Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Building a First Class Executive Team Requires Objective Focus and Sometimes Tough Decisions

Beyond the investment opportunity, venture capitalists evaluate the start-up company’s executive team when making their decision to invest in an early stage company.  This is the first thing they consider, once they determine the investment opportunity has merit.  It is often said that venture capitalists invest in “the team”, as they would rather have an ‘A-team’ and a ‘B-product’ than a ‘B-team’ and an A-product’.  Therefore, when developing an executive team for your start-up company, as an entrepreneur, you need to be very careful.  This is not a “friends-based” decision. It requires objective focus, as to get to where you need to be requires an executive team that has proven experience in the business area your start-up company is focusing on, has the ability to make prudent business decisions, and can execute at a high-level in both good times and in bad.  Also, in some instances, it requires the founder to make tough decisions and release certain individuals, as some executive team members may not work out in the long run. This article outlines some of the things that need to be addressed by entrepreneurs as you are building a first class executive team for your start-up company.

Executive Team – The Beginning

Start-up companies usually begin with an executive team that is composed of individuals that in their careers have worked together at one point in time or another.  More often than not, one individual comes up with an “idea” or “concept” and passes this by one of his friends, usually a business or technical colleague.  With this “idea”, these individuals decide to move forward and develop a start-up company.  Many times, neither of these same individuals have had any experience in starting a company, or for that matter running and managing a business.  But, they give themselves lofty titles, (CEO, CTO, and Vice President of Business Development) and are off to the races.   Often this same initial executive team consists of a technical person and a business or marketing person.  These two individuals, if they have the proper backgrounds, although not a complete team can take the start-up company quite far in developing an initial “idea” into a value added business proposition.  On the other hand, if these same individuals lack the proper background, experience and focus, they often just spin their wheels trying to decide how to move the company forward. Therefore, as an entrepreneur, if you are starting a company look objectively at what you are trying to accomplish and do not build your executive team with “friends”, but with first class individuals that have the necessary and proven experience and ability to move your start-up company forward to the next level, securing funding.  If you do not, investors usually pass on your company as they will not risk their money on executive teams with no or little experience.  Remember, investors are looking to secure a substantial return on their investment and cannot afford to risk their monies on unproven and inexperienced executive teams.

Executive Team – Must Consist of Members that Contribute

Start-up companies need to accomplish many things with very little resources. Often the only real things they have are a “good” business proposition and a talented executive team.  As such, from the beginning, all executive team members must step up and contribute at a high level.  As with all teams, the complementary backgrounds and skill sets of the individual team members are necessary to put together a compelling business plan and associated value proposition that will provide a sustainable competitive advantage in the market.  Anything less will not suffice.  Therefore, each executive team member must commit themselves and their time and effort to achieving their near term goal of securing venture funding. If individual executive team members do not have the time or the necessary commitment to achieve this objective, then they need to be let go and this often requires making tough decisions by the founder and/or CEO of the company.  Remember, securing venture capital is serious business and requires both commitment and significant contribution from all the members of your start-up company’s executive team. If you do not get rid of “slackers” your investors will once they make a decision to invest.  Also, it is better to make these tough decisions early, as non-contributors more often than not have an adverse affect on the whole team, and in some instances can derail the whole start-up company.  So, recognize this and build a strong, first class team, with individuals that have the willingness and desire to contribute in the effort and objective of securing funding.

Executive Team – Filling In the Holes

A start-up company’s executive team is almost always often incomplete.  That is, your start-up company may be missing several executive team members or just a have a couple key executive positions that need to be filled.  So, while you are building your start-up company, it is smart to keep your eyes open to new and talented executives that can fill in these holes in your executive staff, and at the same time help your start-up company to achieve both its business and technical objectives.  These individuals are often hard to find, but can make an immediate and substantial impact, and at the same time be a key to achieving some important near term corporate objectives.  Hence, by doing so, these same individuals can also heuristically move your start-up company forward in the venture funding process.  Finally, it should be remembered that venture capitalists do not necessarily require a full executive team to invest in your start-up company.  Consequently, these same venture capitalists would rather have a strong, incomplete and first class team that they can help develop with their contact base, than a complete team with questionable individual, executive team members. 

Building a strong, first class executive team often makes the difference between a start-up company securing and not securing venture funding. So, as an entrepreneur, you need to be aware that initially building your executive staff with “friends” is not necessarily a smart move.  Often it is smarter to wait and build an executive staff with key individuals that can have a substantial impact and at the same time help your start-up company to meet its goals and objectives.  If you do not take an objective and focused approach to building your team, you will often have to make tough decisions later on to get rid of these same executive team members, as non-contributors or sub-par talent will not allow your start-up company to grow to its potential. Finally, remember you do not have to have a complete executive staff to secure venture funding, so focus on developing the best first in class team you can find.  This will serve your start-up company well in the long run.

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.

November 30, 2009 Posted by | Venture Capital, venture finance, Venture Funding | , , , , | 1 Comment

Entrepreneurs, Do Not be in a Hurry to Get Venture Funding, You will not like the Results

All entrepreneurs I have met are in a hurry to secure venture funding for their start-up companies.  Even if they only have a vague idea of what they will be developing, do not really know how much funding they require, or have not really thought through their product offering and if it offers a long-term competitive advantage in the market and hence the potential for substantial returns for their investors. Never the less, they believe that they are fundable and want the opportunity to present their “half-baked” idea to these same venture capital investors.  This approach to engaging with venture capital investors will only result in a funding experience that will not be pleasant for these same entrepreneurs. With this approach, entrepreneurs will often run into the venture capital “buzz saw” and have a needless to say unsatisfying experience. In the end, they will not receive the funding they desire and walk away disenchanted with the venture funding process. This article outlines what can happen when you are in a hurry to talk with venture capital investors – the end results will be something you will not like.

Do Not Go In Unprepared

Going into venture capital investors unprepared will not bode well for your objective of securing funding from these same investors. Being unprepared means that as an entrepreneur, you do not have a well thought through investor presentation deck that addresses all of the issues investors expect to see.  In addition, you do not have your story down pat.  That is, your investment story is not clear and concise, nor does it get your point across such that the investors understand the “value proposition” of your product offering to the market and why you can achieve a sustainable, long-term competitive advantage in the market.  Remember venture capital investors are looking to achieve substantial returns on their investments that are commensurate with the risk they are taking.  Anything less will not get their attention.  So, as an entrepreneur, you need to understand what the venture capitalists are looking for, and if your investment offering meets their needs as well as their investment criteria.  Going into venture capitalists unprepared with an investment opportunity that is anything less will not result in a pleasant experience.  And, consequently you will not obtain your desired result, securing funding from these same investors.

Do Not Learn on Your Feet

Venture capitalists often ask tough questions to see if you have done your homework on your start-up company, its product offering, and the overall investment opportunity. Some of these questions are designed to get a reaction; others are designed to see if you really understand your markets and the competitors within these same markets.  The one thing you do not want to do when you are presenting to investors is to make up answers or in essence “learn on your feet”. You need to be able to answer all questions directly or indirectly, based on your market expertise and drawing logical conclusions that will satisfy the investors.  Not knowing the answer or learning about various aspects of your market, be it your financial model, competitors, or new product offerings, etc., is not something that will impress your investors. To gain confidence in your start-up company and its executive team, investors need to believe that you know everything about the markets you will be addressing.  You are the “expert” in the room.  Learning on your feet, in front of the same individuals you are expecting to invest in your company, is a big mistake.  Finally, if you really do not know the answer to the venture capitalists’ questions, you need to tell these same investors that you do not know the answer and will get back to them.  Trying to make up an answer will not endear you to these same investors, as they probably already know the answer to their question and will be able to see through any made up answers. So, being in a hurry to get in front of venture investors often results in one learning on their feet and as a result, again will not allow you to secure funding from these same investors.

Do Not Make a Bad First Impression

The venture capital community is a small community, and as such you will not get a second chance to make a first impression. If your first set of meetings with a number of venture investors does not go well, more often than not you will not get a second chance to present your investment opportunity to these same investors or any venture capitalists for that matter. Why, because venture capitalists frequently talk amongst each other about their investments and the investment opportunities they encounter.  If there is a good deal out there, they all want to be the one who found it.  On the other hand, if there is a bad investment deal out there, they do not want to waste their time on it.  Remember, venture capitalists are very busy and are not just waiting around to hear about your investment deal.  They want to only have the best deals presented to them and as such this is generally a one shot opportunity.  Making a bad impression the first time out and you will not get a second chance. So a missed first opportunity may result in not being able to secure funding for your start-up company. 

Entrepreneurs are often in a hurry to get in front of venture capital investors.  They have an inherent desire to get going, even when they are not ready to talk to these same investors.  Being unprepared, learning on your feet, and making a bad first impression are all symptoms of not doing your homework before you get in front of investors. This will not only result in an unpleasant experience, it will result in your start-up company not being able to achieve its objective – securing venture funding.  So as an entrepreneur, take your time and prepare yourself and your start-up company before you get in front of investors.  If you are in a hurry and do not do this, you will not like the results.

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.

November 23, 2009 Posted by | Funding Requirements, Venture Capital, venture finance, Venture Funding | , | Leave a comment

Start-up Companies Often Require an Experienced Leader to Move Forward in Securing Funding

I have met a million start-up companies that say they need venture capital to get going.  Many of these same start-up companies have accomplished a lot in a short period of time, and with little money.  But, at the same time, these start-up companies are not ready or prepared for venture capital funding. Why, because they do not have a cogent business plan that will stand up to the rigors of the venture capitalists.  What often they have is a concept or even once in a while, a working prototype, but they often do not have a plan that outlines how they are going to spend the required monies and what financial returns the venture capitalists can expect to get for their investment. At this point, many of these same entrepreneurs are stuck. They have a compelling concept or even a prototype, but they do not have a way forward to secure funding.  What they often need is someone, who has experience in fund raising to come in as the CEO of the company and provide the leadership required to move the company forward in secure funding.  This article outlines several of the near term leadership-related issues this new CEO needs to address to get the start-up company moving forward to securing funding.

Set the Expectations for the Team

The first thing the new CEO needs to do is to set the expectations for the team.  This includes outlining what investors are looking for from the executive team and their start-up company. Too often, start-up companies and their executive teams have an unrealistic expectation of what it takes to secure venture funding or even what is expected from venture capital investors. This needs to be cleared up at the start.  Venture capitalists are a tough group from which to secure funding, and statistically these same investors only typically invest in 3 out 100 start-up companies they review.  Therefore, the conclusion one should come to here is that venture capitalists are looking for something that is really unique with the ability to create a substantial impact in the market.  Anything less will not get their attention.  Even with these characteristics, there are many start-up companies that do not get funded, due to many other reasons, including a bad executive team, no real go to market strategy, etc.

In addition, many entrepreneurs do not really know or understand the amount of work and effort that is required to get from where they are to securing venture capital funding.  So, it is also important to set the work-related expectations for the executive team up front.  They need to understand the raising money is hard work and it requires a substantial amount of effort over a prolonged period of time from all of the team members, not just one or two, members of this same executive team.  So remember, setting the venture funding expectations up front will help lead the team through the funding process.

Define the Near Term Funding Goals

The most important near term goal the new CEO can set is to develop a business plan that is sellable to venture community.  Having a great business concept of even a prototype will not necessarily provide the path forward to securing funding from venture capitalists. So, here as the leader of the start-up company, you need to set the near term goals for the company.  This necessarily includes developing an investor focused business plan, but in addition it can include:

  • Creating an appropriate strategy and focus for the start-up company,
  • Defining the appropriate product offering as required by the market,
  • Determining the start-up company’s financial model,
  • Securing the appropriate partners to provide a complete product offering,
  • Calling customers and getting real feedback on your product offering,

In addition to the above, many other things need to be addressed.  The point here is that while you are developing an investor focused business plan, as the leader of the company, you need to address all of the necessary things that will make your start-up company successful. Having done your homework and accomplished these near term goals will provide you with a much more complete business plan and provide your investors with the necessary confidence in your start-up company and your team.

Assign and Execute the Associated Tasks

Nothing ever gets accomplished unless the team is pulling together in the same direction. Here, as the leader of the start-up company and its executive management team you need to assign tasks, with associated delivery dates, to these same team members. More often than not, each team member will have an appropriate skill set that can be used to not only help develop your investor focused business plan, but to open the necessary doors to secure the right resources, get into the right customers, and target the necessary potential strategic partners, etc.  All of these things need to be accomplished in parallel and it is often a daunting task. But, with a committed team and the appropriate leadership, the assignment and the execution of these same tasks possible in a defined time frame.  By going through this, the team will also necessarily become closer, as they are working toward to same goal of securing funding for their start-up company. So, as the leader of the team you not only have the responsibility of assigning the tasks, you necessarily have the same responsibility to see that these tasks get executed on time. This will allow you to not only deliver an investor focused business plan, but provide a complete picture of how and why your start-up company and its team will be successful in the market.

Too often start-up companies claim they need funding to be successful, but have no idea how to secure this funding.  With a great concept or even a working prototype, these same start-up companies often lack direction or the ability to secure the necessary funding to move forward.  To move to the next step, these same start-up companies often need to hire a CEO, with funding experience, to provide the leadership to guide their start-up company through the funding process. Here, the near term leadership responsibilities, as defined here, include setting the appropriate funding-related expectations for the executive team, defining the near term funding goals, and assigning and executing the appropriate tasks.  With this new leadership, the start-up company and its executive team have a much higher potential for success in securing funding and ultimately being a force in the market.

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.

November 16, 2009 Posted by | Business Plans, Venture Capital, Venture Funding | , , | 2 Comments

Military Contractors Looking to Move Their Products or Technologies into the Commercial Markets have a Lot to Learn

I have worked with many traditional military contractors that see the commercial markets as a panacea for their military-based products or technologies.  While there often exists an opportunity to take a military product or technology, commercialize it, and then address a broad range of commercial market applications, generally it is not a straight forward transfer of these same military products or technologies to the commercial markets.  This is something that traditional military contractor companies and their entrepreneurs have a hard time understanding.  Having only worked with customers that define their product needs through a “request for proposal” process, they need to step back and understand that the commercial market is much different.  As such, products or technologies that were necessarily developed for a given military application through the request for proposal process do not necessarily translate into products that are sellable in the commercial markets. This article outlines several items traditional military contractors need to consider before they jump into the commercial markets.

Military Products or Technologies do not Necessarily make Commercial Products

Military contractors traditionally developed products or technologies that address a focused military-based application. That is, the U.S. military is looking for a product or technology to solve an identified problem.  As such, they send out a request for proposal to a set of military contractors, which respond with an engineering services proposal to develop the products or technologies to solve the identified problem. Once completed, the military contractor usually ends up with a technology or a set of products and technologies that are to be used in a very specific military application. 

Some military products or technologies may have commercial value, but as defined by the U.S. military, more often than not, these products or technologies are not sellable as products in their current form in the commercial markets. This often means that the military product or technology as defined, is a not a complete product offering. That is, this product or technology will often require other technologies, products or services to make it a “product” for the commercial markets. So, as a military contractor, one should not expect that their military-focused product or technology is sellable in the commercial market in its current instantiation.  Yes, an existing military product or technology may have some commercial value, but often it will need to be substantially modified to be competitive in the commercial market space.

Military Price Points Do Not Cut it in the Commercial Markets

The price points defined for military products and technologies do not cut it in the commercial markets.  So often, an existing military-based product or technology will need to be cost reduced to make it viable in the commercial markets. This is something that needs to be realized by military contractors and addressed right away.  Trying to force fit a military-based product or technology into the commercial market, with a military price tag, is a losing proposition.  But, this is often the mentality of traditional military contractors and their entrepreneurs.  They often wrongly believe they have a “product” that is viable in the commercial markets and want to sell it “as is”.  What they really have is a product or technology with a price point that will not stand up to the competition of the commercial market place.  So, as a military contractor, realize the price points you are currently selling your products or technologies at, are not the price points that the commercial markets will support.

Military Products or Technologies Often Require Additional Investment

Military contractors typically want to sell their products or technologies “as is” in the commercial market.  They do not want to invest any additional monies to make their products or technologies commercially viable. This lack of desire to spend any of their own money comes from their military background where the government pays for all of their R&D, plus overhead, to secure a desired product or technology for a particular application. This is a “no risk” venture for the military contractor.  This is not the case in the commercial market.  The commercial market is a “risk” and “return” based opportunity.  So, as a military contractor and entrepreneur, you more often than not will have to invest some of your own money to develop a product that is targeted for the commercial markets. It may be a little bit of money, or in some cases, it may be a lot of money, but the capitalist-based commercial market requires one to take a “risk” by investing their own monies to properly commercialize a military-based product or technology offering.  If as a military contractor, you are not comfortable with this, then the commercial market is not for you and your products or technologies.  Remember, the commercial markets often require additional investment monies to make military products or technologies commercially viable.

Military contractors often want a piece of the commercial markets.  With the limited upside to their military contracts, they often have a desire to take their military-based products or technologies into the commercial markets and harvest the large financial rewards the commercial space has to offer.  What these same military contractors often do not understand is that their military products or technologies do not necessary translate into products that are sellable in the commercial markets.  In addition, these same military-based technologies or products usually have price points that are too high and at the same time usually require additional investment monies to make these same products or technologies a commercially competitive product offering. Therefore, traditional military contractors often have a lot to learn when moving their military products or technologies into the commercial markets.

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.

November 9, 2009 Posted by | Competition, Customers, Venture Capital, venture finance, Venture Funding | , , , | 1 Comment

Entrepreneurs, Putting a Stake in the Ground Early will Help Move your Start-up Company Forward

If certain items are not defined early in the development of your start-up company, things will tend to meander and not move forward in a coherent manner.  You will continue to have early meetings with customers, and potential strategic partners, etc., but your start-up company and its product offering will continue to be fluid and not coalesce into a defined market position and complete product offering with an associated roll-out schedule.  As these discussions continue, things will become more fluid and less defined as each potential customer or strategic partner you meet with will have their own product requirements, opinions and overall list of concerns regarding your start-up company and its potential product offering.  So unless you put a stake in the ground early, you will continue to move down an undefined path and the world will look murkier by the day or by the meeting.  Therefore, to help drive your company forward, as an entrepreneur, you need to address three things that will define your start-up company to your customer base and potential strategic partners. This article defines these three items which will help move your start-up company forward.

Position Your Company and its Product Offering

Defining the market position of your start-up company and its product offering early will help define you in the eyes of your customers and strategic partners. Having meetings with potential customers and strategic partners without a clearly defined market position for your start-up company is a big mistake.  If you continue down this undefined path, each meeting will end up with individual customers or strategic partners walking away with their own conclusions as to where your start-up company and its product offering fits in the competitive and market landscape. This is not good for your customers and definitely not good for your start-up company.  So, define your start-up company and its product offering early. Position yourself against your competitors. Leave your customers and potential partners with a clear idea of why your start-up company and its product offering is different and provides a value proposition that is important to them as either a customer or potential strategic partner.  Anything less will create confusion and leave these same individuals to define your start-up company on their own, with each customer and potential partner coming to a different conclusion.  Therefore, positioning your start-up company and its product offering early is definitely something you want to do as the entrepreneur.  It will help you create a smoother path forward.

  

 Define Your Product and its Key Features and Functions

Often entrepreneurs have a clear view of their product offering in their minds. They believe that they can do anything their customers want, and with each meeting, the list of required product features and functions only gets longer and longer.  Some of these features and functions are important, while many others are only a “wish” list of features and functions from these same potential customers.  So, it is the responsibility of the entrepreneur, early in their start-up company’s existence, to define the key features, functions and capabilities that will not only make their product offering competitive, but make it unique when compared to other product offerings in the market.  Once defined, it is an important to discuss your product’s key features and functions with your customers, as they may want you to prioritize certain features and functions over others. So once you have a clear product description, including features and functions, make sure you talk to your customers. This will validate the product definition you have defined and provide you with a clear path forward for developing your product offering.

 

Develop a Go To Market Strategy, Rollout Schedule, and Product Road Map

Your customers will also be interested in knowing what your go to market strategy is and how it will benefit them. If you have developed a unique go to market strategy that allows your customers to secure a competitive advantage in the market, this is surely something they will be interested in knowing about early.  So, define your go to market strategy early and share it with your customers.  If it is something that truly differentiates your start-up company from its competitors, this will definitely be something that will pique their interest and possibly allow you to secure a level of early commitments from your customer base.

 

It is also important to define a realistic rollout schedule early so that your customers will know when your product will be available in the market. This rollout schedule should necessarily include your start-up company’s initial product offering along with a product road map, which defines future product generations and their associated feature and functions.   Remember, customers need to know when your product will be available and what they can look forward to with future product offerings. One product, single generation product start-up companies do not cut it in the market. This is true for customers and for investors.

 

Entrepreneurs, you need to put a stake in the ground early to move your start-up company forward.  Doing anything less will cause your start-up company to meander and become ill defined for both your customers and investors.  So, define your start-up company’s market position and product offering early. Include in this process, the key features and functions of your product offering.  Finally, develop a realistic go to market strategy, rollout schedule and associated product road map.  Accomplishing these tasks early will help define your start-up company in your customers’ eyes and with potential strategic partners and help move you forward to achieve success in the market.

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.

November 2, 2009 Posted by | Business Planning, Customers, Venture Capital, venture finance, Venture Funding | , , , , , , | Leave a comment