I recently had the privilege of attending a seminar with US business guru Ken Morse hosted by Upstart Business Incubator with the NZ Trade Development Board.
Morse was a cofounder of six high-tech companies, five of which went on to successful IPOs or mergers. He shared a few lessons that every business owner can follow:
Getting customers or raising capital – which comes first?
You prove the model before you get investors in. You have to have a customer who uses your solution in anger – this gives third party validation of the value proposition. Without this, who will give you money? Most good investors won’t invest unless a company has customers, if you can show repeat revenue.
How to sell, and who buys
Who makes the decision? It’s often the women – in Japan that’s institutionalised. So what’s your message to the target and to his wife? Is it different?
The farmer makes an application decision and the farmer’s wife makes a financial decision – an un-complex jury.
A complex jury is a healthcare sale – it needs a clinician to decide but you also need clinical buy-in, a leader/CEO. The budget guy is often 'Dr No'. What does it take to make him say yes? Show him the ROI: the value proposition. How are we going to make/save more money using your stuff? In a financial crisis it has to be ‘must-have’ because nice to have isn’t good enough.
Who does the selling
You have no choice – it has to be you. You want to hire someone who has a good job and is already selling to your customers – he won’t leave a good job until your offer is proven.
When to hire a sales guy
When you can afford to, when you don’t have time yourself. Most sales people you hire should be better than you. When can you hire them? When they can make money for me.
You won’t be able to hire until you have figured out the business model, qualified the value proposition, got the beach-head customer (the biggest farm/ a known hospital) and then you can go and hire a hot shot salesman.
On the prospects of saturated markets
Negative things: 'I don’t want to talk about my company until he signs an NDA because they’ll run away with the secret.' Crap. It’s all about execution. VCs are in the business of helping other companies grow and they won’t screw their reputations by stealing your idea – they’d also just hire someone to build your idea if they wanted it as it isn’t their skill set.
Positive things: If you are worried about talking to a competitor, you shouldn’t be talking to them about how your product is designed anyway. Talk about your passion for solving a customer;' problem. Speak about the problem and your startup situation will be obvious. Demonstrating you have mastery of the problem is the best way.
If you don’t have a value proposition – forget it. Change your business model. They usually won’t be ready to buy until they get stung once.
Giving up equity
if you are planning on growing, even if you have 65 percent growth margins, you’re going to need outside capital. The longer you wait the less dilution you’ll get. But the longer you wait the higher quality investors you’ll get.
If you are over a barrel you take what you can in order to survive but that often screws up the company later. Wait until you have a really good value-added investor.
Assume that if you’re successful building your business in New Zealand you will need more money to go to Asia or the US to capitalise on the growth potential – think about having money that will open doors, group people, get access to other money. The angel investors that you get should be entrepreneurs who have done it before and have a Rolodex address book that is powerful and is wiling to use it for you, and has access to more institutional capital when you’re ready for your next round of funding.
Rebecca Caroe is founder of Creative Agency Secrets