Finding the Money
A How-to for Aspiring Entrepreneurs
by
K. MacKillop, CEO LaunchX
Published by LaunchX at Smashwords
Copyright 2010 LaunchX LLC
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Smashwords Edition, License Notes
This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.
Table of Contents
Chapter 1 - Develop Your Ideas
Chapter 2 - Create a Solid Plan
Chapter 3 - Manage Your Money and Credit
Chapter 6 - Refocus in the Early Stages
Chapter 7 - Understand the Process
Chapter 8 - Network, Network, Network
Chapter 9 - Be Patiently Aggressive…and Persevere!
Chapter 10 - 25 Tricks to Finding the Money
Introduction
You have a great business idea, you are ready to do the work, and you are eager to get going on your new career as an entrepreneur CEO. There’s just one piece missing…how are you going to pay for all this? Unfortunately, an awful lot of would-be entrepreneurs get stuck right here.
Some decide to wait until they have saved up enough to get started, some spend the money they do have on empty promises of easy capital, some just can’t figure out how to take the next step at all. In fact, thousands of solid business ideas are abandoned every year for lack of money.
But there’s no reason that this should happen to you! There is plenty of cash out there to get you started, and even more available to help you grow your business down the road. It all comes down to knowing what to do to get the cash in your hands and how to do it right.
And that is the purpose of this LaunchX ebook. Finding the Money will walk you through the process of finding the cash you need for startup, step-by-step. So, if the one factor you believe is holding you back from jumping into entrepreneurship is money, let’s get started on your path to funding!
The Truth About Startup Funding
No matter what you hear on those late-night infomercials, investors don’t just throw money at good business ideas…they are looking for concepts that are developed, start to finish, and a committed entrepreneur that they can believe in.
Good ideas are a dime a dozen, but good entrepreneurs are what drives the guy with the money to write the check. In order to get an investor’s attention, you have to do a good bit of upfront work, from developing your idea and planning the business to getting yourself access to the right people.
The startup “experts” seem to fall into two schools - the alls and the nothings. The alls are those who proclaim that there is money everywhere for any kind of startup; you just have to pay them to know where to look. The nothings claim that there really isn’t any money at all, anywhere, no matter how great your business idea is, unless you have it yourself. Obviously, neither of these positions is 100% correct.
The truth is, as always, somewhere in the middle. There is plenty of money out there for entrepreneurs who are committed to the profession, willing to do the upfront work, and prepared to risk some their own resources to achieve brilliant success.
However, there is no cash growing on trees to fund undeveloped, high-risk startup ideas from uncommitted, unprepared folks who just really, really want the cash. The ability to get your startup funded comes down to you – your mindset, skill set, and your dedication to the process…and your own future!
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Chapter 1 - Develop Your Ideas
All new businesses start with a great idea…but the idea is just the first tiny step. The odds are that you have a number of good ideas rolling around in your head, so your next step is to develop those ideas into fundable business models.
At this point, we aren’t talking about writing a business plan. In fact, you don’t even need to begin researching the intricate details of your ideas quite yet. Rather, you need to think through your startup ideas in terms of three critical areas:
1. Barriers to Entry
The obstacles in your industry or market that make it difficult to launch and succeed with a new company.
2. Innovation
The key factors in your business idea that will set your company apart from the competition and entice customers.
3. Scalability
The ability of your idea to start small, gain some traction, and grow big.
Let’s look at these three areas more closely.
Barriers to Entry
Every business idea, no matter how original or cheap to start or whatever, has some barriers to entry. These obstacles can range from government regulation issues to crowded markets to the economies of scale, but every startup idea has some obstacles to overcome. It’s your job to identify those obstacles early and evaluate their real impact on your opportunities.
Legal Barriers
The most commonly discussed barriers involve governmental regulations and patent protection issues. Any industry that is heavily regulated by the federal or state government creates obstacles to startup. Some of these obstacles are financial – you have to pay for permits and expeditors – and some are time-related – the slow wheels of government bureaucracy can delay the launch of your business for months or even years.
The industries most commonly affected by governmental regulations are those that involve alcohol, tobacco, firearms, gambling, and the like. Some manufacturing businesses are also affected by environmental laws, and some importing and exporting businesses are difficult to get going as well. If your idea includes any of these heavily regulated factors, you are likely already aware of them, and your job at this point is simply to figure out just how much of a barrier they create.
Protection issues arise with startups that are based on an original or improved product or process. High tech startups are at the most risk here, and if your innovative idea isn’t protected, you will have a hard time getting serious investors interested.
In addition, you will want to trademark your brand – name, logo, taglines, whatever – to ensure that others can’t take advantage of the work you have done.
In some cases, legal barriers make it impossible to enter a market. If your idea is already patented by another company, or if the cost of managing the regulatory issues far exceeds your profit potential, legal barriers can be the death knell to a seemingly great idea.
In most cases, however, these barriers are manageable. As long as you are aware that they exist and have ideas for how to cope with them, you can find your way around, over and through those obstacles.
Competition Issues
While the legal issues are the most commonly discussed, the competitive factor is usually the bigger concern for startups. This is particularly true in the new economy, where the big megacorporations have become complete category killers, eliminating a number of previously lucrative industries from the startup realm.
Book stores are a perfect example – between Barnes & Noble and Amazon and the ebook readers, even the bigger competitors in the industry are getting knocked out (Borders, anyone?), and the independent bookstores just don’t have a chance.
Other category killers, like shoe companies, energy drinks, and even car manufacturing are pretty thick with competition, but the right idea with the right backing can still steal a piece of market share. However, these are barriers that require more capital and more work, so they might not meet your own needs for your first startup.
What you want to look for is just how saturated your idea’s industry really is. Take a close look at who your top competitors would be, and evaluate just how difficult it will be to compete with them. Is your idea innovative enough to steal a sufficient share of the market? Is your idea so original that you will have to spend extra marketing dollars to turn your customers’ heads? Are the competitors well-established or are there many newcomers in the mix?
Also, take a look at where your idea is in its life cycle. Is it relatively new to the market and in the introduction stage? Is it in the growth stage where the demand is increasing at a fairly steady rate? Is it a mature product that has likely reached its peak? Or is it an industry that has leveled off or is in decline?
The field of competition varies depending on the stage of the life cycle, and so does the competition’s effect on your startup. During those earlier stages of introduction and growth, there tend to be more players joining in and dropping out, looking for the right factors to draw the new customers. Once an industry has leveled off, you are looking to be innovative enough to take a piece of the market from your competitors. Declining markets can sometimes still offer opportunity, but your time to act is significantly more narrow, and your long-term prospects aren’t great unless your idea can carry over into a more lucrative market.
If you think that you don’t have any competitors, think again. EVERY product, EVERY service has competition in the market. Think of it this way – figure out what problem your idea solves for your customer, then consider how they are solving that problem right now. A couple of examples:
Restaurants
The obvious competition for an Italian restaurant is other Italian restaurants, yes? But they are actually also competing with every other option people have for eating a meal – other types of restaurants, grocery stores, eating at home, diet food programs, even skipping dinner altogether. Your obstacle is to find a way to convince the folks in your area that your restaurant is a better option than all those other choices.
Time Management Systems
This may seem like an odd example, except that it is excellent for illustrating the concept of how to really think about your competition. Every few years, an expert comes out with a great new way to manage your time using their calendar system, and they typically promote that brand with seminar training in a corporate setting. You know, those pesky all-staff meetings that the big companies force you to sit through and treat as though they have given you an incredible gift. (Although, some of those seminar programs do offer great content, so I guess we should have appreciated them more!)
Anyway, the competition for these time-management seminars is greater than just the other guys that do the same thing. They are competing with every way that people manage their time, from Smartphone apps to Daytimer calendars to those creepy big-eyed dog wall calendars. Not to mention the vast majority of people who use no time-management system at all.
No matter how great your idea is, whether it’s high tech or old school or an incredibly easy-to-use product, you are going up against long-standing habits of your market. Even if your product would literally save them 20 hours per week, and you know it would, your obstacle is still to convince everyone of that fact. This is especially difficult in the face of such widespread and diverse competition – in this example, anything that solves your customers’ problem of managing their time is your competitor.
Any Original Product
When entrepreneurs come up with an idea that they are sure is original, they like to believe that they have no competition. Again, that’s just not true. Every product or service has competition, and that competition is in the form of what your potential customers do or use to solve the same problem your product is intended to solve.
If you can’t describe the solution your product provides, then you have a much bigger marketing issue! But, keep in mind that the problem can be anything from saving time to improving one’s image to making a job easier.
With an original product, you might believe that it solves a problem that your market hasn’t identified yet…if so, your barrier is related to teaching people about the problem. You will have to shine a bright light on that problem before you can develop your sales!
A great example of this is the current boon of teeth whitening products and services. Most of us had no idea a decade ago that it was absolutely essential to have white teeth. Sure, if you were an actor or model, but now the ads are telling us that, if your teeth aren’t perfectly pearly white, that it leads to health problems, ruined relationships, and all sort of other calamities. They really have done a fantastic job of building a market from nothing.
Any High Tech Gadget
The latest in high tech have a number of competition issues. First, as we have discussed, no matter how innovative the idea is, people are already solving those problems in some other way. Second, tech is in a constant state of change, and while you don’t necessarily have to be the first to the market, you certainly don’t want to be too far behind the next guy. Third, whatever patent protection you have, there’s another programmer who can find another way to do the same thing, without violating your patent.
The bottom line is that competition is fierce out there, no matter what business you are planning to start, and you need to acknowledge just how much of a barrier your competition will be. For first-time entrepreneurs, it is usually wise to start with an idea within an established industry (solving a problem the market is already aware of) that also has room for quality competition.
No legitimate investor wants to hear that you don’t think you have any competition. All that tells them is that you haven’t done your homework! So, take the time to develop your idea in terms of the competition that is already out there, and be prepared to explain how you are going to compete in that arena.
Capital
Of course, capital is a troublesome barrier to entry for all kinds of startups. After all, if you had plenty of cash lying around to fund your great ideas, you probably wouldn’t need to start another business at all!
But some business ideas have far greater economic obstacles than others. Any manufacturing or production ideas where economies of scale come in to play throw up huge barriers for the first-time entrepreneur. That is, those products that require mass production to control cost are a problem – they require a large upfront investment and carry enormous risk that you might not be able to sell everything you have made. The same problem arises with products that are expensive to make individually, like boats, or other complicated products that require significant overhead to create, like software programs.
The capital obstacles for most startups, however, are generally more manageable than first-time entrepreneurs imagine. When you don’t have a huge savings account, the idea of getting $50,000 or $100,000 together seems impossible, but it’s much easier than you might think. Finding the money you need to start most businesses is far less of a barrier than many folks believe…hence the purpose of this LaunchX ebook!
If your startup idea runs into any of the actually serious financial barriers, consider other ways to enter the market. If your plan is to build luxury boats, think about smaller scale options that can eventually lead you in that direction. Perhaps you could start by repairing or remodeling the same types of boats, or become a distributor for certain pieces of the final product.
Any smaller scale opportunity that is within the same navigational buoys provides a great way to get your foot in the door while reducing the capital required to get started. From there, of course, you can plan to sink the profits back in to the company until you have the capital you need to expand to the next step.
Investors want to know what it is going to take to get the company off the ground, even if it seems like bad news. They aren’t as concerned about how much you need, as long as the return is worth the risk.
Execution
The toughest barrier to overcome, and the one most often overlooked by new business owners, is the actual execution of the business. Be sure to take into account your own commitment to staying on top of your startup. Are you flexible enough to keep up with the latest trends in your industry? Are you willing to spend time networking and keeping up with the latest news in your market? Can you commit to handling all the details during the earliest stages? Can you let go of the day-to-day details to focus on the big picture when the time comes?
As barriers go, the execution seems like the least of your worries. You think, of course I am ready and willing to do what it takes to succeed! Still, it is good practice to think through just what that will mean for your business idea.
In the world of high tech, keeping up the execution means constantly improving your product, just to keep the competition at bay. In restaurant and retail establishments, the execution is about maintaining the right quality and keeping up with trends and market demands. In service startups, the execution is about improving efficiency and getting those referrals from your clients.
Execution should be considered a barrier for any startup. The trick here is simply to identify those factors that will keep your company at the forefront of the industry, and consider what it will take to make sure those factors are executed correctly and consistently.
Savvy investors are betting on you as much as they are your business idea. Acknowledging potential execution obstacles, and providing potential solutions, just shows that you are serious about your company and getting the job done right.
Conquering Barriers
The purpose of evaluating the possible barriers to entry for your startup ideas is to begin thinking about ways to conquer those barriers.
Every new business faces obstacles, some more difficult to tackle than others. What potential investors want to see is that you have identified the barriers, evaluated their impact on your odds of success, and have developed ideas for working around, over and through those obstacles.
One quick side note: a startup that has almost no apparent barriers often has a most serious problem. That is, anyone can jump in, at any time, and crowd the market. This is one of many, many issues with the MLM industry. They proclaim that having “no territory” is somehow a benefit, but really all that means is that hundreds of folks just like you will be competing for the same limited target market.
If your idea has no barriers that you can see, consider whether it is actually a product or service that will be in demand, as well as whether it will be difficult to hold on to your market share for long.
Innovation
The second area to consider in developing your potential startup ideas is the innovation or originality your business will bring to the market. As we discussed above, there is no question that your new startup will have competition…your goal here is to think of the general ways that your company can stand out from the crowd and constantly be improving what you do.
At the same time, don’t get hung up on coming up with some brand new, untested concept to bring to market. Innovation and originality aren’t just about creating a brand new product or process. In fact, brand new concepts are much harder to sell than simple improvements to existing concepts.
The vast majority of all new businesses are basically copies of others. And that’s for good reason – most savvy investors aren’t interested in the cost, the challenge, or the risk of developing an entirely new market from scratch. At this point, you shouldn’t be either. Save the Goliath of startups for your second or third foray into entrepreneurship. It’s much easier to cut your teeth with a business that already has some evidence of potential success.
The real trick to innovation is to add a twist that sets your company apart from the rest. Innovations can be related to the product itself, methods of delivery, marketing messages, customer service standards, or even internal processes that improve efficiency. Some examples:
Product Innovations
Innovations to existing products are the easiest to identify. Any change, no matter how small, that makes a product easier to use or more effective is an innovation. Adding a third speed to a blender, improving the arch support in tennis shoes, even using less toxic soaps at your local dry cleaner fall under product innovations.
Customer Service Innovations
As we all have experienced, customer service is no longer a huge priority for most of the megacorporations. Smaller companies can break into tough markets simply by providing better customer service.
Innovations aren’t always brand new concepts – maybe your customer service staff actually answers the phone, maybe you found a way to cut one day off your average shipping time, maybe you implemented a social program that tugs at the heart of your target market. Whatever your ideas for serving your customers better than the competition, these are the innovations you need to consider.
Market Driver Innovations
Market drivers are those features of your product and company that motivate your customers to buy. Innovations in this area are very common, and the aspects they cover include:
Value Drivers
Innovations in value drivers are any activity that enhances the value of a product in the perception of the consumer. Value drivers include advanced technology or reliability such as the miles per gallon advertisements in the car industry or any other message that indicates high value for the price.
Price-Drivers
Price-driven products are tough to compete with, especially as a startup. These are commodities that can easily be purchased on the cheap from a number of vendors. Walmart is the king of price-driven innovation, with their smiley-face discounts and reputation for having the cheapest everything (although it’s not completely accurate). It is usually very, very difficult to enter the market by underselling the competition, unless you have large amount of capital and clout behind you. Generally, those who focus on price drivers at the start intend to operate at a loss until the competition is driven out, then they jack up the prices. Blockbuster, and now Netflix, are excellent examples of creativity in price drivers.
Service Drivers
Innovation in service-based businesses is anything that impresses the consumer through a perceived higher level of service. Some mechanic shops use innovations such as including a car wash or providing a loaner to improve their service drivers.
Prestige Drivers
Image is a huge driver for consumers. If you can market your product or service as the elite option in the market, you can justify increased prices and margins.
If you can find a way to out-innovate on the market drivers of your customer base, you can steal market share from existing markets…and perhaps even open up some new markets for yourself. There are two approaches to innovating market-drivers: do better on the existing drivers or create new drivers through marketing.
The toilet paper industry is an excellent example of attempting to create a market driver other than price in their recent advertisements. Evidently, we all have issues with the cleanliness, absorbency, and softness of basic toilet paper, and should spend more for these added features!
Process Innovations
No matter what operations you choose for your startup, you will have dozens and dozens of processes that are completed daily. These processes include everything from ordering stock to tracking inventory to recording sales to marketing your business. In each of these processes, there are ways to increase efficiency and improve productivity…all of which add up to increased profitability for you. As you are developing your business, consider ways to innovate your processes.
Marketing Innovations
Marketing is the heart and soul of your business, and any innovative ideas you have for getting the word out is going to put you a step ahead. Whether it’s marketing to a different niche, emphasizing different benefits, or just triggering different emotions in your target market, every little change from your competition that gives you a boost will pay off.
How to Innovate?
Most folks do one of two things on the subject of innovation – they ignore it altogether or they get themselves stuck trying to be overly creative. The truth is, innovation is less about grand ideas than it is about the actual execution. That is, how you handle the delivery of your product and message, the processes you use to get the job done, and the people you have in place to keep it all running are far more important than coming up with crazy new ideas all the time.