Editor Profile - Denny K Miu was the Founder and former CEO of two companies, Gigamon Systems and Integrated Micromachines (now Touchdown Technologies). Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.
Denny is currently the Executive Editor of LoveMyTool.com, his third start-up. You can follow him on Google Buzz or subscribe to his RSS feed.
Today is yet another momentous day, one of many more to come to be sure, with a historic meeting in the White House between our sitting President and our President-elect. If Mr. Obama were to receive advise in the form of the legendary three envelops from Mr. Bush, I am sure all three would say "Blame Your Predecessor".
This would be an important message for all struggling entrepreneurs to remember in the next two to three years, which is that there is little motivation for the incoming administration to fix the current economic problem in a hurry. Mr. Obama is smart enough to take this opportunity to think longer term, to address deeper issues and to solve them just in time for re-election while blaming everything on Mr. Bush for as long as he can.
In other words, this is one more reason to believe that the current economic downturn would get a lot worse for a lot longer, which is particularly painful for entrepreneurs with a company that is not yet profitable or only recently profitable.
On the other hand, ironically, there is no better time to "start" companies.
My last successful company was started in the summer of 2003. By 2005, we had a product ready for market and the customers were buying again. So we lucked out because once the economy recovered, we were the only game in town. We had the market opportunity all to ourselves and didn't see any competition for at least three more years.
In retrospect, being in the darkest part of a long dark tunnel was the least logical but the most strategic place to start digging.
Recently I received quite a few emails from aspiring entrepreneurs who are wondering how they would fund their ideas in such a bad economic time (potentially with a bridge loan from angel investors to prove out their concept until the VC's are ready to invest again).
The short answer is "you can't get there from here".
As in 2003, the VC's are basically in hibernation right now (more like deep freeze) and the wealthy individuals who would normally provide angel funding no longer feel wealthy since they don't even know when the market would hit bottom.
As in 2003, your best source of funding is NOT from Friends, Family and Fools, but from your co-Founders, both in terms of sweat equity and working capital.
In retrospect, instead of chasing money, we did the right thing in 2003 by focusing relentlessly and exclusively on our product and our potential customers.
We spend every hour and every minute thinking about why our customers would buy our product and worry about how to convince them to buy from someone who had no money and no track record. This left us with no choice but to focus on an unsolved problem that was burning a hole in their pocket and one that could be solved within our meager budget.
Knowing that we had paying customers (if we could just deliver) was the black hole that was pulling us forward and giving us faith to struggle in total darkness.
My advise to my (first-time) entrepreneur readers is to forget about VC's, focus entirely on your customers and to start to think like a bridge builder. Building a "profitable" business should be your end goal whereas fund raising is just the means to get there.
In other words, go back and identify your paying customers. Don't think about eyeballs and pageviews. Think about how to build a modest business and bring it to profitability, with basically free labor from your co-Founders. Leverage as much as you can and spend as little money as you can.
Only then think about the potential angel investment as that last plank that you need to acquire to finish the bridge that would take you past your end goal.
To put it bluntly, do not think of the angel investment as a bridge to VC's, but think about how you would bootstrap your business with your sweat and tears, get it off the ground on your own and when the economy starts to turn around (which would take at least two years), if you still need money, treat any angel investment as a bridge to your final success.
One of the chapters of my upcoming book is entitled "Marketing is to sell shit that you don't have". The idea is that both marketing and sales are sales. They are not separate departments. Marketing for startup is to sell "concepts" which are temporary placeholders for the actual solution. If you are ready to take orders and you are ready to ship, it is sales. If you are not, it is marketing.
As entrepreneurs, you are always selling, selling to potential angel investors, selling to potential early employees, selling to potential channel partners, etc.
And the selling process is all the same. And it almost always comes down to risk mitigation. In other words, the emphasis here is not just to explain the benefits if everything works out exactly according to plan, but also to explain the potential pitfalls if things don't work out and how you intend to deal with them.
So in that sense, to succeed you must treat everyone as your investor, not just your angel investor. Everyone who is willing to help you to achieve your dream is in fact making an investment (just not always with money) and it is your job to quantify the risk for them in great details so that they can make their own informed decision.
In my experience, the trick in "fund raising for startup" is to "make the hard stuff looks easy and make the easy stuff looks hard".
For any venture, the hard stuff is the technology stuff and for entrepreneurs, it is natural that you would want to talk about the technology because that's what excites you. Ironically, if you can solve the technology problem then the easy stuff is to fund the venture. To succeed, you must turn the funding problem on its head.
Your job is not to tell a story catered to the angel investor but to tell a story to the investor that is catered to your customers (i.e., the perfect head fake).
If you could convince your potential angel investor that you know how to convince your customers why they should buy, rent or lease your product, then you could back out the rest of the story to show how you could make money. If you do that you have a fighting chance to convince someone to make an investment. Otherwise, you are basically asking for "A Bridge (Loan) to Nowhere" which would never happen in a down economy.
Good luck.
--Denny--
Click here to read other chapters of Denny's 2nd Book ยป
