Start-ups: grow your own

In the first of a new series, experienced entrepreneur and angel investor Andy Yates reveals how to get your start-up off the ground

Start-ups are sexy. Entrepreneurs have turned from social pariahs on a par with estate agents and journalists to modern day heroes leading the fight against economic doom and gloom. In fact, ever since Dragons' Den hit our screens and made TV stars out of entrepreneurs, Britain's gone a bit start-up crazy. The government has announced a raft of initiatives for entrepreneurs. A once obscure intersection in north east London (where I understand The Gateway is based) has been dubbed Silicon Roundabout as it's become such a mecca for new internet and media companies. Even Alan Sugar is getting in on the act with this year's new format for The Apprentice.

So are you a budding Branson, or would you like to emulate the late, and great, Steve Jobs? Do you want the thrill, excitement and challenge of being your own boss? If so, you're not alone. It's been estimated that there are two million would-be entrepreneurs in the UK actively engaged in starting a new business.

But hold on - first you need a reality check. Start-ups may be in vogue, but the sad fact is that most ventures never get off the ground and, even if they do, the vast majority still fail. A good idea is important, but by no means enough on its own. Most businesses I see have the seed of something good. However, making that seed grow and flower into a strong business takes plenty of hard work and help.

In this series of articles I'll to outline what investors look for in a start-up and what it takes to turn a good idea into a successful business, starting with you.

Are you ready to commit?

We investors are not the stereotypical fire-breathing dragons that you see on Dragons' Den. In fact, the angel investors and venture capitalists I have met are on the whole very friendly, bright, successful, and down-to-earth people.

However, they do have one thing in common with the Dragons. They don't part with their money easily, and they don't like dealing with time wasters. So the first thing that any investor wants to see is that you're committed to and passionate about your business.

Ideas and talk are relatively easy. But have you put the work in to make your dream a reality? Are you willing to do what it takes and labour all the hours God sends to make your business work? If it's only a part-time hobby for you, why should investors part with their cash? What sort of risks have you taken, and are you willing to take in the future? If you haven't taken a risk, then why should investors take a risk on you?

Research, research, research (oh, and did I mention research?)

Pretty much every entrepreneur I have ever met thinks they have a brilliant idea, and that riches are just around the corner. But the fact remains that the vast majority of businesses fail. There's one thing that could have saved a lot of people a lot of money, effort and time - research.

There are hundreds of reasons why businesses fail, but here are some common ones:

  • There may be a gap in the market, but not a market in the gap, that is, there are some customers prepared to pay for your product, but not enough to sustain the business.
  • There could be too many competitors.
  • The barriers to entry are small, which means others can quickly get in on the act.

As an entrepreneur you need a healthy dose of paranoia, along with plenty of perseverance and passion. Ask yourself what could go wrong, and how can you overcome these hurdles. Is there a fatal flaw in your business that you're missing?

Research can come in many forms. The internet has made analysing the marketplace and current competitors far quicker and easier, but it's still surprising how few entrepreneurs undertake a thorough competitor review. And remember that you'll need a real point of differentiation from the competition to succeed. The smaller the difference, the easier it is for a competitor to close the gap.

However, there can be no substitute for primary research - that's pounding the streets and testing the idea by talking to potential customers and suppliers, and seeing if a theoretical business can work in practice. Investors want to hear that entrepreneurs have thought about their idea and have evidence to prove why it could, and should, work.

Show and tell

You have a good idea, you're passionate and committed, you've done the research and it stacks up - you're on a roll. Surely investors must be interested now?

So many entrepreneurs have come to me in this position and I have had to turn them away. Why? Because they haven't got anything to show me. I want a prototype or a website, something with real users and customers, something I can play with, understand and appreciate. These days, for most businesses, a prototype is not expensive to produce and is a strong indicator that an entrepreneur is serious, passionate and committed - and heading in the right direction.