I just read an interesting study about business failures commissioned by the U.S. Small Business Administration. You can access the study here.
The study aimed to see why businesses fail, and to understand the difference between businesses that fail versus businesses that close for other reasons.
And, as the chart below indicates, the number one reason why businesses fail is lack of funding. In fact, nearly half of the businesses that failed attributed lack of funding to their downfall.
Another factor that significantly influenced failure rates was the age of the entrepreneur. The study indicated that entrepreneurs below the age of 35 are more likely to fail than older entrepreneurs.
I've always considered age to be an interesting factor in regards to entrepreneurial success. Here's my thinking:
Oftentimes younger entrepreneurs have an advantage in terms of time, energy and freedom. With regards to time, they often don't have families and thus can work later and on weekends. And they might have a little more energy, or be a little "hungrier," since they haven't achieved as much business success as older entrepreneurs. And finally, because they may not have mortgages and other financial obligations and assets, they may have a little more freedom to take risks than older entrepreneurs.
Older entrepreneurs, on the other hand, are probably more successful due to experience and expertise. Older entrepreneurs generally have more maturity and experience, allowing them to make more informed decisions and to learn from past mistakes. They typically also have more domain expertise (i.e., a deep knowledge of their market from working in it for so long).
Fortunately for young entrepreneurs, there is a great solution to their lack of experience, which is to get Advisors and/or build an Advisory Board. (Note that I define Advisors as successful people that you respect and that agree to help your company. Advisors are generally successful and/or retired executives, business owners, service providers, professors, or others that could help your business. An Advisory Board is simply a group of Advisors.)
In fact, I often site the following four reasons why ALL entrepreneurs (young and old) should have Advisors:
1. Practice: if you can't successfully pitch an advisor to invest time in your business, then you are not going to successfully pitch anyone to invest money in your business. So, practice your pitch on prospective advisors first, and use that practice to perfect it.
2. Connections to capital: as successful individuals, advisors often have the ability to invest directly in your company; and/or they tend to have large, high quality networks of individuals that they can introduce you to.
3. Credibility: having quality advisors gives your company instant credibility in the eyes of lenders and investors. For example, if you started a new hockey stick company, having Wayne Gretzky as an advisor would certainly give you great credibility (and connections).
4. Operational success: mentors and advisors are an entrepreneur's "single most controllable success factor" according to Dr. Basil Peters, a successful entrepreneur, angel investor, venture capitalist. Having Advisors with whom you can discuss key business matters as you grow your venture will help ensure you make the right decisions, particularly if they have encountered and dealt with the same challenges already in their careers.
So, while the #1 predictor of startup success may be funding, you may want to focus first on getting Advisors. Since this will help not only with getting funding, but with giving your organization an experienced sounding board to make high quality decisions.
This two-and-a-half-minute video has had 5 million views on YouTube so far.
My sister had to stop watching it half way; it made her anxious.
I looked at it VERY differently -- from the perspective of an entrepreneur.
Here it is:
As an entrepreneur, watching this video made me think of the great quote from Samuel Goldwyn: "The harder I work, the luckier I get."
You see, that's what frustrates me about the video. I'm not a big fan of luck that's not predicated by hard work.
Because it sends the wrong message. It sends the message that you can attain success via luck. Which is sometimes, but rarely, true.
To be a successful entrepreneur, you need to create your own luck like Goldwyn did (Goldwyn was born in Warsaw, Poland without a penny to his name).
You need to work hard and try lots of things. Importantly, you must realize that MOST of the things you try will fail. But with persistence, success will come. Funny enough, a lot of people consider this "luck."
Was Edison "lucky" when he created the light bulb? Sure he was. In each of his experiments, I'm sure he hoped that he would get "lucky" and invent one which worked. If his first try would have worked, it clearly would have been at least a little lucky. But what about his second, his tenth, or his hundredth tries? Clearly, when he experimented over 1,000 times, it was hard work and not luck that prevailed.
I think that a simple timeline is one of an entrepreneur's greatest tools, and one that helps ensure that you will get "lucky" from good planning and hard work.
This timeline should start with where your business is right now. And it should end with where you want your business to be in 5 years. In creating your timeline, you should provide much more detail for the next 12 months, as you have more control over this time period. What do you hope to accomplish? What dates should you set to accomplish each goal? And so on.
By going through this exercise, you start to realize the numerous steps you'll need to take to achieve your goals. You'll start to better understand the things that might go wrong, or that might be more challenging than you initially thought. And you will have a roadmap to follow. But importantly, remember that many of your attempts will fail or take longer than planned. So build this into your timeline.
And when time passes and you attain your goals at the end of the timeline, many people will call you lucky. But you and I will know that luck had nothing to do with it!
Well, you may want to take some advice from an FBI hostage negotiator.
That's right. I recently came across an article detailing the chronicles of a former FBI hostage negotiator, and noticed several parallels between hostage negotiations and raising money.
Here are the key lessons and parallels:
1. Determine what is a negotiable situation and what is not
In the infamous 1993 Waco, TX negotiations, it was determined that leader David Koresh would not negotiate and that the only way to save lives was via raiding the compound.
When raising money, you'll learn that some investors are interested in your venture, and others aren't. You generally are going to have a really tough time changing the minds of investors who initially are not interested in you. So when this is the case, move on. 2. Everyone on your team who communicates to the other side is a negotiator
This is a really interesting point. If any FBI agent communicates with the other side (even if it's not the leader of the FBI team), it is treated by the other side as an official communication. As you can imagine, lots can go wrong here.
Likewise with raising money. If you have a team, investors will surely ask questions to the other team members. Make sure you are all on the same page and have the same vision and answers to key questions.
3. What the other side sees is key
In Waco, TX, the FBI agents said they wanted to peacefully negotiate. But when David Koresh looked out the window, he saw tanks. Clearly, this visual didn't match the message the FBI was trying to send him.
The same holds true when raising money, you need to match and support your claims. If you say that customers are going to love your solution, provide testimonials from prospective customers. If you say that you're going to progress your company week after week, then make sure to follow up with investors every week after your initial meeting to keep them aware of your progress (and actually make real progress). 4. Keep it Simple
Years ago, during an airplane hijacking, FBI agents were concerned about the fact that the hijacker was wearing a long coat. They guessed that a bomb was being hidden under it, and started thinking of complex solutions. Later the hijacker revealed "It was cold and it is the only coat I own." (pretty funny, huh)
Likewise, when raising money, keep it simple. Investors can't invest in what they don't understand. Lay down the key facts about your venture -- why it's unique and why it will make investors money. You don't need to get into all the tiny details unless they specifically ask about them. 5. Listen to the Other Side's Needs
In virtually all hostage situations, the 'bad guys' have specific needs. Maybe it's money. Maybe it's power. Maybe it's the release of a prisoner. Etc.
Likewise, all investors have needs. Venture capitalists are typically driven by an ROI need, or a need to get a high return on their investment. Angel investors also have other needs like ego and interest in helping an entrepreneur. And strategic investors may invest out of fear that their competitor invests in your company before them. And so on.
So, take the time to understand the needs of your prospective investors, and sell into them.
I trust that these lessons will help you raise money for your business. But realize, they'll only help you after you take the first steps....mainly getting in touch with potential investors and securing meetings.
I predicted that Crowdfunding would be big, and I love to see that more and more new ventures are using it to quickly and easily raise funding.
My favorite recent example is Glif.
Glif's founders came up with an idea - a simple iPhone 4 accessory with two primary functions: mounting your iPhone to a standard tripod, and acting as a kickstand to prop your iPhone up at an angle.
Next, they created a prototype. But they had no money to actually build it and distribute it.
So, they turned to Crowdfunding. They posted their company on one of the several Crowdfunding platforms (Kickstarter). They set it up so that donators receive, among other things, a Glif when they are eventually manufactured (after the company has raised enough money to allow them to manufacture).
The result: within just 5 days, Glif raised over $80,000.
Now, before you rush to post your venture on Kickstarter, note that the vast majority of those that do so fail to raise any money.
Because there is a specific strategy you must follow in order to successfully raise money from Crowdfunding.
Now that summer is officially over, venture capital activity is picking up.
I just reviewed the many companies who recently raised venture capital with an eye towards those that are offering products and services that could benefit other entrepreneurs and business owners.
These following six companies fell into this category. Collectively these companies just raised $43.2 million.
Get Satisfaction Inc. (http://www.getsatisfaction.com) raised $6 million led by Azure Capital Partners. Previous investors O'Reilly AlphaTech Ventures and First Round Capital also participated. Get Satisfaction has developed a private label social network platform for businesses to use to communicate with their customers, and to help customers communicate with each other. This helps companies bond with customers and provide customer service, and is a much easier and faster solution than building your own system.
Ixtens (http://www.ixtens.com/) raised $4.6 million led by Greycroft Partners and BV Capital. Ixtens offers a comprehensive ecommerce solution for businesses. It enables merchants to sell their products anywhere by syndicating goods to multiple marketplaces. It also provides the necessary infrastructure for a merchant to turn any online store into a marketplace, selling integrated third-party inventory from any supplier.
Rypple (http://www.rypple.com) raised $7 million in a financing round led by Bridgescale Partners. Additional investors included Edgestone Capital Ventures and Extreme Venture Partners, as well as angel investors Peter Thiel, Seymour Schulich, Roger Martin and Joe Sigelman. Rypple makes HR software that helps companies run better. It solicits feedback from employees, helps teams share information and accomplish goals, and allows managers to review and improve employee performance more easily. To me, it looks very similar to Basecamp, but focused on HR applications; it seems very cool.
TimeTrade Systems (http://www.timetrade.com) raised $5.6 million led by Ascent Venture Partners with participation by CommonAngels and other returning investors. TimeTrade, which I have used myself, is an online appointment scheduling solution. It allows prospects or customers to automatically schedule meeting times with you, governed by rules that you set. I find it very easy to use and worthwhile (and they offer a 30 day free trial). uTest (http://www.utest.com/) raised $13 million led by Scale Venture Partners. Previous investors Longworth Venture Partners and Egan-Managed Capital also invested in this round. uTest is the world's largest software testing marketplace; it has created a community of 30,000 professional testers from more than 165 countries around the world. Startups to global software companies have used the uTest marketplace to get their web, desktop and mobile applications tested. This is the quickest and easiest way to test something.
Verve Wireless Inc. (http://www.vervewireless.com) raised $7 million from BlueRun Ventures and The Associated Press. Verve Wireless helps manage the mobile content platforms for over 750 leading media companies, and importantly allows businesses to do targeted mobile advertising on its network.
Key Tip: These companies did NOT raise venture capital by luck. Nor did they buy a list of venture capital firms and email their business plans to all of them. Rather, they followed a proven, methodical process. Check out my Venture Capital Pitch Formula for a proven process for you to follow to raise venture capital. This video explains more.
A few weeks ago I went to the doctor. My throat had been bothering me for a while and I figured it was time to get it checked out.
It turns out that I had strep throat, and after 10 days of antibiotics I was fine.
Now, before the doctor gave me the antibiotics, he asked me a bunch of questions and took at look at my throat. And he gave me a strep throat test to confirm his diagnosis.
And the doctor's experience along with his diagnosis allowed him to solve the problem.
Let's consider a scenario though where the doctor was too busy to diagnose my condition. Perhaps I walked into his office and he didn't let me say a word. Maybe he looked me up and down and said, "I know what the problem is. It's this, and so I'm going to give you a prescription for this." Now, if this happened, chances are that he wouldn't have properly diagnosed my condition, he wouldn't have prescribed the right solution, and I wouldn't have gotten better.
And in the medical profession, this clearly would be serious. Because in the medical profession, the formula D < C = M holds true. Specifically, the formula is Diagnosis before Consultation equals Malpractice. And if my doctor tried to diagnose my problem and give me a prescription before doing a consultation, he could have landed in pretty hot water. In fact, he could have gone to jail.
So what's my point here? Because I think we all know that doctors shouldn't offer a diagnosis before doing a consultation.
Well, the point is that too many entrepreneurs commit this error. They diagnose the needs of their market without doing a thorough consultation. Many times, their consultation is simply on their OWN needs. Perhaps, they think, "what I would really like is an Italian restaurant in my town." And they think that just because they want it, that everyone else wants it. This is a common flaw in both marketing and entrepreneurship.
Rather, the entrepreneur destined for success is one who spends time consulting with their target customers. First they identify a need. But then, they really assess it. They speak to prospective customers. And figure out their true needs. What are they doing or buying currently to solve the need? What do they like about the current solution? What do they dislike? And so on.
Importantly, note that asking your friends what they think about your idea also tends to lead to faulty results. First, your friends probably think very similarly to you, and may not represent a good sample of the general population who will consider buying your product or service. And, oftentimes friends will say they like something just to make you feel good, rather than really scrutinizing the idea.
So, don't commit entrepreneurial malpractice. Do your homework. Really research the needs of your customers and/or prospective customers. And only launch products and services that truly solve these needs.
On Monday, President Obama signed the Small Business Jobs Bill. The bill provides $42 billion in loan incentives and tax cuts for entrepreneurs and small businesses.
Specifically, the Bill does a few important things:
1. The Bill increases the government guarantee on the SBA’s 7(a) loans to 90% through December 31.
Some explanation for some of you who are new to raising funding:
The SBA is the United States Small Business Administration. The SBA doesn’t lend money to entrepreneurs. Rather, local banks give out the loans, but the SBA guarantees a certain percentage of the loan amounts (so if the entrepreneur defaults on the loan, the SBA pays the bank 80% to 85% of the loan amount). With the new program, the guarantee is being raised to 90% which makes lending less risky to the banks.
The SBA’s 7(a) Loan Program is its primary program “to help start-up and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels.”
2. The Bill includes a new $30 billion lending fund that community banks can use to make loans to entrepreneurs and small businesses.
3. The Bill includes $12 billion in tax breaks for small businesses.
Overall, this is great news to entrepreneurs and small businesses who gain 1) more access to funding, 2) better funding terms, and 3) tax breaks.
This is also positive news for the US economy, as entrepreneurs and small business owners have historically created the majority of jobs and job growth in our country.
In my freshman year in college I took a very challenging Calculus class.
It turned out that my roommate was also in the class. Both of us had a hard time keeping up. And we were both nervous as the final exam approached.
We both studied hard for the exam.
And the results: He got a C+ on the exam. I got an A.
I don't think I was naturally any smarter than he was. And we both spent about the same amount of time studying for the exam.
So, why did I do much better?
Well, the one thing I did that he didn't was that I used Schaum's Outlines. Schaum's Outlines, which I had come across in high school, are study guides that complement what you learn in class and in textbooks. Importantly, each guide include hundreds of sample problems along with the answers.
And so, while my roommate was only studying from the course textbook, I also used Schaum's Outlines to review nearly every conceivable type of Calculus question that I could be asked, and how to answer it.
Interestingly, when my roommate saw me using the Schaum's book, he questioned it. He didn't think it was fair for me to use it because the teacher never specifically told us about it. I remember him even saying that it was like cheating.
Well, clearly using supplemental materials to improve your performance is not cheating (unless those "supplemental materials" are performance-enhancing drugs to become a better athlete). Rather, I consider it being proactive and creative in order to achieve your objectives.
The same principle holds true in business. For example, would you ever try to do pay-per-click advertising without first learning how to do it right? If not, you'd probably lose your shirt.
Or would you ever put a full page ad in a magazine without either using an advertising agency with great expertise and/or spending time learning about how to create effective ads?
That's why I started creating information products at Growthink a couple years back. My thinking was like this: why would someone ever want to go into a meeting with a venture capitalist without knowing the questions they would be asked? That's suicide. So that's why I created a program for raising venture capital. Or why would someone want to create a business plan from scratch, particularly if they weren't 100% sure regarding what should be included in their business plan? And that's why I created a simple business plan template.
The key point is that you must seek out knowledge from the best possible sources to succeed in business. In fact, later today I will be driving to Maryland to attend a meeting with some of the top internet marketers in the world. I will spend a lot of money and time to attend the meeting, but it will pay for itself over and over again as I use the knowledge to increase revenues and profits.
Think about what skills would help you accomplish your goals. And then go out and find the best resources to gain them.
Over the past several months, I've been helping an entrepreneur take his vision for a new consumer product to market.
During this time, he has made great strides; he now has product samples, a manufacturer lined up, his packaging designed and printed, etc.
The one thing he's lacking is proper funding.
So, he recently started looking for investors.
And so far, he's had one investor meeting and has scheduled one more for the coming days. The meeting he had was good. The investor showed interest. But wasn't quite ready to invest; he wants to see a bit more progress made.
And then I received an email from the entrepreneur that's all too familiar...
It went something like this:
Dave, I read about this guy who put up this website and made a ton of money. I think I can do the same thing. So what do you think of me doing that, making money, and using that money to fund my other venture?
To this, I replied, "I HATE IT!!!"
The issue, I told him, is that the new website idea is a completely different business from what he's doing. Could it work? Sure. But it would require ALL of his time and energy. And the odds were not in his favor of making it work. And then if it didn't work, he'd be sitting on two half-baked companies, neither of which had any real value.
Which led me to think of one of my favorite quotes from Thomas Edison -- "Many of life's failures are people who did not realize how close they were to success when they gave up."
This entrepreneur is really close to making his consumer product company a success. Sure he has a lot of work left to do, but he's already made tons of progress.
Like many other entrepreneurs, he's getting distracted by "shiny objects" - those cool things or ideas that catch your attention and get you off track. In my early days as an entrepreneur, I got distracted sometimes too. It's hard when you come across a new opportunity or idea that you think is great. You want to jump on it right away. But, in virtually every case, you need to stick with your current venture or project and see it to fruition. If not, you end up with a string of half-started companies that have no value.
Success in entrepreneurship requires dedication and hard work. And on the funding side, in most cases it's simply a numbers game. No matter how good your company or idea is, you can't expect to only meet with one or two investors and get funding. You need to increase your prospective investor pool, because if you speak to enough investors (and you present to them the right way), you WILL find investors.
And finally, to inspire you and to show you that one of the greatest entrepreneurs in history was also a strong proponent of hard work, focus and dedication, below are some more great quotes from Thomas Edison:
"Everything comes to him who hustles while he waits."
"Genius is one percent inspiration and ninety-nine percent perspiration."
"I have not failed. I've just found 10,000 ways that won't work."
"I never did anything by accident, nor did any of my inventions come by accident; they came by work."
I'm always on the lookout for know-how that will help entrepreneurs like you grow more successful businesses.
So, the other day, when I received an email from my friend Adam Toren about his new program, I took a look (Adam runs the popular entrepreneurship website YoungEntrepreneur.com). Specifically, Adam wrote to tell me that they just released a brand new blogging course called Blog Money Bootcamp.
Most entrepreneurs fail to raise
venture capital because they
make a really BIG mistake when
approaching investors. And on
the other hand, the entrepreneurs
who get funding all have one thing
in common. What makes the difference?