In my first article I looked at three things investors always look for in start-ups: commitment, research and a good demonstration product. But that's just the beginning. There are some crucial things that can make a start-up really stand out from the crowd. Having these is vital given that more than 90 per cent of start-ups looking for investment never get it.
Here are a few more of my top tips to improve your chances of success - this time we'll be thinking about how other people are crucial to your business.
Finding the right balance
I see so many talented would-be entrepreneurs. Some are charming and charismatic. Others have a great idea and a burning passion to make it happen. Still more have great product experience, or technical skills, or are marketing gurus...the list goes on.
But as gifted as these individuals are, they don't have everything it takes to make a business work on their own. However strong or skilful they might be, a business needs a committed team with a range of skills to succeed. Of course, there are plenty of examples of famous, inspirational and very individual entrepreneurs. However, behind every success story, usually lies a strong team, which the entrepreneur has had the foresight to build and nurture. Any successful figurehead has usually worked this out pretty quickly.
Building a team from day one isn't easy - especially if you're an entrepreneur working on a shoestring budget. So one option is to consider co-founders who would be willing to share the risk with you (and of course the rewards). Many people find their business partners through their network of friends, colleagues, fellow students, like-minded people you meet at networking events... There are plenty of frustrated would-be entrepreneurs out there if you dig deep enough.
This process is in many ways the entrepreneurial equivalent of dating - but remember not to jump into bed with a business partner on your first date. Take the time to get to know each other, and to understand each other's strengths and weaknesses from a business point of view. You also need to be sure that your future business partner is as committed as you are - a lack of compatibility here can often lead to a break-up.
Whatever approach you take to assembling your team, investors generally look for core competencies in the three Ds:
- Design - the product person who loves and owns the concept
- Development - somebody to build and develop the product
- Distribution - an expert in marketing and selling the product.
If a business lacks these core skills, the risks for the investor are much higher, so the chances of getting money at an early stage are much lower. I myself have seen so many talented techies, for example, who clearly love to create innovative and cutting-edge products but haven't the first idea about how to market or commercialise them. Similarly, smooth-talking entrepreneurs are two a penny, but if they haven't got anybody to build a product, they often fall at the first hurdle. As an investor I want to see a balanced, motivated and committed team that has all the important bases covered. One man or one woman bands are far more likely to struggle.
There's nothing wrong with trying to ride the crest of a wave but you need to be aware that a lot of other people will also be getting their surfboards out. This fact is particularly true of online consumer businesses. When the media latches on to something you normally get a bunch of new start-ups looking to join the goldrush.
For example, in the past 12 months location-based services (that is, ones which find services, vouchers, bars and so on - and all near you) were all the rage, quickly followed by group buying services and, probably next in my view, online wallet and payment services (based on nearfield communication technologies).
There are undoubtedly millions to be made here. However, who would I back in these sectors? Entrepreneurs with a track record in these particular areas and, crucially, connections to have a real edge over the competition. Entrepreneurs that are just after a quick buck from the next big thing are almost certainly doomed to failure. In other words, concentrate on what you're good at, and make your contacts count.
It's certainly worth taking a step back and asking yourself if you really know the industry or market you're aiming at, because you can bet that potential investors will be asking that very same question.
- Do you have the contacts to get that first client or partnership agreement?
- Do you have strong contacts with suppliers and customers? Investors need to be confident that the judgements you've made about your business are realistic, sensible and achievable, based on knowledge, experience, and what your contacts are telling you. Businesses with pie****in the sky assumptions have a nasty habit of falling down to earth pretty quickly.