Real Entrepreneur Story #2: It is about making money NOT raising money

The entrepreneurs were clearly fatigued when they waked into my office. They had raised close to a $1,000,000 at a whopping valuation of close to $10,000,000. The friends and family investors were joined by a couple of angels who were fortunately (as the entrepreneurs claimed) very hands off. Unfortunately, the bank balance was almost $2000. The product is almost there they claimed and the patent was almost approved. The product a video / picture tool was indeed slick, but I had to scratch my head as how to make money from it. The exit was rather unclear and the deal was over shopped; as almost every VC had looked at it and passed – the problem; the valuation was too high for the progress made, the exit was not clear, and the had no idea as to how to making money.

Nice tool! How have you tried to monetize? the answer was “we are trying to build a community” also, “we can offer the tool as an ASP model to enterprise customers”, “we have a customer that uses the tool on his website” , “we feel that when we develop the next version with mobile capabilities it will really pick up” were some of the answers provided in a span of a 30 minute conversation. I guess the best answer was the last answer they gave me “we really don’t know”. The answer to how you tried to sell it was telling also: “we hired some sales people to go out and sell the enterprise version at a price point of $300 to $500” - the sales people never produced any results.

A very cool tool, about a million bucks, and a lot of sweat and tears was about to go to waste and you could clearly see the entrepreneurs frustrated and in distress.

1- So here is the quick diagnosis and feedback:
2- So what if you have the coolest tool, can it make money?
3- Do not spend all your money on product development, build something that can sell and then improve the hell out of it.
If you over value the company, the chances of getting additional funding when you really need it will significantly diminish.
4- Building a sales model is entirely different that hiring some sales people. If the sales people can not make money, the efforts will fail every time. How could sales people make any money in a direct sales model going door to door - paying for over $3.0 per gallon for gas to drive to the customers and close sale that will produce a couple of hundred dollars of commissions at most - the math must work out for the sales force or they are not a force!
5- It is not only about money, the fact that angels are hands off is not always a good thing.
6- And at the end, it is not about making money NOT raising money.

What kind of an entrepreneur are you?

In my days, I have met with many many entrepreneurs. We have agreed and disagreed on things, learned from each other, and experienced disappointments and successes together.

Here is “one” way to slice and dice the group.

1. The Pure Dreamer
   The pure dreamer is filled with new and novel ideas -- innovations and schemes that will make a lot of money -- for some, every once in a while they see their pictures on the front page of the Time magazine . Despite their potential, majority of these folks never cross the bridge and get to the “doing side.” They are always waiting for the right time and almost always regretful (if only, I had that idea a long time ago, ..). My advice to this group is to either admit that you are a dreamer (get it over with) and then enjoy the dreams and the innovations without regret, frustration and the feeling of failure OR “just do it” as the saying goes; the short cut to results may be finding a partner with a different character profile!
2. The “not so Pure” Dreamer
   These are the self proclaimed entrepreneurs that generate ideas faster than bunny’s produce offsprings. They have a shotgun approach - the more bullets in the air the higher the chance of a hit. The not so pure dreamers have yet to see an idea they do don’t like and a risk level that is too high! My advice to them is that entrepreneurship is more of a laser guided sport and the more is not always the merrier. Aim carefully and focus. Fast talking is not the same as salesmanship and focusing on a quick buck is not entrepreneurship.
3. The Always Stealth Creator
   As the name suggests these guys have discovered the next big thing but are afraid that others may find out and copy it - on the basic assumption that the rest of the universe are “non-thinkers” and will not figure it out on their own. These folks skill fully conceal the innovation, often to the point of obsolescence. My advice to this group is there a lot of smart people out there and that it is “doing” that makes money and not “hiding” – To capitalize on a good idea you must first share it.
4. The Enforcer
   Well, these folks are skillful, mechanical and hard workers. They are intelligent and astute. They particularly shine in large corporate settings. They are not necessarily “first idea” people or original tinkers, but they can find a 1001 ways to expand an idea, open up markets for it and lead an organization to results. However, they often fail in start-up situations – naturally they would disagree. My advice to this group is that being a great corporate entrepreneur does not necessarily qualify you to be a start-up executive / founder. Be very careful; make sure you fully understand the differences between the two before you jump in.
5. The 100% Genuine thing
   The genuine thing, although a risk taker can walk away easily if the opportunity does not make sense at a gut level. Is constantly planning the next step and most often has a passion that transcends “dollars.” A genuine entrepreneur prefers smaller organizations that can be turned on a dime. They like to be in the middle of things and can motivate people with their vision and passion to accomplish unordinary things. They are always looking for new ideas but are fairly grounded with respect to execution – can it be done? Is it worth doing? My advice to this group is “don’t” fight it!
   
   Which one are you??? Should I develop an “Are you an entrepreneur test” ?

My Education

I am quickly learning that writing a blog requires a lot of discipline. You need to be thoughtful and quick - My apologies for being a slow learner - I’ll get there. It would be great, however, if you could help me with topics – what interests you? Here are some topics I am looking at:

1. Weekly tips on effective execution, this is not a how to work harder guide! but a how to be more effective series of thoughts.
2. A session with and entrepreneur -- documenting a conversation or two every week with some of the entrepreneurs I meet and discuss funding with (naturally, the name of the company & founders, as well as, the business details will remain confidential) – the good, the bad and the ugly. The idea here is to take real life interactions and turn them in to a learning experience – this is NOT an interview, but rather a one sided (my) perspective.
3. Random Tips on valuation, term sheet, trends, concerns, etc.
   
   ALL from the Investor’s perspective.
   
   Any thoughts?