Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

First Time CEOs Must Continue to Learn to Become Functionally Autonomous on the Road to Building a Successful Start-up Company

Many first time CEOs of start-up companies do not have a broad background or skill set.  More often than not, these same first time CEO’s have spent their careers in a job function that has had a specific focus, including, engineering, marketing, sales, etc.  In addition to this, often these same first time CEOs have worked their whole careers in a large corporate environment where other individuals, within specific niche functions of the organization (e.g., Finance, Contracts, etc.), have had responsibility for tasks not germane to their specific job function.  This “cocoon” type functional existence, within a large organization, has not only limited one’s skill set development, but hurt their ability to function autonomously as dictated in the start-up company environment. In order to function as the CEO of a start-up company, an entrepreneur needs to be able to see the whole picture.  This includes understanding the details across all functional disciplines and being able to make important, sound decisions on issues that are not germane to their backgrounds. This requires these same individuals to continue to learn and grow in order to build a successful start-up company.   In what follows is a short discussion regarding the requirements of first time CEOs learning to become functionally autonomous on the road to building a successful start-up company.

Understand Financial Statements

Most first time CEOs lack any understanding of financial statements. This is truly a hindrance to budding entrepreneurs. Why, because venture funding is driven by financial experts and money managers.  Financial statements are their language of communications.  As a first time CEO, if you do not understand financial statements you will not be able to talk intelligently to angel investors or venture capitalists.  This will be a red flag and more than likely hurt your chances of securing venture funding. So in order to interface with the financial community, as a first time CEO you need to take the time to know and understand financial statements including the balance sheet, income statement and statement of cash flows. You not only need to learn these statements and how they interact, but you need to understand the specifics of your own start-up company’s financial statements.  More often than not world be, first-time CEO’s do not know the details of their own start-up company’s financial statements.  This will not impress your potential investors. So during the process of writing your business plan take the time to understand financial statement. It will broaden your skill set and allow you to make more effective decisions for your start-up company.

Developing a Critical Eye on Contracts

Contracts are another area where many first time CEOs do not have any background or experience. This again will hurt both their short term and long term success in building a successful start-up company. Why, because all formal business relationships require contracts.  In the corporate environment, contracts and this associated responsibility is often left to a legal team of corporate lawyers. But, as a first time CEO of your start-up company, if you do not understand the basics of “good” contract structure and what constitutes acceptable terms and conditions for specific legal relationships (e.g., employee stock options, venture funding, strategic partnerships, sales channels, technology licensing, etc.) you will be at a loss in determining if a legal contract is beneficial or detrimental to your own start-up company.  So take the time to review and learn all you can with regard specific types of contracts for various legal relationships.  Your start-up company’s lawyer can provide you with a basic contract structure, but all deals are different, and it is the details of the individual contract that require a critical eye in order to make them successful for your start-up company.  So, do not depend solely on your legal counsel for all of your legal contracts and legal issues. They all have good intensions, but remember your legal counsel should be used as the final “reviewer” of a given legal contract, and not solely responsible for all of the critical terms and conditions of a given contract.  As the CEO of your start-up company, you need to take the lead and drive all critical content into any given legal contract.  If you do not, you will not end up with a contract that serves your needs and will not ultimately benefit your start-up company.  Therefore, as a first time entrepreneur, you need to broaden your skill set to understand the basics of contract law; it will help facilitate the success of your start-up company.

Understand All Corporate Operational Functions

With a narrow background (e.g., engineering, sales, finance, etc.), most first time CEOs know very little regarding the all of the other corporate operational functions of a start-up organization. This again will be detrimental to your ability to function as an effective CEO. Why, because a successful start-up company must have all corporate operational functions running smoothly and within the defined parameters of your given industry.  So, as a first time entrepreneur you need to take the time to understand all of the details of the various operational functions within your organization.  You should not rely solely on your functional heads (e.g., Vice President of Engineering, etc.) to be the first and last say in important operational decisions.  The buck stops with the CEO. If you do not understand the details of each of the operational functions of your organization you will again not be able to ask the hard questions, make important trade-offs, and ultimately make the prudent, effective decisions that are required to make your start-up company successful.  So, as a first time CEO, learn the details of all the operational functions. This will require you to:

  • Review the corporate financials and understand the details,
  • Sit in on engineering development meetings,
  • Go on sales calls to visit with customers,
  • Go over market strategy with you business development team,
  • Review all contracts with your legal counsel,
  • Other

By doing the work to become an informed and autonomous CEO, this will allow you to make better decisions and help put your start-up company on the path to success.

Many first time entrepreneurs have very narrow backgrounds and know little about the details of running a successful start-up company.  To enhance their skills and broaden their backgrounds they need to continue to learn in order to function autonomously and make informed decisions in steering their start-up companies to success in the market.  This includes, understanding financial statements, developing a critical eye for contracts, understanding the details of all of the operational functions within their organization.  Anything less will hurt your chances of success in the market.  On the other hand, by taking the initiative to continually learn and broaden you skill set and background you will substantially increase your chances of becoming an effective and successful CEO 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.

July 5, 2010 Posted by | Venture Capital | , , , , , , | 3 Comments

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

Entrepreneurs, Use Patents to Protect Your Intellectual Property and Create Value for Your Start-up Company

To be successful, all start-up companies need to differentiate themselves in the market with their technology, product or service offering.  In addition, these same start-up companies also need to create a long-term sustainable advantage in the market that is defendable.  One way to accomplish this is to develop, file, and prosecute a number of broad patents to protect your start-up company and its underlying intellectual property. Although necessary to create a strong and defendable position in the market, the requirement of developing, filing, and prosecuting patentable ideas is often prohibitively expensive for these same start-up companies. With limited funds, the necessity of securing a number of patents to protect your intellectual property has generally not been a viable option for these same start-up companies. This is primarily due to the prohibitively high costs of patent attorneys ($250 to $500+ per hour). Today, with the development of “off-shore” service companies offering substantially similar services to traditional patent attorneys and patent agents, the ability to secure a number of patents with a limited amount of funds is now a viable option for your start-up company. This article addresses the value of constantly innovating, determining the potential of patentable ideas and using alternative approaches to develop, file, and prosecute patents to create a long term sustainable advantage in the market.

Constantly Innovate

Venture capitalists and angel investors want to be assured that their investment in an early-stage company not only provides a competitive advantage in the market, but is protected to create significant economic return in accordance with the risk of their investment. This is generally accomplished with patents covering the underlying and core intellectual property of your start-up company.  With the ability to offer 20 years of protection, patents can provide these same investors some level assurance that their start-up company has developed a unique and protected position in the market, with the possibility of substantial financial returns. 

Entrepreneurs also need to create value for their investors and their start-up company, by continually innovating and subsequently protecting their company and its intellectual property by filing patents.  A number of companies have developed very successful competitive market positions by developing massive patent portfolios to define and defend their technology and their unique position in the market.  One excellent example is Qualcomm, San Diego, CA.  Although Qualcomm did not invent CDMA technology, they pioneered its use in the digital-cellular phone market. To protect its position, Qualcomm has amassed a substantial portfolio of patents as they relate to CDMA technology and its application to the digital-cellular phone market.  This has uniquely positioned the company by offering a proprietary technology that currently has a significant percentage of the cellular phone market worldwide.  So, as a start-up company you need to continually innovate and develop new patentable technologies, products and service offerings to uniquely position and subsequently defend your start-up company, providing a long-term competitive advantage in the market.

Determine the Potential Value of Patentable Ideas

Not all ideas are patentable and in addition, even among those ideas that are patentable, not all of these same ideas provide any significant potential value to your start-up company. So, as a start-up company with limited funds, you need to determine which ideas have the potential to be patented and among those ideas, which patentable ideas are broad enough and significant enough to bring substantial value to your start-up company. Therefore, you need to take the time to evaluate the merits of each idea to determine the broad protection implications of the underlying intellectual property as they apply to your start-up company and its technology, product or service offering.  If an idea does not really add any specific protection to the “core competencies” of your start-up company and its technology, product or service offering, then it is probably not worth the cost of developing, filing, and prosecuting a patent.  On the other hand, if you believe that this new idea will provide broad protection and help to uniquely position your start-up company and its technology, product or service offering in the market, it is probably worth pursuing. Alternatively, if your potential patentable idea has the ability to open up and substantially protect new business opportunities that can add significant long-term economic value to your start-up company, again they are worth pursuing. Therefore, take the time really understand the potential value of patentable ideas to your start-up company’s long term competitive position in the market. This will allow you to determine which potential patentable ideas are worth pursuing for your start-up company.     

Lower the Cost of Developing, Filing and Prosecuting Your Patents

It is well known that developing, filing, and prosecuting patents are very expensive.  Often it is prohibitively expensive for start-up companies with limited financial resources.  With patent attorney fees ranging from $250 to $500+ per hour, the cost of just filing a single patent can break the bank for your start-up company.  Fortunately, there are alternatives out there that allow your start-up company to take advantage of “off-shore” patent attorneys that work with “on-shore” law firms, offering a proven and economically viable alternate that will allow your start-up company to do patent searches, as well as to pursue patent development, filing and prosecution at rates that are substantially less than the traditional patent lawyer or patent agent alternatives.  Two firms that offer inexpensive alternatives to the traditional patent development model include Brain League (www.brainleague.com) and Lexntech (www.lexntech.com).  Both firms have proven track records for researching, developing, filing and prosecuting patents both domestically and internationally.  Each offer a slightly different business models, but both offer viable “off-shore” based alternatives to the traditional high hourly rate-based “on-shore” law firms.  So, as a start-up company looking to protect your intellectual property and to uniquely position your company in the market, it is worth looking into these two “off-shore” alternatives, as they will substantially lower the costs associated with searching, developing, filing and prosecuting your start-up company’s patents.

As a start-up company that desires to uniquely position itself in the market and at the same time be assured that it has protected its intellectual property, you need to develop patents that protect the underlying intellectual property associated with your start-up company’s technology, product or service offerings. By doing so, you will create long-term value to your start-up company and to your potential investors.  Accordingly, as a start-up company with limited funds, looking to create a unique position in the market, you need to constantly innovate, determine which patentable ideas create significant value for your start-up company and at the same lower to costs associated with the developing, filing and prosecuting your patentable ideas.  To do this, currently the most cost effective approach is to work with patent firms that provide a combination of “on-shore” presence, with “off-shore” patent execution.  This will provide your start-up firm with the ability to cost-effective develop a portfolio of patents to develop a unique and defendable position 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.

May 31, 2010 Posted by | Venture Capital | , , , , , , , , , , | Leave a comment

Contract Negotiations Require Three Things to be Successful

Start-up companies often look to partner with third party companies to help them create become a successful company and at the same time create a presence in the market.  Whether it is a strategic technology partnership, a sales channel development relationship, or a key customer, all of these potential engagements will require contract negotiations to ultimately secure the relationship. As such, it is often at the contract discussion point of the relationship when one party tries to negotiate an advantage over the second party, and is where these same potential relationships often break down.  This jockeying for the upper hand does not work in any contract negotiations and often results in one or both parties walking away from the contract negotiations. In the end, both parties lose, since neither party will then have the ability to use their unique technologies, products, or services to bring value to the relationship and create a unique position that brings ultimate economic benefit to the parties involved.  This resultant breakdown in contract negotiations can often be avoided if both parties are honest, respectful and negotiate in “good faith” during their contract discussions.  The following addresses the importance of these three important tenants of successful contract negotiations.   

Honesty is the Best Policy

As in any personal or professional relationship, honesty is the best policy. If either party is not honest, then the other party cannot “trust” the first party and hence there is no solid basis for developing a strong relationship.  This is especially true for start-up companies.  Often entrepreneurs, in an effort to close an important strategic deal for their start-up company, present themselves, their company or their technology, product or service offering in a manner that does not always represent their true status of their underlying technology, development progress or competitive advantage in the market.  This intentional misrepresentation can cause problems down the road and may end up killing any contract negotiations.  In addition, if the other party finds out that your start-up company has not been honest regarding its representation, then all bets are off and often any contract negotiations will incur irreparable damage.  As such, one party will walk away, because their confidence in their potential partnership has been undermined.  So, as a start-up company it is best to be totally honest during contract negotiations, as the risk associated with the misrepresentation of you, your  company and its technology, products or service offering will often result in severed contract negotiations and a failed relationship.

All Successful Relationships Require Respect

All successful relationships require respect. This is especially true regarding the relationship between start-up companies and their potential partners. If this respect does not exist on the behalf of both parties, then there is no real reason to enter into a relationship. One party may respect the other company’s technology prowess and the other company may respect the other company’s marketing genius. In the end, both parties have to believe that they are engaging with a company that they respect and ultimately brings a technology, product, or service offering to the table that results in a strong competitive advantage in the market.  This mutual level of respect is required and is the true essence of a successful relationship. So, as a start-up company engaging in a number of potential relationships, you need to be sure that you engage with companies that earn your respect and bring significant value to your potential relationship.  

Always Negotiation in “Good Faith”

Negotiation is an art.  It also can ultimately be the downfall in contract discussions.  From the beginning of contract negotiations, both parties must enter in to all associated discussions in “good faith”.  This means that both parties must be negotiating to develop a mutually beneficial relationship, in which in the end both parties will ultimately benefit as a result of the relationship.  This necessity to negotiate in good faith will bring both parties to the table weighing not only the benefits of entering into such a relationship, but the downside of not securing a relationship. These “good faith” negotiations should not be clouded by jockeying for an advantage, misrepresenting the truth, or unfair legal contracts. No, negotiating in “good faith” is exactly what it means – negotiating with a potential partner such that both parties will ultimately benefit from the final relationship.  By negotiating in good faith, you will gain the respect of your partners and ultimately end up with a stronger contract and relationship.

Contact negotiations can be a long and arduous task.  All start-up companies that seek to enter in to a mutually beneficial relationship with a third party will need to enter in to contract negotiations with this same third party.  To help the process along, run smoothly, and in the end ultimately be successful, during negotiations, both parties need to be honest, respectful and negotiate in “good faith”.  By taking this approach to all of your contract negotiations you will ultimately end up with a much stronger relationship and a contract that is mutually beneficial to both parties.

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.

May 24, 2010 Posted by | Venture Capital | , , , , , , | Leave a comment

Three Things to Consider When Developing a Successful Strategic Partnership for Your Start-up Company

Strategic partnerships can be extremely beneficial and profitable for both large and small companies.  In addition, for start-up companies, a well conceived and executed strategic partnership can be the difference between ultimate success and probable failure in the market place.  Accordingly, strategic partnerships are invaluable to start-up companies as most if not all of these same companies are resource limited.  This can affect many of the necessary requirements for success in the market, including their product offering, go to market strategy, availability of development resources, as well as their ability to establish a market presence and create market traction.  As such, a well conceived and executed strategic partnership can create significant value for your start-up company. It can also provide high levels of value for your strategic partner, large or small.  To develop a successful strategic partnership, as a start-up company you need to consider three things, including:

  • Does your strategic partnership help to complete your product offering?
  • Does your strategic partnership enhance the value proposition to your customers?
  • Is your strategic partnership a “win-win” for both parties?

If you answered “yes” to these three questions, you are well on your way to a valuable and successful strategic partnership.  On the other hand, if you answered “no” to any of the above questions, you should reconsider entering into this strategic relationship, as it most likely will not ultimately provide your start-up company with the necessary success you desire in the market.

Does your Strategic Partnership Help to Complete Your Product Offering?

As a start-up company, more often than not you do not have all of the necessary resources to develop the complete product offering you desire to bring to the market.  Accordingly, you will need to look for potential strategic partners to help complete your product offering.  A simple example of this would be a strategic partner that offers “protocol stack” software to complete your start-up company’s “chipset” hardware product offering.  More often than not, the cost of developing a protocol stack can be significant to a chipset hardware vendor. On the other hand, in order to have a “complete” product offering in the market, your start-up company requires a proven, bug-free protocol stack that will allow your customers to drop the chipset in to the end product application design.  The value of providing a complete “protocol stack/chipset” offering to your end customers can differentiate your product offering in the market and at the same time accelerate your end customers development time and allow them to get their end-product(s) to market much faster.  Therefore, as exemplified here, looking to identify a strategic partner to help “complete” your product offering can provide your start-up company a significant competitive advantage in the market.  It also significantly reduces your time to market and overall development costs.  So, as a start-up company looking to identify potential strategic partners that can help “complete” your product offering can provide you with s significant short- and long-term advantage in the market place.

Does Your Strategic Partnership Enhance Your Value Proposition?

One item to step back and consider before you enter into a strategic partnership, with any company, large or small, is the ability for the strategic partnership to enhance your start-up company’s value proposition to your customers and the end market.  Often, when considering your start-up company’s value proposition, it is best to be honest with yourself and put yourself in your customers’ shoes to better understand the reason(s) they would consider buying your technology product or service offering.  If your “value position” is not significant enough, potential customers will pass on your product offing, leaving your start-up company with the inability to secure traction in the market.  On the other hand, if you can identify a strategic partnership that can not only change your start-up company’s value proposition, but also enhances it to increase its overall attractiveness to your customer base, you have increased the value to your end customers and at the same time enhanced your ability to secure market traction.  So, when considering a strategic partnership only consider those strategic partners that can enhance your start-up company’s value proposition. This will provide significant value to your start-up company and to your target customer base and at the same time also ensure higher levels of success in the market place.

Is Your Strategic Partnership a Win-Win for Both Partners?

Finally, a strategic partnership needs to be a “win-win” for both parties.  If not, one party will feel slighted; that is they are bringing more value to the relationship than they are receiving in return for their contribution to the strategic partnership.  As an entrepreneur of a start-up company you need to go into any potential strategic partnership with your eyes wide open.  As such, you need to work to construct a strategic partnership that provides “significant” and “fair” value to both parties according to their contribution to the end product being offered to the market.  If you do not do this, your strategic partner will not see the relationship as fair and ultimately not provide their full effort to make it a successful partnership.  This type of strategic relationship is “doomed” from the beginning, and will ultimately cost you more in time and energy to manage the strategic relationship than you will actually get out of it.  Therefore, it is very important that you initially construct a strategic partnership that is fair upfront to both parties and creates a win-win atmosphere in both perception and reality.  This will provide you with short- and long-term success in the market.

Successful strategic partnerships can be the life-blood for start-up companies.  With limited resources, these same start-ups often need to look outside of their companies to create and bring a successful technology, product or service offerings in the market.  To create a valuable strategic partnership start-up companies must identify a potential strategic partner that can help to complete their product offering, enhance their value proposition to their customer base, and creates a win-win for both partners.  If you are successful in accomplishing this, your start-up company will substantially enhance their potential for success in the market both in the short- and long-term.

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.

May 17, 2010 Posted by | Venture Capital | , , , , | Leave a comment

Entrepreneurs, Lower Investors’ Risk by Validating your Start-up Company’s Business Proposition

By their very nature, early stage company investors are risk adverse.  Seldom do they invest on a whim.  Generally, sophisticated investors take up to six months to do their due diligence when considering a potential investment opportunity. Angel groups also have a similar due diligence process, but it is often shorter, on the order of two to three months. The point of this due diligence process is to identify any potential investment risks so that these same investors can be assured, to the best of their ability that they are investing in a start-up company that can provide a substantial return on investment to their at risk monies.  That being said, it is impossible to eliminate all potential investment risk for any start-up investment opportunity. On the other hand, entrepreneurs can help minimize the effects of the risk adverse nature of their potential investors by validating their business proposition in the market place. This is best accomplished by doing your research, talking with customers, and validating your business model with your competitors. By doing such, entrepreneurs can lower their investment risk and at the same time make their start-up company and its investment opportunity more attractive to their potential investors.

Do Your Research

All entrepreneurs want to begin writing their business plans on day one.  This is a big mistake, especially when you are trying to lower your potential investment risk and at the same time validate your business proposition.  As such, spending the time doing the necessary primary research to validate your business model is the first and most important step to creating investor-focused business plan.  Why, because many times your first impressions regarding your start-up company’s business proposition can be improved upon, based on this same primary market research.  That is, what you first believe is a strong business proposition, can often be substantially improved upon and presented in a much stronger light, once you have taken the time to do your market research by analyzing the markets, your competitors, the general trends, and subsequently developing a go to market strategy.  Therefore, it is important to take the appropriate time up front to do the necessary research to validate your start-up company’s business proposition. This will make your technology, product or service offering much stronger and at that same time provide you with the necessary background information to properly defend your business proposition to your potential investors.

Talk to Your Customers

The best way to validate your business proposition is to talk to your customers. This step is often over looked by entrepreneurs.  These same entrepreneurs generally believe they “know best” and that customer will buy their technology, product or service offering sight unseen.  That is, in many cases entrepreneurs do not believe that they need to take the time to validate their business proposition by talking to their customers.  This again is a big mistake.  Why, because if your customers do not like your product offering or do not see the value of your business proposition in the same light as you do, you will never be able gain market traction and bring a successful technology, product or service offering to the market.  This is not really a surprise to most entrepreneurs, but being in a hurry to secure funding, they often skip this step in validating their business proposition.  This will come back to bite you, as some of the first questions from investors will be: “What customers have you talk with? Who is interested in purchasing your technology, product or service offering?”   If you have not talked with your customers, before they consider investing in your start-up company, your potential investors will require you to do so.  Therefore, take the time and make the effort to talk with your customers early to validate your business proposition, it will serve you well when engaging with potential investors.

Validate Your Business Model

Finally, being money managers, venture capitalists will want you to have validated your business model against your competitors’ to see what is substantially different, and where your business proposition provides your start-up company with a long-term, competitive advantage in the market.  At the same time, these same investors want to know how and why customers are going to buy your technology, product or service offering. Therefore, as an entrepreneur, you need to validate your business model in the market and against your competitors.  Seldom are start-up company’s business models unique in the market.  Generally, there is always a competitor or similar business model in a non-related industry that start-up companies model their business proposition upon.  As such, investors want to know this and at the same time be assured that your business model has had a history of success either in your targeted market or in other markets with similar product offerings.  So take the time to validate your business model. This will not only help you assure success in the market it will instill confidence with your potential investors.

Early stage investors are risk adverse by their very nature. They have to be, because investing in start-up companies is very risky.  To lower the investment risk for your potential investors you need to take the time to validate your start-up company’s business proposition to the market place. To properly do this you need to: do your research, talk to your customers and validate your business model. By doing this you will not only arm yourself with the proper information when presenting your business proposition and investment opportunity to your potential investors, you will also instill self confidence and confidence with your 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.

May 10, 2010 Posted by | Venture Capital | , , , , , , , , , , | 1 Comment

Entrepreneurs, You Need to Get the Attention of Your Investors within the First Three Slides to Secure Funding

When meeting potential investors for the first time entrepreneurs need to quickly secure their attention.  Although, the standard thinking is that you have an hour, with 20 minutes to present and 40 minutes of questions, you really only have a few minutes to secure their attention and hold their interest. As such, if you do not secure your potential investors attention within the first three slides of your presentation, you will not secure funding.  Why, because like with any presentation, especially in the case of potential investors, if you do not secure their attention quickly, you risk the likely hood of turning them off completely to your investment opportunity.  So, as an entrepreneur looking to secure funding from third party investors, you only have three slides and a few minutes to secure their interest.  This includes, defining the opportunity, describing the problem and outlining your solution.  If done appropriately and succinctly, you will secure your potential investors’ attention for the next hour.  If not, your investors will turn off and move on to thinking about other potential investment opportunities.  So remember, you need to secure the full attention of your potential investors very quickly, or you risk the losing them and your ability to securing funding altogether.

Define the Opportunity

When presenting to investors, you first need to define the opportunity to be able to get your investors’ attention and their “buy-in” that your target customers will buy and use your technology, product or service offering.  This means you only have one to two minutes to sell the opportunity to your potential investors.  With the complexity of many product offerings, you need to focus on “tugging on the emotion” of your potential investors.  How would the customer use your technology, product or service offering?  This can often best be described with an example application.   This approach will get your investors attention, as they will be able to see how customers can use your technology, product or service offering.  As such, you are ultimately describing the end market application through the customers’ eyes.  This approach will allow your potential investors to empathize with the customer and better understand both the application and the opportunity that exists for your technology, product or service offering.  By creating the ability for your potential investors to understand investment opportunity through your end customers’ eyes, you quickly be able to create a lasting, positive impression in the minds of your investors, securing their interest to continue listening to your investment opportunity with intrigue and interest. 

Describe the Problem

Once you have defined the investment opportunity in the minds of your potential investors, you need to succinctly describe the problem. The “problem” is the opportunistic need you are solving with your technology, product or service offering. This problem description again needs to be clear in the minds of your potential investors. As such, they need to believe that you are serving an appropriate strategic opportunistic need in the market. So, take the time up front to properly describe the problem in terms that all potential investors can understand.  This will move these same third party investors one step closer to understanding the investment opportunity and again provide them one more time to see the investment opportunity from the “market needs” side of the equation and not from the technology, product or service “provider’s side” of the equation.  By being able to quickly and properly describe the problem from a “market needs” approach you will again be standing in the shoes of your potential investors and answering their questions – and at the same time allowing them to come to your conclusions on their own. This is the “best” way to approach investors from a “problem definition” point of view.  If they believe there exists a problem in the market, then they are more likely to believe in your solution.  Now, you are 80% there in securing their interest in you, your start-up company, and its technology, product or service offering.

Outline Your Solution

Finally, as an entrepreneur, describing your potential investment opportunity, you need to outline your solution to the problem you just portrayed.  This description needs to not only succinctly outline your solution, but it needs to outline the benefits of your solution in the market over any and all other solutions in the market.  Remember you are trying to quickly secure the interest in your technology, product or service offering from your potential investors, so they need to be able to quickly understand, in their minds, your solution and the competitive advantages it offers in the market.  So, as an entrepreneur you need to not only outline your solution, but you need to appropriately describe all of its competitive advantages and associated utility to the consumer or end user.  By doing this, you are making sure that your potential investors again come to the same conclusions that you have, and that they believe your start-up company offers a solution that provides a long term competitive advantage in the market.  So, properly outline your solution to your investors, as once you convince them that you offer “the solution” for the “problem” you are solving, all follow-on information provided during your presentation is now just back up support materials to justify the potential investment opportunity.

As an entrepreneur, typically you have an hour to present in front of sophisticated investors (e.g., venture capitalists).  This generally consists of a twenty minute entrepreneurial presentation and forty minutes of questions from these same potential investors. In reality, though, you only really have a few minutes to secure potential investors’ attention. To properly do so, you actually need to get their attention within the first three slides of your presentation by defining the opportunity, describing the problem, and outlining your solution.  If done properly and succinctly, you will secure their attention and the interest of your potential investors.  If not, your investors will “turn off” and move on to thinking about other investment opportunities.  So, as an entrepreneur, remember, you have need to secure the full attention of your investors quickly, or you risk the losing them and your ability to securing any funding from potential investors altogether.

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.

May 3, 2010 Posted by | Competition, Customers, Execution, start-up, Venture Capital, Venture Funding | , , , , , , , , , | Leave a comment