Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Make the Tough Decisions Necessary to Move your Start-up Company Forward

Start-up companies by their nature are very volatile. As such, things change rapidly and need to in order to stay ahead of the game.  Unlike large companies, many daily decisions can have an inordinate affect on both the short term and the long term success of a given start-up company.  Accordingly, entrepreneurs often need to make tough decisions that will have a material impact on their start-up companies.  These decisions should not be taken lightly. On the other hand, due the fast paced nature of start-up companies, and the need to focus on creating significant value in an accelerated time frame, many of these same decisions do need to be made and quickly.  Often delays in decision making can create missed opportunities, and at the same time wreak havoc on a start-up company’s potential for success in the market. This article outlines several examples of tough decisions that need to ultimately be made by entrepreneurs that can significantly affect the long-term success of their start-up companies.  Here, quick decisions are welcomed, as prolonging the decision making process can often lead to a failed venture.

Changes in the Executive Team

The executive team is the key component that drives the success of any start-up company.  Therefore, this is the first thing, beyond the business opportunity, that venture capitalists look at when deciding to invest in a start-up company.  As such, if there is a member of your start-up company’s executive management team that is not working out or not adding significant value to the start-up company and its ultimate goals and objectives, the best thing to do is to remove this person from the team.  Why, because for start-up companies, there is no room for “non-contributing” executive team members. This situation only puts more burdens on the rest of the executive management team. Also, with each executive team member having more than enough to do, everyone needs to be pulling their own weight.  Anything less is a drain on the start-up company and its overall performance.  So, as an entrepreneur, if you recognize that your team has an executive member that is not working out, a quick decision needs to be made to cut your losses.  Here, removing the executive team member and having an empty position is much better than having a non-contributing team member.  Non-performance, by a single team member will lead to resentment from the other executive team members and pull the performance of the overall company down.  So, as an entrepreneur, once you recognize that one member of your executive team is not performing, it is important to remove this person, and quickly.  If you do not do this, your investors will.

 Changes in Strategic Direction

From their inception, start-up companies often go through multiple changes in strategic direction. More often than not, there are good reasons for this and it is necessarily part of the process to support the long-term success of the start-up company.  What is important here is that as an entrepreneur, you need to recognize that sometimes a significant change in strategic direction is necessary to enhancing the overall value of your start-up company. In addition, once the decision has been made to make a significant change in the strategic direction of a start-up company, the executive team needs to fully embrace this decision and commit the company to this new direction. Anything less will cause the start-up company to fail.  A one foot in, one foot out commitment to changes in the strategic direction of a start-up company will not work.  Finally, it is important that any significant changes in the strategic direction of your start-up company are not taken lightly, and do not happen too often, as too many changes in the strategic direction of your start-up company will kill the overall momentum of your start-up and as such will result in disaster. Therefore, once a decision has been made to change the strategic direction of your start-up company, get buy-in from all of the executive team members and move quickly to make it happen.  This approach only will benefit your start-up company.

Deciding on Strategic Alliances

Strategic alliances can help create phenomenal success for start-up companies and at the same time significantly enhance their overall value with investors and in the market.  By providing access to markets, sales channel support, complementary technologies and services, all value added propositions, strategic alliances can be used to create significant value for your start-up company.  That being said, a bad strategic partnership can have the opposite impact on your start-up company.  Therefore, when determining the value of a strategic partnership, look at the market credibility of the strategic partner.  Are they a significant player in the market? Does their name add credibility to your start-up company? Will they be able to deliver on the promises of the strategic partnership?  Often it is often better to step back and make an overall assessment of the potential long-term benefits of the partnership before committing your start-up company’s future on a particular strategic partner.  This will provide you with perspective and allow you as an entrepreneur to make a better decision.

Sometimes it is the case that as an early stage start-up company, you will not be ready for a strategic alliance relationship.  Here, be honest with yourself.  Does a strategic alliance partnership make sense at this point in time?  If it does not, then it pays to walk away, as it may only serve as a distraction to the important immediate goals and objectives of your start-up company.  Therefore, take the necessary time to properly evaluate any potential strategic alliances.  Move quickly, but remember to make an informed decision as the wrong strategic alliance can be detrimental to the overall performance of your start-up company.

Determining a Funding Strategy

Determining a funding strategy is often a difficult task for entrepreneurs. Do I go after all of the required funding now and give away more of my start-up company to investors, or do I look to secure funding in multiple tranches?  This is a very difficult question to answer and how it answered is specific to the each start-up company, their overall funding requirements and their ultimate value at a given point in time.  The key thing here is to outline your start-up company’s significant deliverables for the various funding scenarios and then make a decision as to whether at the end of each funding scenario, if significant market value has been created to secure addition funding from either existing investors or new investors. Remember, investors want to see significant value at the end of each funding round.  So, take the time and map out your start-up company’s significant milestones their associated time frame and then overlay the funding requirements.  This will allow you to determine that natural break points in securing funding and provide your investors with the insight necessary to determine if your start-up company’s funding strategy makes sense.  Remember, determining a funding strategy is often one of the most difficult decisions an entrepreneur can make.  So take the time to make an informed decision, but do not dwell on, as investors will often dictate the overall all funding terms and tranches of your start-up company.  The key point here is to make a decision and then move to secure funding to push your start-up company forward to the next level.

Entrepreneurs need to make tough decisions every day. These decisions often have a significant impact on the start-up company and its long term success in the market. For each decision presented here, whether it changing the make-up of the executive team, moving the start-up company in a new strategic direction, deciding on alliances, or determining a funding strategy,  it is important to make an informed decision.  Also, the quicker the decision is made that more likely you will get your start-up moving forward, and creating momentum for your start-up company. Therefore, as an entrepreneur, make the tough decisions it will only benefit your start-up company.

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.

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October 26, 2009 - Posted by | venture finance, Venture Funding | , , , , ,

1 Comment »

  1. Hey Robert,

    I hear you. I am the founder of a startup, and although it is a very exciting and dynamic environment, it is also very hectic. If someone is the type that “Burns-Out” easily, then this would not be a healthy environment for them.

    Going for funding adds another dimension to this entire formula. Long hours and fun and games turn into, “Where the heck am I going to make money for this thing, and how can I convince investors that it is the best thing since sliced bread.”

    My experience was, every time I talked to anyone about NextEmployee.com, I would get a Wow!, that’s a great idea. But the “Build it and they will come…” line doesn’t work most often. It needs a lot of hard work, even in this tough economy with so many people being out of work.

    Anyway, I liked the “Changes in strategic direction” section 🙂 It seems like you were following my company, it is so eerily similar to the goings on.

    Thanks for the confirmation, so I am not going crazy!

    -Diran Afarian
    Founder, CEO
    NextEmployee.com

    Comment by Diran Afarian | October 28, 2009 | Reply


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