Preparing for the Dive

ENT640 – Winning Angels – Valuing

The five stages of early investing as proposed by Amis and Stevenson in Winning Angels are:

  1. Quick and Easy
  2. Academic/investment banker
  3. Professional venture capitalist
  4. Compensated advisor

As a novice angel investor, I want to dive into the quick and easy method, not just because of the name, but more so because of the description- “…to resolve the challenge of early stage investing: the lack of information, the high level of unpredictability, the need to move with relative speed, and the need to garner a significant share of the upside.” (2001, pg. 148) I want to consider venturing with the $5m limit and the rule of thirds method.

You may have $2,000 – $2,000,000 to invest, but one thing should be established…what is your threshold to invest and stick with it. The bottom line will focus your investments. The amount is irrelevant because “…the end value of the company determines your return as a multiplier of the amount invested.” (pg. 149) The upside, a one out of ten ratio will allow you to recoup your initial investment. The downside is determining how much is too much to invest.

With this method you don’t waste time. My mind goes back to vacation time share presentations. You sit through this hour and a half spill even though you either are not going to buy into the great escape, or you know how much you are willing to invest. I have been to enough of them to know that after all the packages, they go speak to someone with authority and power to make that $5000-$7000 deal with deferred maintenance fees every other year. Bingo! Now it’s attractive and affordable. But it took almost three hours of your life to make the deal; time wasted. The quick and easy approach doesn’t even let you step in the building or give an ear to what is over your risk tolerance point.

How much time do you have for a due diligence recliner? “‘Angels don’t have as much leeway to do due diligence that would get them comfortable with high valuation.’ ” (pg. 150) The rule of thirds method gives you a reasonable gain measure and yet it is still not time consuming. You don’t want to get lost in the numbers unless you like crunching them or have someone on your team with the skillset. The upside, fewer moving parts. The split is between founders, investors and management. The downside, “the line between founders and management is not always so clear and founders often have high personal value perceptions.” (pg.150)  The perceptions skew the reality of the truth-this is not worth what you think it is; there is clearly a plank in your eye.

Your approach fit will depend on your risk tolerance, which can change with your upside experiences. The most important factor is to begin. Learn to swim in the angel investment waters then try diving then flipping. Your experience will increase your depth and return on investment.

Resources

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

A “High Potential Opportunity” in the Making

ENT640 Winning Angels – Evaluating

Amis and Stevenson (2001) hold to four elements that create a perfect opportunity as offered by William Sahlman and Howard called the Harvard framework. One missing link and failure looms from all your efforts. “The investment opportunity [is] an interconnected combination of four elements: people, context, business opportunity, deal.” (pg. 75-77)

People are made up of key players: the entrepreneur, management team and stakeholders. From the outset the creator “has more freedom to mess up, save it, bring it to boil, or take it onwards, than [he or] she will ever have again.” (pg. 81) This is their baby, and if they are not a veteran parent, there will be casualties of parenting along the way. As a start-up entrepreneur, these same casualties will be opportunities to mold experiences that will bring the project into maturity and success. They are hands on everything in the beginning so the angel investor banks on the entrepreneur. They will pay particular attention to “their goals, their knowledge and their capabilities.” (pg. 81)

Key questions for the investor (pg. 83-84):

  1. What are the underlying goals and are they relevant?
  2. Do they know this business and are they respected by their peers?
  3. Can they do it and get others to do it?

The management team is the vehicle aimed at forward movement. When a management team is in place, you can assign another degree of confidence in the investment. Expertise by these members should translate into “relevant skill set[s].” (pg.87)

“Stakeholders (angel investors, advisors, board members, venture capitalist, customers and suppliers) are important because they can have a major impact on value creation and perception.” (pg.89) Do you see what I see through a lens of worth and growth? A trusted name supporting an endeavor will create trust in the market.

The context is joined at the hip with the opportunity. It includes: “economy, technology development, regulation, and stage of industry.” (pg. 99) And don’t forget the competitors. You can marry an opportunity when “you understand the fundamental business and that all of the big questions have been answered.” (pg. 91)

Key questions for the investor (pg. 92-97):

  1. Does the business model show how you obtain, keep and serve customers for profit?
  2. Where are the customers, ready and eager to obtain the product or service?
  3. Is the timing right for purchase?
  4. What is the return-on-investment in direct relation to the size of the company?

Now we are ready to deal – price and structure. Putting price on the table first is “one of the easiest methods to eliminate the deal.” Structure can make or break the deal as well. It includes investment terms, board control, or management team limitations “…directly impacts the likelihood and the size of the harvest events.” (pg. 104)

From the seed (people) to planting and growth (context), to maturity (the opportunity) and finally the offering (the deal), an investor must balance the investment of time as well as money. The evaluating stage is the courtship that can be like speed dating when you lay your cards on the table of what your intentions for investing are or it can be a slow dance to access risk. Either scenario can yield a profitable harvest.

 Resources

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

“How will you invest your time in order to invest your capital?”

ENT640-Winning Angels-Sourcing

I believe angel investing has a core of passion that vibrates or ripples outward to others. That ripple is just enough to move an entrepreneur forward along a still stream, a dead calm, or a cold silence where one act of favor gives light and sound.

So how do I cast my rock into the pond? How do I make it skip across the water to multiple pockets of investments? In their book, Winning angels, the 7 fundamentals of early stage investing, Amis & Stevenson suggest four categories of sourcing activities that will help you create a strategy that will guide you on “how to invest your time in order to invest your capital.” (2001, pg. 34) These activities are preparation, networking, visibility and focus. (pg. 35) As a newbie, if I could start with one doable activity from each category, I can start my ripple effect.

The preparation activity of writing (and distributing) a one pager gets you on the map. When you can articulate your position, you are more likely to gain success in a particular area. This one pager “describes what you are interested in and what you are willing to consider.” (pg. 37) You are not writing a narrative here but instead giving your direct position on what you are willing to do, who you are willing to do it with and how you are willing to do it. Focused deals are the easy deals. This one pager brings start-up entrepreneurs to your pond.

The networking activity of personal meetings with bankers, lawyers, and venture capitalists is a great avenue since I spent 18 years in the financial industry. I can recall the times when bankers could not partner with new start-ups because of so many lacks-credit history with the bank or good credit, sustainable cash flow, assets, etc. Nerdwallet suggests six reasons why businesses are rejected for small business loans to include: bad or no credit; lack of collateral; weak cash flow; lack of preparation, seeking small loans (under $100,000); and risk averse bank. (Nykiel, 2015) This networking activity gives focus to a preparation activity by filling the gap for start-up funding under $100, 000. Even if that number is reduced, it will still fill a need. I liken it to the secondary lenders like where the interest is high but the deal can be done without with less stringent qualifiers. Networking gives you a steady stream of referrals.

Let’s get Visible, Visible by talking. Amis & Stevenson suggest giving an interview, speeches or writing a book. (pg. 43-47) Remember you don’t have to be the expert for everyone. You have to be the solution for your niche. This type of visibility also creates a ripple for you to gain more engagements which increase your networking circle. How many times have you thought or said “I could write a book on…” Your speaking engagements will be the retail spot for your book. People like to take the tangible home to review and duplicate the processes of success. The brain can’t absorb it all, but literature is a lifelong teacher and refresher.

And finally you will need focus activities and tactics. By narrowing your scope to one or two areas, you can better target your investing. It goes back to passion for me. I have a passion for the arts and I know I want to cause ripples in that industry. I believe the arts is the focus industry, but I can skip my rock amongst any of the artist expressions.

There is no perfect pond except for the one that you create for others. As an angel investor, sourcing puts your eye and heart on the group of entrepreneurs for you to have a life changing influence that makes their dream a reality.

Resources

Amis, D., & Stevenson, H. H. (2001). Winning angels: the seven fundamentals of early-stage investing. London: Financial Times Prentice Hall.

Nykiel, T. (2015, May 13). 6 Reasons Businesses Are Rejected for Small Business Loans. Retrieved May 21, 2017, from https://www.nerdwallet.com/blog/small-business/6-reasons-businesses-rejected-small-business-loans/

Company Building-Internal and External Customers

The final stage in The Four Steps to the Epiphany: Successful Strategies for Products That Win is Company Building. Just to recap, the first three stages focused on discovering and understanding your customers, validating sales through the Earlyvangelists, and creating and sustaining a market for the product or service. This stage adds key internal factors.

Blank suggests three ways for a company to evolve from a startup to a major company:

  1. Build a mainstream customer base beyond the first earlyvangelist customers
  2. Build the company’s organization, management, and culture to support greater scale
  3. Create fast-response departments to sustain the climate of learning and discovery that got the company to this stage (2013, pg. 211)

The early stages focus on the customer, but in this stage focus is share with the organization and its culture. “Most startups don’t give much thought to organization and culture, and if they do, it may have something to with Friday beer bashes, refrigerators full of soft drinks, or an iconoclastic founder.” (pg. 214) This bureaucracy translates into “…a hierarchical, command-driven management style, process-driven decision-making, an HR driven employee handbook, and an ‘execution’ mindset.” (pg. 214) The culture extends beyond what it done, but how things are done. It creates the very threading to perception, policies, and the politics of an organization.

In this stage, the company becomes “mission critical rather than process oriented.” (Brown, 2012) Blank further expounds, “For mission-centric management to work, you need to ensure the intentions of all missions (corporate and departmental) are understood, not just by a few key executive, but everyone, top to bottom, in the company.” (Pg. 250)

Think back to your previous work experiences. How well were you orientated with the company? In banking, I was oriented by key people in the organization and in the departments. In academia, my first day was with a computer. The difference was like night and day. I can say that I felt more a part of a team in the former than the latter. What type of culture are you creating for you company and how is that culture perceived by employees? This Customer Develop Models pours so much time and energy into the external customers, please don’t forget to pour into your internal customers as well.

The Four Steps to the Epiphany: Successful Strategies for Products That Win is a great resource for growing a startup. I found that my SME used these stages without even knowing it. They have a successful restaurant and catering business that began with Customer Discovery; literally going door to door to businesses. The potential customers didn’t know they had a problem, but the city did lack restaurants. It took five years to actually move into what is now the restaurant site, but they would take nothing for this fifteen year journey of success!

Resources

Blank, Steven G. The Four Steps to the Epiphany: Successful Strategies for Products That Win. 2nd ed. California: Steve Blank, 2013.

Brown, P. (2012, June 03). The Four Steps to the Epiphany [Review]. Retrieved February 28, 2017, from http://culttt.com/2012/02/27/the-four-steps-to-the-epiphany-review/

ENT 601 Reflections Week 8

Earlyvangelists – Customer Validation

The Customer Validation Stage is the GPS for sales and marketing. “The sales roadmap is the playbook of proven and repeatable sales process that has been field-tested by successfully selling the product to early customers.” (Blank, 2013, pg. ) A key player in this stage is what Blank calls “Earlyvangelists.” They are the first set of customers who believed in your vision. “They will pay for the product-sometimes months or even years before it is completed.” (pg. 110) We are still not going to get ahead of ourselves here to sell. So therefore a sales force is not necessary yet. It is about predictable forecasting of repeat buyers/sales and a big GREEN light for your sales model.

These basic GPS questions need to be answered to ensure a sales blueprint. (pg.111)

  1. Are we sure we have product/market fit?
  2. Who influences a sale?
  3. Who is the decision maker?
  4. Who is the economic buyer?
  5. Who is the saboteur?
  6. Where is the budget for purchasing the type of product you’re selling?
  7. How many sales calls are needed per sale?
  8. How long does an average sale take from beginning to end?
  9. Is this a solution sale?
  10. If so what are ‘key customer problems’
  11. What is the profile of the optimal visionary buyer, the Earlyvangelist every startup needs?

I want to profile the Earlyvangelist, which is a key force on your startup journey. The Earlyvangelist will to plug into your vision without a product. “The Earlyvangelist does not just buy your product; they buy your vision. The vision of your enterprise is what binds the Earlyvangelist to your company.” (Kroonenburg, 2016) But why will they jump off this cliff with you? Blank suggests, “They may do so because they perceive a competitive advantage in the market, bragging rights with peers in their neighborhood or in an industry, or political advantage with their company…; they not only understand they have a problem, but are looking for a solution, to the point of trying to build their own.” (pg. 112) Stop one minute here. This customer isn’t an angel investor. Remember we are talking about the people who will purchase this product or service, not the one who wants to invest. They are looking for a practical dividend instead of a financial one.

They see the bright light at the end of their problem tunnel and are mesmerized by your solution. They “get it”… but not from a “suit….” but the founders not the salesperson. So you are still hands on cultivating the relationship. It is essential to identify your Earlyvangelist. They are your sales and marketing; taking your product or service “…inside their companies and throughout their industry-or as consumers, to their friends and neighbors. Treated correctly they are the ultimate reference accounts.” (pg. 112) Now you see why a sales team isn’t need at this point. The Earlyvangelist have their place in your history for this stage of customer validation. They are the customers that you discovered by hitting the pavement.

Who are your Earlyvangelists?

Resources

Blank, S. G. (2013). The four steps to the epiphany: successful strategies for products that win. California: Steve Blank

Kroonenburg, M. V. (2016, August 03). Earlyvangelists, your first and most important clients. Retrieved February 24, 2017, from http://www.bwventures.nl/Earlyvangelists/

ENT 601- Reflections-Week 6

Customer Creation – Marketing Strategy

Thus far we have looked at Customer Discovery and Customer Validation. Both stages place an investment in spending time and finances on the customers need and solving problems. Up until now, startups have been lean with the founder literally finding the business in the marketplace. There has not been a major investment in VP executives, nor sales and marketing teams. The Customer Creation Phase is no different and it turns toward building a brand in your market instead of forcing a brand into the marketplace. Being mindful of correctly identifying your market (existing, re-segmented or new) is important in this phase? The main goal is to “provide an experience that drives market demand into the sales channel of the company.” (Martin, 2016)

Customer Creation “represents the essential marketing activities necessary to help customers learn about a product and create a desire to buy it.” (Blank, 2013, pg. 161) Blank does not label it as marketing communication for four important reasons:

1. In a startup these events are occurring for the first time;

2. They are not about the marketing department, they are about customers;

3. They are creation events, not follow-on execution activities; and

4. The types of appropriate marketing programs differ widely, depending on Market Type.

Traditional marketing strategies are less effective and more expensive. “Launching a new product and company should not be confused with executing a laundry list of marketing tactics.” (Pg. 162) You are not pouring dollars into a marketing campaign, but instead you are extending your foot print within your current customers. In essence customer creation is a “meaningful reach; …to make sure that this happens, the kinds of marketing opportunities that you chose should be directly in line with the market that the business is entering.” (Martin, 2016)

Blank and CLEVERISM offer extensive information about market type and positioning. Therefore I suggest that you take some time to review this area from the resources listed to make sure you are spot-on in capturing your segment for a successful product launch.

The Customer Creation phase has allowed me to look deeper into the marketing strategy for a startup. One size marketing does not fit all. As I said in an earlier blog, your startup is not a cookie cutter process. Such care has been given towards the early consumers to ensure success. Creating the buzz, following up with the buzzers and then extending your reach beyond the initial buzz into your real customer base is a strategic process that is often overlooked because of focus on the product.  Customer creation shifts your focus away from Earlyvangelists and towards the real customers in the broader marketplace. These customers unlike the earlyvangelists, who buy into your dream without a prototype in hand, need to see the product for absolute buy-in. Are you ready to present the real thing?

Resources

Blank, S. G. (2013). The four steps to the epiphany: successful strategies for products that win. California: Steve Blank.

Martin. (2016, January 29). CDM: Understanding Customer Creation. Retrieved February 24, 2017, from http://www.cleverism.com/

ENT 601 Reflections Week 7

Shop the Problem, Not the Product-Customer Discovery

The Philosophy

“A start-up begins with a vision: a vision of a new product or service, how the product will reach its customers, and why lots of people will buy it.” I believe this sounds right thus far. “But most of what a startup’s founders initially believe about their market and potential customers are just educated guesses. A startup is in reality a ‘faith-based enterprise’ on day one.” Now that was a humorous reality, but I can still agree. Customer Discovery is “to turn faith into facts…to know whether they have a valid vision or just a hallucination.” (Blanks, 2013, pg. 43)

Customer Discovery occurs when you seek out potential customers to buy your product or service. Blanks defines it as “time to hit the streets and identify your repeat buyers.” This discovery goes beyond gathering electronic market data. Instead it translates into being “…out in the field, listening, discovering how consumers worked and what their key problems were.” (Blank, 2013, p.28)

The Question?

When you began this journey, did you shop your product or service or did you shop the problem that your product or service would solve?

I find this question very important when building a business. Are we following our passion and dreams or actually lending our dreams to a product or service that can solve a problem, which will provide sustainability for your company. It’s like applying for a grant. Many people think they have a great idea for someone to fund. When in reality, your idea needs to fit the goals and mission of a granting organization. It’s all about how you fit in the grantee’s world and so it also is about the consumer that you will be serving.

“The concept is deceptively simple: form hypotheses around the problem that your product solves, and around the product itself, test these hypotheses with those who could be your potential customers to verify, iterate or exit. This discovery process is part of the larger customer development model where the minimally viable product resulting from customer discovery undergoes validation testing among customers.” (Venture Atlanta)

I agree with Venture Atlanta when they say it’s deceptively simple. You have to get the buy in from a group of strangers that will agree that what you are offering will solve their problem. And remember the problem may not exist yet. Once you gather real data, you are testing or tweaking to make adjustments from their feedback. Then you hit the pavement again to gather another round of feedback. In this round, you have your reality check of where the pairing of the product/service and the consumer provides conclusive evidence; to draw a conclusion you hope will say that you have made the right decision and it makes sense financially.  It’s the beginning or the end.

Just think, you haven’t sold a thing, but you have gathered valuable information that will allow you to be profitable. This in depth approach to gaining a viable consumer following could make the difference in a start-up’s continued success.

5 Phases of Customer Discovery

Phase 0-Get Buy-In

Phase 1-Start Your Hypothesis

Phase 2- Test and Qualify Your Hypothesis

Phase 3-Test and Qualify the Product Concept

Phase 4-Verify

An in-depth study of the 5 Phases of Customer Discovery can be found in Steve Blank’s The Four Steps to the Epiphany. (pg. 53-105) In addition, Venture Atlanta provides a wonderful set of Customer Discovery Tips

Resources

Blank, Steven G. The Four Steps to the Epiphany: Successful Strategies for Products That Win. 2nd ed. California: Steve Blank, 2013.

Customer Discovery Basics. (2013, March 7). Retrieved February 15, 2017, from http://ventureatlanta.org/2013/03/customer-discovery-basics/

ENT 601 -Week 5 Reflections

eZine Article-Better or Perfect

In a recent blog entitled “What Does Flawless Look Like,” I wrote consumers anticipate better, not perfect. Better has a place to go, perfect is stuck. Perfect is based on personal preference. The perfect color that matches your eyes, the steak that is grilled to perfection – medium, medium well, or well-done; the perfect ingredients for a baked good or the perfect seasoning for an entrée. Perfect is “me focused.” But better is “other focused.” As an entrepreneur, the dream or vision is yours, but the reality of it is in the hand of others, the consumer.

Entrepreneurship starts as a small business. At this point, are you a small business owner or an entrepreneur? Perfect is consumer focused for solving problems around them? Better is consumer focused by always seeking to solve problems, especially the ones that do not exist yet on a global scale. This is the realm where innovation reigns. This place of scale also defines the small business owner and the entrepreneur. Both are important and vital to the economy, but at different levels.
“Small businesses are the backbone of this country. They create jobs, come up with new ways of doing old things, and help keep money in the local community.” (Spring, 2014) Spring contributes the difference to “… different styles of leadership and thoughts on running their business. One is not better than the other, they’re just different.” She gives four areas that support her position. Small business owners have a great idea to solve a community problem, whereas entrepreneurs have “big ideas that haven’t been tested, diagnosed or worked through.” Small business owners “hold steady” making calculated decisions with a clear outcome. Entrepreneurs” love risk”, diving in with confident and banking on a favorable outcome. Small-business owners ponder on “things that need to be finished this week”. Entrepreneurs are “thinking ahead six months, allowing others to run their business while they continue moving towards the next better offering to the public. (Spring, 2014)

Currency symbolizes movement. With the perfect product of service, the buck stops, but with a better product or service, the buck keeps flowing into different currency streams to a national or international level. Continuously making it better and different was Steve Jobs’ philosophy. In the movie Jobs, there were key statements made which set Apple and Steve Jobs in the innovation realm beyond the competition. He “willed” things into existence. “How does someone know what they want if they’ve never even seen it?” He said, “Make things better; we don’t stop innovating.” His “risk disguises promise” drive made Apple one of the most profitable corporations in America.

Perfect and Better are both needed to drive the economy. Which vehicle are you cruising in right now?

Resources

Spring, M. (2014, May 15). Are You a Small-Business Owner or an Entrepreneur? The Difference Is Important. Retrieved February 09, 2017, from https://www.entrepreneur.com/article/233919

H. (2016, December 26). Steve Jobs full movie in HD in English. Retrieved February 07, 2017, from https://www.youtube.com/watch?v=aeYaOlhmXYk

Michelle Wilson Moore has been a grant administrator for a sate supported university for the past five years. Her background spans eighteen years in the financial sector. Her current interests include writing and teaching. She is also currently enrolled in the Masters of Entrepreneurship Degree Program at Western Carolina University. Webmasters and other article publishers are hereby granted article reproduction permission as long as this article in its entirety, author’s information, and any links remain intact. Copyright 2017 by Michelle Wilson Moore.

http://www.wisdom4wealth.com

Article Source: http://EzineArticles.com/expert/Michelle_W_Moore/2358063

The Four Steps to the Epiphany

The four steps to epiphany as described in Steve Blank’s book, The four steps to the epiphany: successful strategies for products that win are: Customer Discovery, Customer Validation, Customer Creation and Company Building. As I have been exploring the concept of the Customer Development Model, it boils down to identifying and developing a customer base while you are developing the product. These parallel lanes create a win-win situation for the startup.

Step 1 – Customer Discovery starts with locating the customers that buy into your solution for their problem.  It’s time to hit the streets and identify your repeat buyers. That does not just consist of surveying the land to see if there is an interest, but “Instead [being] out in the field listening, discovering how [the] customers worked and what their key problems were.”(Blank, 2013, p. 28) How often is the product or service shopped instead of shopping the problem and learning consumer behaviors?

Step 2 – Customer Validation is the GPS for sales and marketing. “The sales roadmap is the playbook of proven and repeatable sales process that has been field-tested by successfully selling the product to early customers.” NY Daily News reported that in 24 hours, pre-orders for the Apple iPhone 6 and 6 Plus set a new record at 4 million. The previous year, Apple sold 9 million in 3 days. They were almost at half with pre-orders for the new version. (2014)

Step 3 – Customer Creation is the foundation for your first sales. “Its goal is to create end-user demand and drive that demand into the company’s sales channel.” (pg. 29) Now you can pour dollars into marketing. But be mindful that the type of branding depends on your unique start-up. Marketing is not a cookie-cutter generic fit. It is determined by what type of market you are entering.

Step 4 – Company Building is where you move out of the “discovery-oriented team” into the “formal departments with VPs of Sales, Marketing and Business Development…with a focus on building mission-oriented department exploiting the company’s early market success.” (pg. 29) You have a firm footing and understanding of your niche; growth demands your executive assignments.

Daymond John, CEO of FUBU (FOR US BY US hip hop apparel) and Shark Tank Host, saw a popular style of wool hat being sold for $120. He sewed 90 that were similar and sold them for $10 each in front of a coliseum and made $800 that day. His mother invested $100,000; with the help of three friends for production and one popular rapper friend, LL Cool J, as spokesperson, FUBU now has over $6 billion in global sales. (Celebrity Net Worth) He started in the basement, built a following by believing “customers first” and then created an empire. Customer Discovery, Validation, Creation and Company Building at its best! Watch this video and be inspired!

https://www.youtube.com/watch?v=7yKHIc-RO8Q

RESOURCES

Blank, S. G. (2013). The four steps to the epiphany: successful strategies for products that win. California: Steve Blank

Daymond John Net Worth. (2016, October 02). Retrieved February 04, 2017, from http://www.celebritynetworth.com/richest-businessmen/ceos/daymond-john-net-worth/

Apple: iPhone 6 pre-order sales smash records. (2014, September 15). Retrieved February 04, 2017, from http://www.nydailynews.com/life-style/apple-iphone-6-pre-order-sales-smash-records-article-1.1940172