving?

Investors first want to know that you are solving a problem in the market.  They do not want to invest in start-up companies with a technology, product or service offering that is looking for a problem to solve.  Why, because unless there is a “defined need” for you start-up company’s technology product or service offering no one will buy it.  Remember, you are in business to acquire paying customers and not to develop a “cool” technology, product or service offering.  Venture capitalists understand this, and from the beginning they are looking for the underlying reason customers will pay for your product offering.  Is your product offering cheaper?  Does your product get your customers to market faster?  Does your product offering save your customers money?  There many underlying reasons customers will buy your product offering. You need to determine this reason.

All venture capitalists want to know is that there is a reason for customers to buy your technology, product or service offering.  Therefore unless you are filling a “need” in the market you will be hard pressed to convince these same investors that you have a fundable start-up business.  This is very simple and at the same time is more often overlooked by entrepreneurs.  So, before you decided to present your business plan to potential venture investors, take a self assessment and determine what problem you are solving.  Be realistic and practical in your assessment, as you should know your investors will be.

What is My Business Model and Projected Financial Returns?

Most first time entrepreneurs do not really understand the venture funding game.  That is, they really don’t take the time to understand venture capitalist and their objectives and goals. So, let’s be clear, venture capitalists are in business to make money – a lot of money. Therefore, they need to invest in business opportunities that make business sense from the financial point of view.  Therefore, a new start-up company with a proven business model will make sense to venture investors.  On the other hand, a new business venture with an unproven business model will not get any real attention from these same investors.  Why, because venture capitalists are in business to mitigate their financial risk, and having a business model with a proven track record in the market will give these same potential investors the level of comfort that they need to consider the investment opportunity.

In addition, as an entrepreneur it is necessary that you know your projected financial returns of your start-up company for your venture investors. The standard rule of thumb here is 5 times the initial investment in 3 years or 10 times the initial investment in 5 years.  These numbers, do not reflect any reality or are even close to the average returns venture investors receive on their investments, but are merely the standard financial hurdles venture capitalists use to judge different start-up business opportunities.   So, as an entrepreneur you need to know your financial returns and make sure they conform to these industry standard projections.  Anything less will not get you a follow-up meeting with these same potential investors. 

Finally, as an entrepreneur you need to remember that venture capitalists only invest in a limited number of start-up companies over their lifetime of their venture fund, so they need to be careful when vetting start-up company investment opportunities.  Understanding the business model and the projected financial returns is their first step to considering a potential investment opportunity.

Is My Product Offering Unique and Compelling?

As an entrepreneur, you need to have a product offering that is both unique and compelling.  Anything less, will most likely not get venture investors attention.  Why, because these two attributes will differentiate your start-up company’s technology, product or service offering in the market.  If your product offering is unique, it more than likely is patentable or has intellectual property associated with it.  This will differentiate your product offering to your investors.  Why, because it provides the opportunity to create value – something that will potentially bring much higher financial returns when the investors go to sell the company.  Also, being compelling provides a reason for customers to buy your product.  This will provide the ability to create market “buzz” and associated market traction.  Remember, “time-to-money” increases the financial returns for your investors.  So creating a product with compelling value proposition for your customer base will get your investors attention from the beginning. Therefore, as an entrepreneur, if you wish to secure funding from third-party venture investors you need to create a product offering that is both unique in the market and compelling to your customer base.

Venture capitalists see lots of investment opportunities every year. Many review thousands of executive summaries and business plans.  Very few, if any of these same investment opportunities get the attention of the venture capitalists.  Why, because they do not address necessary items that will make their investment opportunity successful from an investor’s point of view.  This article has outlined three necessary things that entrepreneurs need to know before they get in front of venture capitalist. If these three things are not addressed in detail during your first meeting with investors, you will not get a follow-up meeting.  Therefore, be aware these three items as they most likely will provide you with the ability to secure immediate traction with potential third party investors.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

September 14, 2009 Posted by | Business Planning, concept, Idea, Venture Capital, venture finance, Venture Funding | , , , , , , , | 2 Comments

Six Product-Focused Items Venture Capital Investors Necessarily Consider When Reviewing an Investment Opportunity

Venture capitalists have to consider many things when trying to understand a potential investment opportunity. From the management team, to the total amount of investment, to the nature of investment environment, venture capitalists are trying to identify potential risks and at the same time mitigate these same risks so that their investments have a higher probability of success in the market.  In addition, when venture capitalists consider and then assess the potential of a start-up company’s technology, product or service offering, these same investors necessarily focus on six items. These six individual product-focused items provide a complete picture and a realistic assessment as to whether the start-up company’s technology, product or service offering will be successful in the market.  This article addresses these six product-focused items and provides the reasoning as to why investors consider these things when assessing the potential success of a start-up company’s technology, product or service offering.

Does the Product Offering Have a Long-Term Sustainable Advantage?

Investors are always looking at the big picture.  One thing they need to understand regarding a start-up company’s product offering is its ability to remain competitive over time.  That is, does the product have a long term sustainable competitive advantage in the marketplace? Why, because a long-term sustainable advantage facilitates exceptional revenue generation capabilities and a much higher return on investment.

From the potential investor’s point of view, a long-term sustainable competitive advantage really has two components. First, is the technology, product or service offering disruptive in nature? A disruptive product offering changes the basis of competition in the market and often results in a paradigm shift for a given market.  This disruptive nature is necessarily “revolutionary” and not “evolutionary” in nature.  A revolutionary change can address any or all of the following:

  • A shift in the structure or nature of the technology offering in the market,
  • A significant reduction in the average selling price,
  • A significant reduction in the time to market and
  • A new avenue for sales channel logistics.

Overall, the underlying theme of a disruptive product offering is that it provides the means and justification for the target customer base to change their status quo and go with the start-up company’s technology, product or service offering, as a means to obtain a competitive advantage in the market. 

The second aspect of a long-term sustainable advantage is the fact that there is intellectual property or patents associated with the start-up company’s technology, product or service offering.  Patents are used to provide legal recourse against competitor infringement, or the copying of certain proprietary aspects of a start-up company’s technology, product or service offering. Using patents to protect a product offering can provide the start-up company with a long-term sustainable competitive advantage in the market.  Accordingly, investors are interested in patents for several reasons, including:

  • The ability to protect the start-up company’s market position,
  • The potential to provide enhanced revenue and gross margins,
  • Perceived “value” in which to sell the start-up company at a higher price. 

Having a sustainable long-term competitive advantage in the market is one sure way of securing the attention of potential investors.

Who is the Competition?

Venture capitalists are always interested in understanding the competitive landscape. Why, because having a good understanding of a start-up company’s competitors and their product offerings provide the start-up company and their potential investors a good idea on how to position their technology, product or service offering in the market.  In addition, knowing the specific details of a start-up company’s competitors and their product offerings also gives these same investors a level of comfort regarding the potential of success in the market for the start-up company and their technology, product or service offering. 

As investors know, potential customers always evaluate a start-up company’s technology, product or service offering against their competitors’ offerings. This provides the necessary justification as to why a customer is willing to move from the status quo to a new product offering.  Whether it is pricing, lower system integration costs, lower power consumption or enhanced services, investors need to understand the compelling features, functions and capabilities of a start-up company’s product offering and how it stacks up to the competition on a feature-by-feature basis.  This information will allow them to make an informed decision when considering investing in a start-up company. Therefore, know the competition. This will facilitate the potential investors in making their investment decision.

Is This a One-Product, One-Market Investment Opportunity?

Potential investors always want to avoid one-product, one-market investment opportunities.  Why, because if the product fails for any reason, they have lost their monies and there is little to no recourse to recoup their investment. So, venture capitalists prefer to invest in start-up companies with a technology, product or service offering that can be used to develop multiple product offerings across several targeted markets.  This multiple product, multiple market investment approach substantially lowers the venture investors risk by creating the potential for multiple revenue streams.  In addition, this investment approach is preferred by venture capitalists as it has the ability for substantially increasing their return on investment.  Remember, venture investors are all about mitigating their risks and increasing their potential returns, so a multiple product, multiple market approach is preferred by potential investors.

What is the Size of the Target Markets of Interest?

Venture capitalists prefer to invest in start-up companies that have the potential for high returns. To do this, these same start-up companies need to address large market opportunities.  Therefore, as part of their analysis for determining if a start-up company and its technology, product or service offering is of interest, these same investors are always interested in understanding the total addressable size of the markets of interest.  The bigger the size of the addressable market, the better. Why, because larger markets provide the potential for higher returns on investment and at the same time lowers the market risk for investors.  So, when targeting their markets of interest, entrepreneurs need to take this investor mentality into consideration. This will provide you more credibility with your potential investors and also enhance your start-up company’s potential returns. 

Is the Product Offering a Complete Product?

Start-up company technologies, products or service offerings as initially defined by the entrepreneur and their management team are usually incomplete from the market perspective.  Often the “core” capabilities that define the start-up company’s product offering need to be augmented with additional technologies, products or services to make this same product offering a “complete” product that addresses the necessary needs as defined by the target customers in the defined markets of interest.  Product “completeness” is a concern for investors. Why, because incomplete product offerings often require substantial additional investment, identification of the appropriate strategic partnerships, and additional integration time. All of these items individually and together will delay the time to first revenue, and as a result, lower the return on investment potential for the venture capital investors.  So, as an entrepreneur, define your product offering as complete as possible.  This means talking to your customers.  If done appropriately, you can define a complete product offering and gain credibility with both your customers and your potential investors.

Is There a Product Road Map and What Does it Look Like?

Many times an entrepreneur has failed to develop a product road map for their technology, product or service offering. The lack of a product road map will cause concern for your potential investors.  Why, because investors want to know that as an entrepreneur and the CEO of your start-up company you have a clear understanding of both the macro- and micro-economic trends in your target markets of interest.  They also know that, very seldom is a first product a homerun product and it often takes several generations of products with the necessary evolving features, functions and capabilities to secure significant traction and hence substantial revenue flow.  Therefore, these same potential investors necessarily need to see a product road map with defined, multi-generation features, functions, and capabilities.  This will ensure multiple things for your potential investors, including:

  • You understand the macro- and micro economic market trends,
  • You are not trying to do too much with your initial product offering,
  • You have a firm grasp of the future anticipated development costs associated with your product offering, and
  • You have defined a product road map with a long-term, sustainable competitive advantage in the market.

Therefore, as an entrepreneur, it is imperative that you develop a product road map for your proposed technology, product or service offerings. Again, this will provide your investors with confidence in you and your start-up company.

Venture capitalists have to consider many things when trying to assess the market value of a start-up company’s product offering and its ability to secure market traction.   As an entrepreneur, when presenting your technology, product or service offering to potential investors, you need to be aware of the six, basic product-related considerations that these same potential investors necessarily concern themselves with when making a go, no-go investment decision. This article has outlined these six product-focused items that if not addressed in detail will often make your potential investors pass on your start-up company and the associated investment opportunity.  Therefore, you need to be aware of these product-related, investment considerations when presenting your start-up company and its technology, product or service offering to potential investors. This will provide you with a good starting point when considering securing funding from venture capitalists.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

September 7, 2009 Posted by | Venture Capital | 2 Comments