Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, Vision, Strategy and Tactics will Take You on the Road to Success

“Ready, fire, aim” is the approach most entrepreneurs take to developing their start-up companies from the ground up.  They do not do any planning or have a vision in which to base their follow-on strategy and tactics to develop their “concept” or “idea” into a fundable business proposition.  This approach to initiating your start-up company will not take you on the road to success in the market.  What it will do, is to lead you down a meandering path to various dead ends and re-starts only to result in frustration, lost time and a lack of focus.  By beginning with a vision for your start-up company and its “concept” or “idea”, this will allow you to necessarily to create a top-down focus from the beginning and help when you initiate your strategy to entering the market and the follow-on and measurable tactics to implement your execution plans. In what follows is a short discussion regarding the requirements of developing a vision, strategy, and tactics to take you on the road to success in the market.

Create a Vision

When Henry Ford started the Ford Motor Company he had a concept and an associated vision to develop inexpensive automobiles for the masses.  He had observed that most if not all automobile companies of the day focused on developing automobiles for the rich, but he wanted to bring these same advantages and privileges that went along with owning an automobile to common folks.  So, his vision, from the beginning, was to develop an automobile company that was clearly differentiated from the other automobile companies of the time that focused on low volume production of expensive cars for the rich. Henry Ford’s original concept and vision was to develop a high volume production automobile company that focused on producing low cost automobiles.  This was unheard of at the time and seemed virtually impossible given the “state-of-art” of production methods at the time.  But with this vision and focus, he set out to accomplish this goal – develop a low cost automobile for the masses. This same top-down visionary-based approach to developing a start-up company should be emulated by today’s entrepreneur.  By developing a concept and vision you create focus and do not get distracted by other market opportunities that do not fit your vision, but only focus on developing the a product offering that satisfies the vision and long-term goals of your start-up company. Anything less will result in distractions and not allow you to focus on your vision, take you down many dead-end paths and not provide a road to success for your start-up company.

Develop a Strategy

Once you have a vision, you need to focus on developing a corporate strategy to follow this vision.  With the goal of developing a low-cost automobile, Henry Ford’s overall strategy was to become the “lowest cost” manufacturer in the automobile business. This meant:

  • Developing an automobile design that had a low bill-of-materials cost,
  • Develop a simplified manufacturing process,
  • Lower corporate overhead and
  • Minimize channel costs.

No one individual item would result in becoming the lowest cost manufacturer in the market, but all of these things together would result in implementing his strategy of becoming the “low cost” automobile manufacturer in the market.  So, as an entrepreneur you need to focus on developing a strategy that uniquely positions your start-up company in the market.  Do you provide the best service?  Do you offer a unique user experience? Do the most value to your targeted customers?  By developing a strategy that follows the vision for your start-up company this will allow you as an entrepreneur to focus and uniquely position your start-up company and its product offering in the market.

Define Your Tactics

While vision and strategy together set the direction of your start-up company, it is the definable and measureable tactics that are used to implement a successful vision and strategy.  In the case of Henry Ford and the Ford Motor Company, the overall measureable tactics were associated with the “cost” of producing an automobile. While Henry had had some success with his low cost strategy for producing an automobile for the masses, it was not until he moved from a “work group” production line to a “specialized task” production line when his goal of developing and producing the industry’s “low-cost” automobile was achieved.  The idea for this “specialized task” production line was taken from his visit to a meat packing company in Chicago.  By implementing similar production tactics of “specialized tasks”, common in the meat packing industry, into his automobile production line, Henry Ford was able to achieve his vision of producing the lowest cost automobiles for the masses. This tactic truly differentiated the Ford Motor Company at the turn of the 20th century and allowed it to produce products for its target market – the consumer masses.  Today’s entrepreneurs also need to develop measurable tactics to support their company’s vision and strategy.  This will again provide focus and allow for measurable results that can be quantified and move them toward success in the market.

Entrepreneurs often take a “ready, fire, aim” approach to developing their start-up companies from the ground up. This approach to the market is does not provide focus and will result in a start-up company meandering and as a result losing valuable time and  energy focusing on market opportunities the do not make sense for your start-up company.  Alternatively, by taking time to plan and start from a “concept” and vision for your start-up company and then following this with an associated strategy and the appropriate tactics, this will allow you to develop a straight forward path and create a differentiated start-up company and product offering in the market.  In addition, this will also substantially increase your chances for 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.

June 28, 2010 Posted by | Venture Capital | , , , , , , | Leave a comment

Entrepreneurs, Your Funding Strategy will Change When You Start to Engage with Potential Investors

All entrepreneurs believe or at least want to believe that they are fundable.  As such, they work hard to develop their business plans, executive summaries and investor pitches so that they can engage with potential investors. With their funding scenarios, product development plans and rollout schedules clearly defined, they are sure investors will see their vision, like their product offering, get behind their go-to-market strategy, and after a given amount of due diligence, invest in their start-up company, putting them on the path to potential success in the market. What nobody tells these same entrepreneurs — life if not that easy and even if you start-up company is “fundable.” The road to funding is a rough one, often mired with many bumps, and pot holes.  Often, today, what was a “fundable” start-up company 10 to 15 years ago will not even be looked at today by potential investors, be it individual angels, angel groups or venture capital firms.  As such, once entrepreneurs begin to engage with potential investors they often will need to be ready to change their funding strategy as the original anticipated road to funding will not be the ultimate road they take to get there. In what follows is a short discussion regarding what issues need to be continually addressed as you work to secure funding for your start-up company in today’s funding environment.

It’s Not the 1990’s Anymore

Back in the 1990’s the entrepreneur’s road to funding seemed so much easier.  Why, because it was much easier!  This was a time when venture capitalists and angel investors alike were willing to invest in pre-revenue, early stage companies with a great concept and a first class team.  Life was easier. The concept of requiring a working product and generating revenue was not considered venture investing.  In fact, it was considered later stage investing and investment groups or individual that invested in these types of companies were not “real” venture or angel investors.  But, toward the end to the 1990’s venture capitalist and angel investors alike caught the dot com (.com) early-stage company investing fever, and invested in anything and everything related to the Internet.  Brick and mortar companies were the past, and with a hyper investment mentality, no longer did traditional revenue models matter.  Everything and anything was fundable and if you did not get in you either had cold feet or you did not see the vision of the future, the Internet. 

In 2000, the market crashed and everything changed. No longer were investors willing to invest in any Internet-based business concept that came across their table.  In fact, venture capitalist had consciously moved up stream.  No longer were they willing to invest in pre-revenue, early stage companies, but armed with large funds ($500K to $1.0B) they decided to move their focus to later-stage investing. This move substantially reduced their investment risk and at the same time often required them to invest larger sums of monies, right in line with their large investment portfolios.  Accordingly, angel investors, especially angel groups, began to follow suit and again moved up stream to primarily entertain lower risk investments.  So, today entrepreneurs armed with a pre-2000 mentality, need realign their expectations, if they do not, once they engage with potential investors they will learn the hard way — early stage investing is all but dead.   As such, as an entrepreneur, you need to change your funding strategy to move your start-up to the next level.

In Today’s Venture Funding Market Revenue is King

Today, in the venture and angel investment community, revenue is king.  Therefore, as an entrepreneur you often need to figure out how to self-fund your technology, product, or service offering, at least to a point where you have a working product such that you can engage with customers and generate near term revenue.  This does not have to be a complete product offering, but something that you can use to generate early revenue into the company. In fact, you might want to consider an alternative early product offering, just to engage with customers immediately so that you can prove to investors that you have the ability to create early revenue.  Often, entrepreneurs secure consulting deals in their targeted “space” not only to generate early revenue, but to gain company exposure in the market and sell services related to the end product offering.  This road to early revenue does two things for potential investors. First, it shows them that you are creative in your ability to generate early revenue. Secondly, it provides a source of revenue from potential customers that may be willing to buy your product offering once it becomes available in the market. So, in a market where the rules to early stage investing has changed, today you need to focus on securing early revenue with an early product offering or related services in your targeted market of interest. This will allow you to secure the attention of today’s venture and angel investors. If you do not, you most likely will be passed up to another company that is generating early revenue.  

Those with the Money Write the Rules

Today’s rules to early-stage, company investing may seem a little weird to an entrepreneur that is trying to raise capital for the first time.  Well, if the truth were told, they are! But, you have to remember one thing, “Those with the money write the rules.” Fair or unfair, that is the nature of the today’s early-stage company funding game.  Therefore, as an entrepreneur you need to be aware and prepared for this.  Yes, it is frustrating and not often fair.  But, from an investor’s point of view they are just trying to protect their investment by doing everything and anything they can do to mitigate potential risk.  Yes, you have a great plan, a first class team and differentiated and demonstrable product offering with multiple revenue streams that are highly scalable.  But, that may not be enough.  The next question will be, “Where is your revenue?”  This again may not seem like venture capital or early stage company investing.  But in the current state of venture investing this is what is expected from potential investors. So, as an entrepreneur you can fight it or do everything and anything to prepare you and your start-up company for this scenario.  As once you begin to engage with potential investors, it will come and it is better to be prepared than not to be prepared for the new rules of the funding game.

Historically venture capital funding has changed considerably over the last 10 to 15 years. What used to be considered the “sweet spot” for early-stage venture investing has moved up stream considerably. As such, the angel investment community has followed suit. With the desire to mitigate investment risk, an existing product offering with the ability to generate revenue is now considered to be the bar to pass in which to be considered to be a “fundable” start-up company. There are exceptions to the rule, but entrepreneurs need to be aware that it is not the 1990’s anymore and armed with a pre-millennium funding strategy, you most likely will not get too far in today’s funding environment.  So, as an entrepreneur looking to raise funding, you will learn fast to change your funding strategy according to the desires of your potential investors, or you will passed over to by these same investors for other, what are considered more mainstream investment opportunities.

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.

June 21, 2010 Posted by | Venture Capital | , , , , , , , , , | Leave a comment

Entrepreneurs, A Bunch of Singles, and Not a Single Homerun Event is Usually the Path to Success for Start-up Companies

Most, if not all, entrepreneurs hope to take the short and quick path to success.  This approach to success usually relies on hitting a homerun your first time up.  While not only unrealistic, this swinging for the fences strategy is not the most likely path to success for your start-up company.  Why?  Because from the beginning your start-up company and its product “concept” or “idea” are often too ill defined, have not been vetted by the realities of the market, and often will not be ready to bring to the market for an extended period of time. All of these characteristics are red flags for potentially interested customers, strategic partners, and investors.  So, with a vision and a concept, entrepreneurs need to focus on building a given level of reality in the development of their start-up company, its product offering, and their necessary associated market rollout strategy.  This requires your start-up company to hit a bunch of singles on its way to success in the market. Why is this important?  Well, like in baseball, the greatest homerun hitters only hit a homerun once every 14 to 16 times at bat, an average of 6.5% of the time. On the other hand, a great batter gets on base over 33% of the time, usually by hitting singles.  So as an entrepreneur, you need to focus on doing the little and necessary things everyday to move your start-up company and its technology, product or service offering forward. By doing this, you will in essence be focusing on hitting a bunch of singles.  This will in essence allow you to move forward step-by-step, and is generally the more successful path in which to build your start-up company.  It also allows you to continue with you to continue to build momentum, which will help create more success as you implement your vision. In what follows is a short discussion regarding what issues need to be continually addressed as you knock out singles on your path to success in the market.

Continue to Add Value to Your Product Offering Everyday

Start-up companies generally only focus on a given set of “core competencies”. These same core competencies generally do not always allow this same start-up company to offer a complete product offering in the market.  As such, as a start-up company you need to continue to add value to your product offering to complete your product offering and create a competitive position in the market.  This includes:

  • Identifying and engaging in the right strategic partnerships to complete your product offering,
  • Focusing on adding the appropriate features and functions to differentiate your product offering in the market, and
  • Protecting your product offering by securing the necessary patents for your start-up company’s “core competencies”.

By focusing on adding the necessary value to your start-up company’s core product offering, you will be positioning your start-up company in the market and with your potential investors.  So, make sure that you spend the time and energy everyday to complete the necessary tasks that will add value to your start-up company. Although individually, they may be a bunch of singles, together they will allow you to develop a differentiated product offering and gain a long-term strategic advantage in the market place.

Always Engage with Customers

Talking with customers is invaluable to any start-up company.  Why, because it is only by talking to customers where you learn what is truly important to your customer base.  This includes:

  • Prioritizing product features, functions and capabilities,
  • Learning marketing channel priorities, and
  • Identifying market segments and sub-segment growth segments.

In addition, by always engaging with customers, this will allow you do develop a personal relationship with these same customers. As such, when you are ready to bring your product to market you will have already identified potential customers that have an excellent understanding of your start-up company, its product offering, and why it will benefit their customers. Finally, it may be that one or more of these same customers will take a strategic interest in your start-up company and its technology, product or services offering and want to engage in bringing your company and its product offering to market. This will be invaluable, as these same strategic partners will have their own market channels and customers that will be interested in purchasing your product offering.  So, take the time to always engage with customers. This hitting singles approach to developing your customer base will benefit your start-up company in the long run and will often result in defining a successful go to market strategy with a much more competitive product offering.

Continually Develop an Invaluable Executive Management Team

As you develop your start-up company you will need to also develop an invaluable executive management team that will bring your product to market.  In this process, you may have early executive management team members that fall by the wayside, due to various personal and professional related reasons. This is just part of the process. What you need to do is to continually focus on finding and developing the best executive management team such that their backgrounds, experience, and expertise will necessarily make your start-up company successful in the market. The process of finding, securing and developing an appropriate executive management team is not a one-time event. It takes a lot of time and focus to identify what the necessary skills and functions are required to bring your technology, product or service offering forward from a “concept” into a value added product offering in the market.  In addition, you need to match this with the right individual executive management team members that can grow with your start-up company and offers the necessary skills and capabilities that are required by a fully functioning company.  Often, the executive management team members that begin with your start-up company are not the same executive management team members that will end of with your start-up company, once it becomes successful.  But, one truth remains, you will need to continually develop an invaluable executive management team, by hitting singles with each new team member, as it is this executive management team and its skills and capabilities that will make your start-up company successful in the market.

Most successful start-up companies are generally not made from a single homerun event, but are developed through a hitting a bunch of singles that continue to add value to your start-up company from the initial vision and concept to the final successful functioning entity. By taking this “bunch of singles” approach to developing your start-up company, you will reach your final goal of success in the market place.  So, do the little things every day that add value to your start-up company it will lead you down the road to 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.

June 14, 2010 Posted by | Venture Capital | , , , , , , | Leave a comment

Entrepreneurs, Using Outsourcing to Obtain Capital Efficiency Needs to be Thought Through to be Effective

“Cloud” computing is changing the landscape of the software world.  No longer is it required for corporations to sign up for multi-year, multi-million dollar software license contracts only to incur this same amount of capital expenditure in three years to receive a software license upgrade.  Today, “cloud” computing, or the “Software-as-a-Service” (SaaS) business model has taken a strong foothold in the software market and has changed it forever.  As such, many start-up companies are looking to support this same SaaS model for their software service product offerings.  In addition, with the availability of inexpensive, highly-skilled technical software development support from companies in India, Russia, Pakistan and other overseas countries, venture investors are pushing for their new mantra, “capital efficiency”. In short, this requires finding a reliable, inexpensive, highly technical software development partner to get your product to market, so that they can invest less money and at the same time increase their return on investment.  This model is good for both the investor and the start-up company, as both would like to invest less to get their products to market and as a result receive higher financial returns.  The requirement for this outsourcing model to work is to identify a development team with an excellent track record, provides a direct management chain, and supports the near term and long term strategic objectives of your start-up company. In what follows is a short discussion on how to address these underlying issues when working to identify and partner with a capital efficient outsourcing development team.  

Excellent Track Record

Let it be known that there are many, many outsourcing company and individual resources available on the market in order to support the venture investor’s “capital efficiency” model when developing your start-up company’s cloud computing, SaaS business.  On the other hand, not all of these same outsourcing groups have the same business models or objectives.  In addition, like any third party consulting source, you need to verify this third party company’s track record, by doing your own due diligence on the company, including:

  • Checking the background of the management team,
  • Verifying the reliability of their delivery schedules and costs,
  • Making sure they offer leading edge technical solutions, and
  • Finding out how many clients have used them for repeat development work.

All of these things will help you, as an entrepreneur to get a clear picture of the outsourcing group and their ability to be a strong potential strategic partner for your start-up company.  In addition, you need to check your rolodex to see if any of your colleagues can recommend strong outsourcing partner.  In the end, you need to look to identify multiple outsourcing partners and then go through the process of elimination in order to find the right group with an excellent track record that fits your business and business model.

Provides a Direct Management Chain

Working with an outsourcing partner requires strong lines of communications between the third party outsourcing partner and your start-up company. The best approach is to develop a direct “managed-team” relationship, where you and your start-up company have direct management chain control of the relationship.  You do not want too many “project managers” in between your start-up company and your outsourcing partner.  There are many U.S. intermediaries that offer third party management of their “outsourcing” team. This model will work, but it is better to take a hands-on approach to where your start-up company’s technical lead (e.g., CTO, Director of Engineering, Project Manager, etc.) interfaces directly as the project manager of your third party outsourcing group.  Putting another layer of project management in between you and the outsourcing development team can be flawed with potential problems. Not the least of which is that fact that putting one more level of communications between you and your development partner will be a source of mis-understanding and possible product feature and function problems and resulting delivery issues. So, take the time to find and develop a direct relationship with you third party outsourcing team, this will result in much smoother product deliveries and much less potential for mis-communications between the two parties.

Supports Near and Long Term Strategic Objectives

If you are going to partner with a third party outsourcing development group, you need to make sure that this partner has the skills and assets to support your start-up company’s near and long term strategic objectives.  A lot of outsourcing groups are good at a limited number of software sourcing technologies.  This will require your start-up company to look for other, additional outsourcing groups to address your possible future product development needs.  Again, this is not the best way to go.  You need to step back and understand what technical skills and assets you need both short term and long term and find a partner that has the broad set of skills and assets to address these needs.  The last thing you want to do is to have to manage multiple development teams across multiple platforms and time zones in order to get your final product offering to market. So, take the time and find an appropriate outsourcing partner that can address both the near and long term technical development needs of your start-up company.  This will serve you best, and often provide for development efficiencies that will result in spending less money and getting products to market much sooner.

“Cloud” computing and the SaaS business model has significantly changed the software world and with the requirement of focus on “capital efficiency” for your venture investors, start-up companies need to necessarily find an dependable, overseas outsourcing partner to help develop their software based product offerings.  To do this entrepreneurs need to find an outsourcing partner that has an excellent track record, provides a direct management chain, and supports the near and long term strategic objectives or their start-up company. Taking the time to identify the correct outsourcing partner is important as it can necessarily facilitate the future success or failure of 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.

June 7, 2010 Posted by | Venture Capital | , , , , , , , | Leave a comment