Tag Archives: Startup

Top 8 Faux Pas Claims by Entrepreneurs Raising Capital

Capital Raising Faux Pas from The Startup Garage

Top 8 Faux Pas Claims by Entrepreneurs Raising Capital

What Not to Say to Potential Investors

Yes, you need to impress an investor if he/she is going to break out the checkbook.  However, there are some common claims made by first-time and seasoned entrepreneurs alike that do not resonate well with investors.  Some of these claims are infamous buzz words that can be explained in other terminology, other are just outright lies.  In any case, try to avoid these claims in your investor pitch.

1. “Our projections are conservative.”

This may or may not be true.  In any case, investors are less interested in whether your projections are conservative or optimistic and care more about whether they are realistic and how well you can defend your assumptions.  Every investor knows that projections are based on assumptions that will change as the business develops.  Yes, investors are looking at potential returns when looking at financial projections.  But, they are also looking at your ability to turn a business concept into a realistic business model.

2. “We have no competition; no one else is doing what we do.”

Avoid this claim at all costs!  The vast majority of the time this statement is complete false — every good opportunity has direct and indirect competition.  For the rare occasions when this statement is true, it is still a slight exaggeration.  While no one else may be doing exactly what you are doing, there is someone providing a similar product or service that solves the problem that they are facing.  If you truly are a first-mover, make sure you are prepared to address investors concerns about trail blazers making mistakes and costing lots of money.  Lastly, these statement just frustrate investors.

3. “My competition is too slow to be a threat.”

Your competition may be too slow to be a threat, right now.  But, your competition can quickly improve and catch up once you enter the market.  Your competitors most likely benefit from vastly superior market traction and capitalization.  Rather than showing naivete, take some time to prepare sustainable competitive advantages or barriers to entry that you can put in place to ensure that your competition cannot catch up quite as fast.

4. “All we have to do is get 1% of the market.”

There is so much that is off-putting to investors with this statement.  First, it shows that you probably don’t understand your target market.  If your target market is so broad that only 1% adoption will make for a successful business, then your target market definition is likely way too broad.  Second, if you doubt your product/service/brand so much that you only think you can attract 1% of the market then why would an investor get excited?  Third, percentages can be deceiving and it’s an easy route for disappointment.  Rather, look at how many people you need to sell your product to.

5. “Patents make our business defensible”

It is very rare that a patent makes a business defensible against competitors offering similar products.  First, you patent is most likely only a provision patent (not yet granted) and second, it only protects a very specific application.  Learn more about patents and their limitations here.

 6. “We have a few huge contracts being signed next week!”

Whether this statement is false or not, many investors will certainly be considering its validity.  If they happen to believe you – and if they are smart – then they make a commitment to investing next week when the contract is signed and or cash received.  If you truly have contracts signing next week, then hold off on raising capital until those contract are signed (you will be much more attractive and worth much more at that point).

7. “Key employees will join us as soon as we get funded.”

While you may have the capital to attract key employees, money doesn’t mean you will have a successful business.  Building a successful business takes a lot more than just a pile of cash.  Key employees know this and will be attracted to your company before the funding comes if they truly believe in the opportunity.  Additionally, if you don’t have the revenue to pay for key hires that are necessary for the business’ current success then you likely are not attractive to investors.  Investors want to see proof of concept and nothing shows that more than a strong customer base.  furthermore, strong revenues will improve your valuation and reduce financial pressures.

8. “Several firms are doing due diligence.”

This statement can seriously backfire.  Nobody likes the feeling of being hassled by a car salesman, including investors.  If the statement is true, great — you are in a perfect negotiation position should both firms decide to make an offer.  If the statement is not true, you are running the risk of alienating a firm that may genuinely be interested in you.

 

Whether you have a question about raising capital or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Top 10 Riskiest Industries

Risky Industries Business Planning from The Startup Garage

Top 10 Riskiest Industries

Every business in every industry assumes a certain level of risk.  Furthermore, every business’ fate depends on several internal and external factors and the operators ability to manage their risk and adapt to the future.  In any industry, the companies that succeed are those that can identify trends – be them positive or negative – and those that can adjust appropriately to benefit from these trends.

The Riskiest Industries

Although there are clearly many successful business in each of the industries listed below, the factors contributing their high risk are expected to keep the industry in decline over the next five years.  The risk scores referenced are on a scale of one to nine, where one represents the lowest risk and nine represents the highest risk (figures provided by IbisWorld).

Top 10 Riskiest Industries from The Startup Garage

Whether you have a question about industry risk or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Mobile is Transforming Consumer Retail Behavior

Mobile Retail Development Trends from The Startup Garage

Mobile is Transforming Consumer Retail Behavior

Multi-Device Retail Preference

Multi-device usage is quickly becoming the norm in consumer behavior.  Consumers will research a product on their phone or iPad, test the product in a brick-and-mortar store, and go home to purchase the product online from their laptop computer.  While this shift to multi-device usage can make it difficult for marketers to reach their consumers, it does come with added benefits.  This behavior evolution enables brands to engage their audience multiple times across devices with the same marketing campaign, thus increasing brand awareness, recall and ROI.

The Move to Mobile

Consumers are turning to their mobile platforms now more than ever for research and purchasing retail items.  The consumer market has experienced a rapid increase of in-store mobile usage.  Furthermore, thanks to mobile, consumers have changed the way they engage with brands.  Thanks to a research study conducted by JiWire, we’ve discovered the following shifts in consumer retail behavior:

  • 42% of consumers prefer to research retail-related shopping on their smartphones and tablets over other devices, while 45% prefer purchasing in-store.
  • Consumer engagement with retail ads increases 42% within a two mile radius of the store’s location compared to ads inside the store.
  • Of all the commercial venues where people use their mobile devices, retail venues are #1, representing 31% of all mobile usage.
  • Smartphones replace laptops as the device connecting to public WiFi for the first time in history.

 

Whether you have a question about consumer mobile behavior or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Submitting a Request for Proposal to a Web Developer

Website Development RFP from The Startup Garage

Submitting a Request for Proposal to a Web Developer

If you decide to outsource your website/mobile development to a third-party service provider you will want to put together a Request for Proposal (RFP) with your CTO before approaching potential vendors.  An RFP is a document that provides the information that a developer would need in order to provide you with a proposal for the cost, timeline and details of your development project.  An RFP will typically include your basic contact information, project information, system requirements, e-commerce, mobile, development stages, desired platforms, user types, requirements, and basic wire-framing.

How to: Developing a Good RFP

Before getting started, it is important to understand the concept of Minimum Viable Product.  Entrepreneurs usually have grand visions for the ultimate web/mobile project they are committed to launching.  After discovering costs and time it takes to develop these sights, most entrepreneurs realize that the best strategy is to launch a BETA site with only the absolute critical features.  This provides many benefits including

  • Reducing initial costs
  • Allows for user/market testing to avoid the costly/timely mistakes in development of unneeded/undesired features.

Step 1: Basic Information

Begin your RFP with your basic identity and contact information:

  1. Name
  2. Email
  3. Business name
  4. Business address
  5. Phone number
  6. Whether you are a startup or existing company
  7. Whether you have an existing website/mobile app.

Step 2: Project Overview Information

  1. List your project goals (i.e. branding, drive user engagement, generate sales, generate leads, etc).
  2. List the specific services that you are approaching the vendor for (i.e. web development, mobile development, branding,etc).  Be very specific.
  3. List your budget (a range is fine).
  4. List your desired timeline (start date, end date, if the date is vital for launch).
  5. List your intended audience for the system.

Step 3: Project Description and System Requirements

  1. Start by providing a brief description of the gran vision of the entire system.
  2. Provide an overview of the functionality that is absolutely critical for your BETA system or minimum viable product.
  3. Describe the different types of users (i.e. public users, members, administrators) and describe the types of members (i.e. consumers and merchants).
  4. Bread down the different sets of modules for each user type.  A module is defined as a set of features in one section of the system.
  5. Break down the features for each user type.

Step 4: eCommerce

This section is only relevant if you intend on charging for products/services online.

  1. List the product or services that you intent to sell.
  2. List how you intent to categorize the products and services.
  3. Provide the name of your merchant account of payment gateway if you have one.

Step 5: Mobile

This section is only relevant if you intend on launching a mobile app or mobile version of your site.

The mobile landscape is constantly changing and there are several available options for the production of mobile apps and mobile sites across the various native sites (iOS, Android, Blackberry, and Windows Phone).

Step 6: Miscellaneous

Provide any additional information that may be helpful such as:

  • Your ideas for marketing the website/app.
  • Additional documentation such as a business plan, wire-framing, etc.
  • Plans to integrate with any third party technology.

Step 7: Wire-Frame

Many people choose to leave this step to the web development company.  However, we have found that more visual learners can use wire-framing as a tool to help clarify requirements in the RFP and the overall vision.  There are many wire-framing software tools to make this process relatively easy.

A wire-frame for a website or mobile app is like a blueprint for a house – you don’t get the colors or textures.  Only plan layout of the website; this wire-frame online include very basic information.  See the image below for a sample.

Submitting an RFP from The Startup Garage

 

Whether you have a question about writing an RFP or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

A Tech Company without a CTO is like a Bakery without a Chef

Chief Technology Officer from The Startup Garage

A Tech Company without a CTO is like a Bakery without a Chef

Every Tech Startup Needs a Chief Technical Officer

Many entrepreneurs of successful tech-based companies do not come from tech backgrounds.  However, the biggest mistake that a non-tech entrepreneur launching a tech business is to neglect bringing on a tech savvy co-founder on the management team.  This is like a bakery or restaurant launching without a chef.

 

In order to be a successful tech startup, the team must consist of a Chief Technical Officer (CTO) level member to help with the technology plan.  This is generally achieved in one of the following ways:

  • CTO Level Co-Founder (Equity)
  • CTO Level Board Member or dedicated Adviser (Free or Equity)
  • CTO Employee (Salary)
  • CTO Part Time Consultant (Paid hourly or by project)
  • Web Development Firm hired to do “Conceptualization Phase” – This usually includes thorough wire-framing (Paid per project)

Why is a CTO so Important?

Many entrepreneurs think they can bypass this team member by simply going to a web development firm and asking for a free proposal.  For simple projects lead by people comfortable with web and mobile tech this may work.  Generally, this strategy falls short.  Especially when the entrepreneur begins to seek capital from sophisticated investors.

Your web/mobile idea needs to be transformed into a working product/service.  A CTO is needed to develop a technology plan to make this happen.  Furthermore, your CTO will be able to hire a development team that can build out your idea in appropriate phases.  This team can be in-house, outsourced within the U.S. or outsourced internationally.  This is one of the decisions that you and your CTO will need to make up front in order to put your technology plan together.  This will allow you to estimate costs and timeline.

If you decide to outsource your development you will want to put together a good RFP with your CTO before approaching potential web development vendors. See the RFP Workbook below. If you plan on hiring a web firm you will just need to interview and get quotes from them for the conceptualization phase. If you plan on doing it inhouse your CTO and the founders should be able to put together system requirements, technical specs and system architecture for you and then build wireframes and MVP if applicable.

What’s in a Technology Plan Anyway?

A technology plan can consist of:

  • Technical Specs/High Level System Architecture (Web/Mobile, etc)
  • Development Plan (Timelines/Costs/Budgets)
  • Product Development Team
  • Wireframes

 

Whether you have a question about your technology plan or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Pricing Strategies Than Can Improve Sales

Pricing Strategy for Growth from The Startup Garage

Pricing Strategies Than Can Improve Sales

The Right Price Can Make a Big Difference

Using smart pricing strategies can make a big difference to your sales and help you succeed in a competitive marketplace.  Each product and service is unique and therefore what works for some companies may not work for others.  Nonetheless, the strategies outlined below may be a good solution for your business.

1. Give Your Customer Choices

By giving your customers choices, they feel in control of the purchasing process and are more likely to feel committed with their purchase.

2. Limit Your Choices

However, when you provide your customers with too many options, they can experience action paralysis, feeling demotivated to purchase or incapable of making a decision.  Provide enough options to allow your customer to make a decision about their purchase but not so many that you confuse them.

3. Utilize a Price Anchor

Price anchoring utilizes a human psychological tendency where people rely on the first piece of information offered when making decisions.  With that said, the best way to sell a $500 necklace is to sell it next  to a $1,500 necklace.  By placing a premium product or service next to your standard version, you can create a value or bargain comparison that will drive your customer to make the purchase.

4. Reduce the Pain Points

By making the sales process as simple, efficient, and quick as possible, you will find that your customers are more prone to purchase.  The less that is required of the customer to buy your product or service the better.

5. The Old #9 Classic

One of the oldest tricks in the book is ending the price of your product or service with a 9.  Rather than selling your necklace for $500, try $499.  While there is much anecdotal debate about the effectiveness of this strategy, several researchers conclude that this strategy is in fact effective.

6. Test Your Pricing at Different Levels

See how your total sales and profits change when you test your product and pricing mix.  When selling a premium and a standard product, try adding a third version.  See if sales go up if that third version is a notch below the standard.  And likewise, if that third product is a notch above the premium.

 

Whether you have a question about pricing strategies or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Angel Investment Trends in Q1 2013

Angel Investor Trends in 2013 from The Startup Garage

Angel Investment Trends in Q1 2013

Angel Investor Valuations Remain Strong

Angel investor median deal sizes increased as valuations remained strong in the first quarter of 2013.  The majority of deals went to healthcare, mobile and internet startups.  Highlights from angel investing in the last quarter include:

  • The median angel deal size for Q1 2013 reached $680K – up 5% since last quarter and 24% since the same quarter last year.
  • 81% of deals were completed in angel groups’ home states.
  • Median pre-money valuations for angel deals remain unchanged from 2012 at $2.5M, dispelling the great ‘bubble myth.’
  • Internet, healthcare and mobile dominated angel investment dollars, receiving over 72% of overall angel deal flow.
  • The most active angel groups in Q1 included Alliance of Angels (CA), Desert Angels (MA) and Golden Seeds (NY).

All data thanks to CB Insights.
 

Whether you have a question about Angel Investment or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

How Startup Valuation Works

How Startup Valuation Works from The Startup Garage

How Startup Valuation Works

A valuation is simply an estimated value of a company and is often based on assumptions surrounding the company’s current and future potential. There are several factors to consider when valuing a company including the startup stage that the company is in, prior successes, how much money is needed and for what purposes, the type of investor that is being targeted, how similar companies are valued, the management team of the company and the exit strategy…just to name a few.
 

How Startup Valuation Works

The following infographic by Founders and Founders details how startups are valued:

A valuation is simply an estimated value of a company and is often based on assumptions surrounding the company's current and future potential. The Startup Garage

 

Whether you have a question about Startup Valuation or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

The Importance of an All-Star Management Team

Importance of an All Star Team from The Startup Garage

The Importance of an All-Star Management Team

The most cited answer among investors – and perhaps the most underrated factor among first time entrepreneurs – is the startup team.  There may be a need for your product or service, the market may be enormous, your business model may be attractive, there may be few competitors in the space, and you may even have some bonafide intellectual property, BUT if you don’t have the management team with the skills, experience and track record to execute on your business plan then you likely will not attract investors.

Why Do Investors Care So Much About the Management Team?

The reason is simple: something will go wrong, and only great teams can effectively respond to competitors, markets, funding environments, staff departures, PR disaster, etc.  Furthermore, success breeds success.  Investors want to put their money in the hands of people who have a proven track record with launching companies and providing a solid return to investors.

How To Build the Management Team

You likely will not have the capital to hire a full suite of C-level gurus when launching your company (you wouldn’t be fundraising if you did).  But, you can still have a team of gurus acting as your board of advisers.  By simply having the knowledge and resources that these advisers bring to the table at the tips of your fingers will go a long way in easing the concerns of investors.  Furthermore, you’ll want to make it clear in your business plan that 1) you are aware of the C-level positions and the expertise gaps with your current team, and 2) this is exactly what you will be spending their capital on (among other important startup costs).  Lastly, you current management team will likely not have all of the skills and experience to effectively run all components of the business, but it is imperative that your team has enough to be effective at the companies core competencies…even if that means bringing on a partner before approaching investors.
 

Whether you have a question about your management team or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!

Ban Overturned on Publicly Advertising You Are Raising Capital

Ban Overturned with SEC from The Startup Garage

Ban Overturned on Publicly Advertising You Are Raising Capital

Raising Capital? Shout It From the Rooftops!

The Securities and Exchange Commission (SEC) voted to overturn the ban on “general solicitation” or publicly advertising that your company is raising money.  As a result, the SEC has deemed it legal for private companies to tell anyone that they are raising money, which was previously illegal.

How This Effects Startups

The lifting of the ban is expected to have a huge effect on entrepreneurs and startups by allowing them to reach a much broader audience.  Previously, an entrepreneur could not tell a newspaper that it was seeking funding.  They had to quietly and privately deal with a very small group of investors who had free rein over deal flow.

By allowing entrepreneurs to publicly advertise that they are fundraising will open the private market to a significantly broader pool of investors.  One of the more substantial sources of capital that this regulation will affect comes from crowdfunding.  Companies are legally allowed to sell equity in their company to accredited investors (and in some cases un-accredited investors) which will drastically increase entrepreneurs access to capital.  For more information regarding the amendments to the private offering rules from SEC visit this link.

With the solicitation ban lifted, more investors will know about startups they can invest in.  While there is certainly a lot of benefit for entrepreneurs and startups, many are calling for the need to add regulation to reduce the risk of fraud and other undesirable outcomes.


 

Whether you have a question about Publicly Advertising or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!