Entrepreneurs in the early, terrifying days, of starting a business often take out their credit card or open up their savings account to spend money on things that “might help” get their business off the ground.

Sometimes they spend money on office space, computers, software and advertising. Sometimes they hire programmers, graphic artists and sales professionals. Almost every first-time business owner believes they can buy a good business by buying what good businesses have.

Sometimes it’s a little bit true.

• Spending money on running some online ads that prove there’s a market for the product you plan to make is probably a good idea.
• Creating sales materials that you can take to your first potential customers and/or strategic partners can be a great move.

But spending money on anything that doesn’t literally turn into some kind of sale, purchase order or strategic relationship almost immediately is usually very unwise step for a startup.

This is particularly true if the “investment” being made is in a cost that recurs month after month after month. Fixed costs will bury a new business very quickly in debt they can never climb out from under.

As you begin your startup you have two jobs:

• Create a product or service people want.
• Find one or more customers who wants to buy that product or service.

Every other undertaking is a distraction.

Furthermore, your first product or service should be very, very, very simple. A single benefit that people really want delivered in the most efficient fashion possible.  Why is this a matter of survival?

• A startup has almost no marketing budget as a rule. If it takes more than a sentence to explain your chief benefit to your target customers, you have a product that is so complex you’ll have a hard time selling it at all.  Facebook was nothing more than a turnkey web page creator designed to meet the immediated needs of college students. Twitter made sending group text messages easy. Google delivered a searchable list of all the websites on the Internet.  Apple delivered a portable music player that could hold an entire music library. The initial value delivered by these giants was very easy to communicate and that was key to the success of their products and services.
• A startup has almost no development budget.  Most entrepreneurs can easily come up with one benefit they can deliver to customers quickly and cost effectively. When they rack their minds to come up with two, or three, or a full featured solution things get more complicated, more expensive, more difficult to talk about.

If you have a new startup, or your enterprise is struggling, take a moment to write down exactly what benefit your customers value (or should value) most about your business.

Make sure you have a website that effectively communicates that unique benefit, and that your Twitter, Facebook, LinkedIn messages convey that benefit as well.  Make sure you know exactly who your ideal customers are and where to find them.  Start approaching them and asking for their business as soon as possible. You’ll find that the quicker you get to market with a simple but great product, the better off you’ll be.

Now, before you move on with the rest of your day, take an hour or two and consider all last month’s expenditures. What costs can you eliminate? What money can you earn by just choosing not to spend it?  Your business can become much more profitable almost immediately if you can just eliminate unnecessary costs. Furthermore, you’ll find that when you stop investing money in an activities that aren’t paying off, you stop investing time in them as well.

Tip: One of the quickest ways for a business to reduce some of it’s largest costs is to visit MakeItCheaper.com.  They cut energy, phone and insurance costs for hundreds of businesses every day, sometimes saving their customers thousands of pounds a year. Check them out…

Related posts:

1. Practical Q&A With Doug Richard — Cambridge Starting & Growing a Successful Business Class
2. Practical Q&A With Doug Richard: Mentoring, Recruiting & Seeing Opportunities
3. Perfect Your Pitch with Doug Richard on June 21, 6:30 – 8PM! Join Us Online or Face to Face

Its a networking site where angels can meet entrepreneurs. But its core feature is a tool you can use to calculate the value of your startup in three years based on the characteristics of its team.  You tell it when your business was founded, how much money its made, how many of your team members are working for the business full time, whether or not you’ve taken outside investment, how much money you’ve invested so far, what industry you are in and a bunch other data and it runs a statistical analysis comparing you to other firms.  It then provides you with a valuation.

Is it accurate?  Of course not . . . in the sense that no prediction is accurate.  A startup is all about smart execution.  It is about doing the right things at the right times.  Exploiting your opportunities and making key decisions correctly over and over again will ultimately determine how successful you are.

That said, banks, venture captialists and savvy angel investors have used statistical models to predict a company’s success for decades.  While details matter, some factors in a start up are overwhelmingly important.

If your business is in an industry that doesn’t serve as fertile ground for startups, if your team members have never run a business before, if your startup builds no protectable intellectual property . . . then your valuation in three years will be low compared to a startup with great intellectual property protection,  in a startup friendly industry, founded by multiple partners with great track records.

Why should you bother to fill in YouNoodle’s form? Because you can figure out what factors will most improve your odds of a good valuation not just in terms of how investors see you, but in terms of how other companies perform statistically.  For example, you may find that a media company does better than an entertainment company.  You may find that adding a couple of partners with previous startup experience increases your anticipated three year valuation by a factor of ten.  You may discover that having older (or younger) people on your team skews results up substantially.

Have a look at YouNoodle.com and try out their startup predictor tool.  You’ll find it quite enlightening.

Related posts:

1. My Startup is Way Too Complex to Explain . . .
2. Naked Business: A Startup & A Small Business are Two Different Things
3. Crunchbase, a Key Networking Database for High-Tech Startups

Why was IBM Global Entrepreneur founded?

We know that working with startups can drive change. Today, the world’s physical systems are being infused with intelligence, and this opportunity to apply information technology to physical infrastructure opens up vast new markets for the IT industry.  With disruptive, new technologies, this is the perfect scenario for innovative entrepreneurs to play a major role.  With IBM’s unique vision of a Smarter Planet (ibm.com/smarterplanet/uk), we are looking to partner with technology entrepreneurs who share this vision and want to work together to address this new market opportunity.

What kinds of support do you offer to entrepreneurs?

IBM Global Entrepreneur has the products, people, and promotion that can help technology startups extend the size and reach of their company.  The initiative provides support and resources in the areas these startups need most:

1. Product
   • No charge access to IBM’s software portfolio on-site or through the cloud to accelerate software development
2. People
   • Dedicated technical enablement support to help startups develop their product and get to the marketplace faster.
   • Mentors at IBM SmartCamps around the world who can help them grow their business.
   • Industry market intelligence from our top industry experts that can help them understand the enterprise customer and the market opportunity.
3. Promotion
   • Visibility as part of the IBM Smarter Planet agenda to set themselves apart from the competition.
   • Recognition and additional benefits to partners with the most innovative solutions
   • Opportunity to showcase their company in the IBM Global Entrepreneur directory.

When was the initiative started and how many entrepreneurs have you helped?

IBM Global Entrepreneur launched on 31st March 2010, so is very new at the moment. Given this, we are at the stage of raising awareness of what we have to offer, and encouraging participation. We are doing this by engaging with individuals and organisations who are already well established in this community, and we are delighted that School for Startups is working with us as one of our ecosystem partners. Hundreds of startups have shown interest in our new initiative, and I am delighted with how enthusiastic people have been who I’ve spoken to about what we are doing.

How do entrepreneurs participate?

Startups who meet the eligibility criteria can register at ibm.com/isv/startup. On our application form we ask a few simple questions to help us understand a little about their companies, and once accepted they will be contacted by one of our Project Resource Managers (PRM). The assigned PRM will make a personal call  to welcome them, and will guide them through how they can make best us of the resources we provide on a one-to-one basis.

Startups can also apply to participate in our IBM SmartCamp London event which is taking place on 21st July at Imperial College London. SmartCamp is an exclusive event that brings together entrepreneurs, investors and experienced mentors who want to help us build a Smarter Planet. SmartCamp provides startups access to world-class advisors, plus a direct route to seed and venture capital. Applications for the London event can be made from now until 2nd July 2010.

What is your background and how did you come to IBM?

In 1987 IBM launched an integrated degree scheme with the University of Portsmouth, and I was one of the original intake to the scheme of 20 students. The initiative was pioneering as it was the first time in the UK that a company’s in-house training counted as credits towards a degree – a BSc in Computer Science. Our time was split on a weekly basis between our studies and doing a real job in IBM, so a very different model to a traditional sandwich course. The great thing was that we were paid a salary for the 3 years of the course, which certainly enhanced the experience!

Since graduating, I’ve performed a very diverse mixture of technical and business roles in IBM, both in the UK and across Europe. In 2005 I took on responsibility for establishing the IBM Academic Initiative (ibm.com/academicinitiative) across Europe, Middle East and Africa, and it was through this programme that I first started engaging with entrepreneurial students in the universities. I still look after this programme in the UK & Ireland, and am very excited about the new opportunities that leading the IBM Global Entrepreneur initiative is bringing. It is such an inspirational community of people to be collaborating with.

Is there a way entrepreneurs can learn more about the initiative online?

Our website is the best place to go to learn more: ibm.com/isv/startup

Additional information on IBM SmartCamp London can be found at ibm.com/ie/smarterplanet/smartcamp

Related posts:

1. Global Network for Entrepreneurs with Disabilities
2. Featured Entrepreneur: Kevin Matthew
3. Lead Forensics: Converting Clicks to Leads 24/7

Anyone who has attended my events or read my articles knows my aversion to entrepreneurs seeking outside funding for a project before its generating revenue on its own.  That even applies to social enterprises that have “good works” as well as good business in mind when they begin.  A social enterprise is not a charity . . .

That said, I’m very cognizant that many new business owners can’t turn even to family and friends these days to help defray expenses like a computer, photocopying or basic travel expenses.  I also understand how hard it is for new businesses to connect to the mentors and incubators that can help them launch correctly and well with support from peers.

That is why School for Startups has teamed up with UnLtd, the Foundation for Social Entrepreneurs, to make competitive Catalyst awards for up to £5,000 available to entrepreneurs pitching at School for Startups “Start Here! Starting & Growing a Successful Business” events across the UK.  These awards to individuals are designed to help them grow an entrepreneurial idea into a self-sustaining enterprise that creates positive social change.

To see if you are eligible to apply for a Catalyst award, please click here.

To apply, please click here and complete the online application form.   Please quote as a reference on the field ‘Project Name’ S4S/[ event you are attending] i.e. Leicester/London/Brighton/Cambridge along with the name of the project if you have one.

For more information about this program and others than can help out new entrepreneurs, check out our Funding for Startups page.

UnLtd and School for Startups financial awards come with additional support and mentoring designed to help social enterprises get off to the best possible start.

Practical help from experienced entrepreneurs delivered at exactly the right time can help a new social enterprise get off to the best possible start. Real help, rather than expensive loans or investment with long strings attached, is hard to find.  School for Startups is glad to be part of a program that provides practical assistance to the nascent superheros we call social entrepreneurs.

Related posts:

1. UnLtd Award Programmes in collaboration with School for Startups
2. UnLtd
3. Having Trouble Starting Your Social Enterprise? Here’s Where to Get Good Help Fast . . .

The 4 Ps?

Product, Price, Promotion, Place, the Four P’s that historically have defined marketing operations have long been a road map for businesses who want to bring a product to market.

• Develop a product that packages a set of features and benefits
• Determine the proper price for that product
• Decide how to promote it
• Determine how to distribute it.

That’s how you market a product. At least it used to be.

For many businesses the traditional interpretation of the 4 P’s is is misleading at best and toxic at worst.  Online games and iphone apps, open source software and social networking sites blur the line between promotion and product.  Grocery stores now take orders online for home delivery. Print shops let you upload documents that are subsequently printed and couriered to clients. Many schools now consist of students and faculty that never meet face to face. Aren’t we all Internet businesses these days?

Understanding What Has Changed . . .

The reality is that over the last decade the process by which products are brought to market has changed radically and many otherwise competent business professionals are still struggling to cope with new realities.

For example, many software startups still identify their product as being a long series of specific features that let the customer achieve a given set of objectives.   When you ask these businesses to add a form that lets someone invite a friend to use the application, or to create a Facebook widget that lets the product communicate with customers through their favorite social network, these developers say “We need to work on core features first.  Lets save that for Version 2.”

• They see all “code” as a component of the “product”.
• They don’t understand that they, like everyone else in the market, must create the code required to connect their product to customers and their customers to one another.
• They don’t understand that they never get a version 2 if they haven’t integrated their product or service into its marketplace by creating the necessary code.
• They seem to believe, despite the fact that they have no customers and usually haven’t done much in the way of classic marketing research, that they know what the customer wants and it is embodied in their feature list.

The last decade of software successes demonstrates that this is “flawed” thinking. Twitter does one thing very well and everyone that uses it invites others to use it.  There is no clear division between the Twitter service and its methodology. Facebook, Linkedin, Google, Magento, and many other very successful businesses have discovered the same solution.

More traditional businesses face other cognitive challenges.

• Brick and Mortar companies believe they have a “core business” which may be anything from producing cast iron pots to selling accounting services.
• They use the web for this thing called “marketing” which is seen as an auxilliary operation they undertake in order to increase product sales.
• Annually, or quarterly, the marketing budget is calculated. Some money is spent on advertising, some is spent on the website, some is spend on bulk mail. There is no adherence to any kind of specific strategy or methodology for this development which is considered “marketing”. Companies still think in terms of campaigns.

These businesses do not see the Internet and other communication connectivity as a necessary core element to their product or service because they do not see themselves as a “software” or “internet” company. Over the last fifteen years, Amazon, Lulu, Netflix and Ebay are just a few of the businesses that have re-envisioned traditionally brick and mortar businesses leveraging new communication options.

There is a new road map for bring products and services to market because what businesses are now expected to sell is a good “customer experience” that extends all the way from presales, to product adoption, to long term use.  Actually, businesses have always been in the business of selling “good customer experiences” it is just that these days that requires that elements of “marketing” and “software development” be incorporated into almost every successful widely-adopted product or service.

Ship Early, Ship a Little, Ship Fast

Given the changes in how products are developed, priced, promoted and distributed, there has been a concurrent change to how most enterpreneurs should launch their businesses.

• Create a very stripped down version of your product or service with a very small number of features, maybe even just one really great feature.  Ceate all the code required to connect this product or service to its target market.
• Launch the product aggressively, so people who need the tool can find it and share it with friends.
• Wait for the “wall of sound” that comes as customers adopt the product and begin providing feedback. Release new versions of the product based on what actual customers want from the product rather than what they imagine the “ideal feature set” to be.

This methodology for bringing a product to market offers many advantages over more traditional strategies.

• It allows startups and small businesses to start their business with a minimum of debt or outside investment and in a relatively short period of time.  The objective is to create a very elegant, very useful, very simple solution to a given customer problem.
• It lets them leverage the Internet for solution distribution at a minimum cost and for a minimum purchase price at a reasonable profit.
• It lets them refine the product over time based on feedback from paying customers.

The Ship Early, Ship Little, Ship Fast methodology works for almost any new product or service because it jetisons an antiquated understanding of what a product is, how it is promoted and how it will be delivered.

Related posts:

1. Sell Your Products & Services with Advantages Not Features
2. What Businesses Will Be Worrying About Next Year
3. Great Marketing: Promote Just One Great Feature of Your Product or Service

Following the huge success of our seminars around the UK, Doug and the School for Startups team are returning to The Royal Institution. This must-attend event is for aspiring social/ethical entrepreneurs as well as existing small social/ethical businesses wishing to grow and become more successful and sustainable.

“Growing a Successful Social Enterprise” is hosted by Doug Richard and comprises two main sections, followed by a 1 hour live S4Stv ‘entrepreneurial surgery’. As an attendee you will have the opportunity to interact with Doug and our impressive panel of guest speakers including Uday Thakkar of Red Ochre, Antony Ross of Bridges Ventures, Jonathan Jenkins of UnLtd and Julie Devonshire of ONE.

At “Growing a Successful Social Enterprise” you will learn 20 key questions every social entrepreneur must be able to address:

• What type of social enterprise are you?
• How does a social enterprise get the capital investment it needs?
• Who is your target market?
• What is your industry and what are its characteristics?
• etc.

Don’t miss the chance to learn from highly successful and foremost experts and join Doug and his special guests for a seminar guaranteed to help prepare you on the road to successful social entrepreneurship.

Who should attend?

• Owners & managers of growing social/ethical businesses
• People thinking about starting a social/ethical business
• People interested in learning about social/ethical enterprise

What’s included?

• 6 hours of business tuition with one of the UK’s leading entrepreneurs
• Business resource information from various participating social / ethical organisations
• Access to online resources and materials, including membership of VentureNavigator
• Accreditation as a Graduate of School for Startups (web-badge)
• Free refreshments throughout the afternoon, followed by an evening drinks reception

Where?

The Royal Institution
21 Albemarle Street
W1S 4BS London
United Kingdom

When?

Tuesday, January 19, 2010 from 12:00 PM – 8:30 PM (GMT)

TICKET INFORMATION

• Online bookings policy – We only accept online bookings with a credit or debit card.
• Unfortunately we do not issue invoices for future payment or allow attendees to pay on the day.
• Anyone who has not paid for their ticket in full before the event will not be granted access.
• Refunds and changes to ticket details policy – Unfortunately we cannot offer refunds or change the name on the booking once tickets have been booked.

AGENDA

Summary:

• Registration Starts: 12:00hrs
• Event Starts: 13:00hrs
• Event Ends: 20:30HRS

12:00-13:00
Registration

13:00-14:15
Introduction by Doug Richard
The core principles of starting a successful social enterprise
and the key 20 questions to ensure success
Introducing Carole Ann of The Real Coaching Co and coaching opportunities

14:15-14:30
Showcase One: Featured Entrepreneur

14:30 – 15:00
Joint session Doug Richard and Uday Thakker, Founder of Red Ochre
What type of social enterprise are you?

15:00 – 15:15
Julie Devonshire – Presents the story of ONE
A thoroughly successful social enterprise

15:15 – 15:30
Showcase Two: Featured Entrepreneur

15:30 – 16:00
Break

16:00 – 16:45
Doug Richard: Social Enterprise and Investment
How does a social enterprise get the capital investment it needs

16:45 – 17:15
Interactive Panel Discussion: Doug Richard, Antony Ross of Bridges Ventures
& Jonathan Jenkins of UnLtd
How to source & secure early stage funding & what investors look for

17:15 – 17:30
Showcase Three: Featured Entrepreneur
With Doug, Antony & Jonathan

17:30 – 17:45
Showcase Four: Featured Entrepreneur
With Doug Antony & Jonathan

17:45 – 18:00
Wrap up

18:00 – 18:30
Break

18:30 – 19:30

S4Stv Live Web Broadcast:

Doug Richard & Antony Ross, Featuring Social Entrepreneurs
Interactive coaching sessions hosted by Doug Richard & Anthony Ross in the form of ‘entrepreneurial surgeries’ where pre-qualified social entrepreneurs will have the opportunity to discuss and promote their businesses. Delegates attending the live event will have the opportunity to participate in the interactive discussions with Doug and our guest expert panellist as international online viewers contribute their ideas via the live chat-room & #S4Stv Twitter feed.

19:30 – 20:30
Networking

School for Startups are proud to present The Royal Institution as our official strategic event partner.

About the Royal Institution of Great Britain

The Royal Institution is the leading science based community delivering balanced, relevant understanding of science and technology and its impact on our rapidly changing world. As an independent charity, it is dedicated to increasing knowledge, excitement and involvement in science and technology for current and future generations. www.rigb.org

Related posts:

1. Growing a Successful Social Enterprise
2. Start Here! STARTING & GROWING A SUCCESSFUL BUSINESS
3. What is a Social Enterprise? Not Another Word for Charity or Non-Profit . . .

Nov 01, 2009 – (London, UK) In preparing to speak at an 18 November “Find, Pitch and Close: The Art of Securing Investment” event to be held at the Royal Institution in London, Dragons Den investor and serial entrepreneur, Doug Richard has been researching start up and small business funding options in the UK. He has begun sharing his insights into the industry with visitors to his blog at www.schoolforstartups.co.uk.

“When I wrote the report for the Conservative Party on small business support and its effectiveness or ineffectiveness I was struck by the number of bottom feeders in the marketplace who make their money by preying on insecure and inexperienced entrepreneurs,” Richard writes. “Just to be clear . . . start-ups should not be charged to pitch their businesses to angel investors. . . . Corporate financiers do not make their money on [upfront] fees but by taking a percentage of the money raised.” In summary, Richard says entrepreneurs must differentiate between “corporate finance, angel group investing and rip-off artists.”

Since 2008, Doug’s School for Startups has been providing accelerated instruction to UK entrepreneurs.   His 1-day courses have included “Start Here! Starting and Growing a Successful Business”, “Fast Growth Marketing” and “Six Rules for Startups”. On 18 November, together with O2, Doug will be speaking to several hundred UK entrepreneurs at the Royal Institution about how to raise funds to develop and grow small to medium sized enterprises.   Topics covered in the one day course will include how to know when a business is ready for money, how to know how much money is required, where to find investors, secrets for increasing company value, and three things to avoid in any investment.

Speaking about the ongoing series of blogs about investing, Doug says, “My customers are all UK entrepreneurs and my blogs are a record of my investigation into the funding market they face in these turbulent times.  While I’m in no position to govern who my customers give their money to when they look for funding, I’m definitely in a position to tell them that, in my experience, reputable, honest, effective angels don’t make you pay to pitch them. And real angels and real financiers document their successes very publicly.  Look for their track record of success.  If you can’t find it, think twice.”

To read Richard’s current and future blogs about investment and small business finance, to learn more about his accelerated online and face to face training in starting and running successful businesses, go to www.schoolforstartups.co.uk.  You can also follow Doug Richard via twitter @s4startups and @s4stv.

About School for Startups:

School for Startups was started by Doug Richard in 2008 to provide accelerated instruction to entrepreneurs.  His one-day classes cover how to start a business, how to grow a business, how to seek financing, how to build an effective management time, and how to design great products and services. School for Startups provides on going support and services to its students. Visit our site at  www.schoolforstartups.co.uk.

About the Royal Institution:

The Royal Institution is an independent charity dedicated to connecting people with the world of science. We’re an events space, a museum and a place to eat and drink. But we’re more than that as well. We’re also a philanthropic organization that has been actively supporting many of the world’s leading scientists, engineers and entrepreneurs for more than 200 years.  For more information on all that we do, please visit www.rigb.org.

About O2 UK :
Telefónica O2 UK Limited is a leading communications company for consumers and businesses in the UK, with 20.7 million mobile customers and 457,000 fixed broadband customers as of 30 June 2009. Telefónica O2 UK Limited is part of Telefónica Europe plc which is a business division of Telefónica S.A. and which owns O2 in the UK, Ireland, Slovakia, Germany and the Czech Republic, and has 46 million customers.

O2’s UK mobile network covers 99% of the UK’s population. O2’s 3G network covers over 80% of the UK population and is fully HSDPA-enabled, providing speeds of up to 3.6 Mbps for customers with an HSDPA-enabled device.

O2 was ranked highest in customer satisfaction for both UK mobile and fixed broadband customers according to the J.D. Power and Associates UK Mobile and Fixed Broadband Studies 2009.  For more information on O2, please visit www.o2.co.uk.

Contact:
Nicola Coleman
School for Start-Ups
Wellington House, East Road
Cambridge
CB1 1BH
+44 (0) 7702 313 226
www.schoolforstartups.co.uk
info@schoolforstartups.co.uk

Related posts:

1. UK Startups Get Accelerated Training in How to Find Investors from Doug Richard at The Royal Institution of Great Britain
2. Doug Richard to Instruct & Mentor UK Writers, Artists, Filmmakers & Other Creative Professionals for 1 Year
3. Sex, Lies and the Bottom Feeders of the Angel Community

The defense these networks make is two-fold: that they provide support before the event and that they are really corporate finance specialists. As I mentioned in Part 1 of this series, I will only believe an entities’ assertions, implicit or explicit, that they are serving the corporate finance role, if, when they present themselves to the public (ie their website) they show the tombstones of prior deals. Tombstones, as you may recall, are the list of their prior funding successes which would be in their self interest to promote to persuade new potential customers to work with them. Of course if their hit rate of prior funding successes were very low they would be inclined not to be so transparent as it would put entrepreneurs off from paying them a fee. It is, to me, the bellwether indicator: are they bragging about success or hiding failure?

An example of a worthy angel network is Pi Capital run by David Giampaolo. Pi Capital does not take a fee from the entrepreneur because Giampaolo views it as an inherent conflict of interest.  (www.picapital.co.uk) Not surprisingly, Pi is quite candid about their successes. More to the point it serves as a reminder that there are business models for intermediaries to run a successful business marrying angels and opportunities without charging the entrepreneurs.

Getting back to my original point though that angel networks provide essential training is also bordering on a scam. By tying the preparation to the money raising they are of course claiming that everyone needs it which is absurd and that their pricing because it is bundled cannot be directly compared to the same type of service provided elsewhere. Tying is the oldest game in the book. After all, if a company comes to one of these networks and despite preparation is still not investment ready, what do they do then? Not present them? They’ve taken their money…Welcome to the conflict of interest.

But of course this is the state of business support in the UK. We have firms charging to help young startups write their business plan. In fact they write their business plan for them. This is the antithesis of everything we believe at S4S. The entire point of a business plan is to document your thinking, analysis and efforts to discover in the real world your business proposition and model and cogently describe that to potential investors and partners. What possible purpose is served having someone write it for you? It’s like outsourcing childbirth or an orgasm or your birthday. It’s yours. It cannot be done by someone else. Even if you want to.

I am particularly galled by organizations that have managed to win contracts from RDA’s to help companies write their business plans. I know this happens because the unfortunate wretches end up on my doorstep, formulaic business plan in hand, clutched totemically in front of them as though, like a voodoo doll, it will ward off my evil questions.

Providers of such services may very well assert that startups need a great deal of help figuring out how to put their business plan together. I agree.

I agree, that is, if they mean that new entrepreneurs need help figuring out whether their idea makes a viable business and what sort of business it will make.

I agree if it means determining their capital needs and what sort of return that capital will make.

I agree if it means determining their pricing models and whether those prices support the sort of infrastructure their business will need to prosper,

Then sure they need help.  In fact, I agree so much I started School for Startups. What we are talking about is the need for entrepreneurs to be able to answer the key questions that will shape their business.

If they want to write all of their conclusions down in one place and neatly format it, then I guess they’ve got themselves a business plan.  But they could post it on a blog, or just get started on the business and that would make me just as happy. S4S is about teaching people what questions need to be answered and how to make sense of the answers they discover. It’s about being creative and realizing that businesses can take any form and that there are no limits. It’s not about writing the damn business plan.

But what about the business plan writing service that charges £1,000 and does the whole thing? Who is doing what for whom? Is this service going to run the business as well? Would any investor take any entrepreneur seriously who showed up with an outsourced business plan? Most professional investors have a dislike for corporate financiers because of the added fees and the implication that the company cannot present itself.  It doesn’t mean they won’t sometimes use them, but there is an underlying assumption that more due diligence needs to be done to ensure the company was not using the intermediary as a crutch to prop up their own failings.

If you are a startup you must realize that if it’s too good to be true, then it’s too good to be true. People will want your money, what little you have, and will say or do anything to get it.

Other articles on this site detail what I expect from an angel investor and how you the entrepreneur can spot a good one and a real one. Meanwhile if you have had a bad experience with a firm offering to write your business plan, let me know at info@schoolforstartups.co.uk.

Related posts:

1. The Price of Money Part 4: Say No, No, No, No Till Your Tongue Bleeds
2. Sex, Lies and the Bottom Feeders of the Angel Community
3. Living Without Air: Ship Early, Ship Little, Ship Fast

“Why it’s wrong to charge startups to pitch =========== I’ve been in the startup scene since 1994 and in those 15 years I’ve met, interviewed — and in some cases, pitched — the most powerful investors in technology. None of them have ever charged me a dime for doing so. Why? BECAUSE THEY ARE RICH!”  (http://calacanis.com/2009/10/09/why-startups-shouldnt-have-to-pay-to-pitch-angel-investors/).

Just to be clear, I completely agree with Jason, start-ups should not be charged to pitch their businesses to angel investors. What struck me about Jason’s very strident blog is how astonished he seemed to be that such un-ethical activity existed and, secondarily, I am quite sure that he is wrong about why they should not charge. It is not because they are rich, but rather because they have all the bargaining power and further, if they are indeed actually angel investors then it is not in their self-interest.

Money is in scarce supply and it creates a very imbalanced marketplace. Charging entrepreneurs to pitch merely because they can is not an adequate reason to do so. Moreover most angel groups that actually want to create successful investments know that it is not in their self interest. When I started the Cambridge Angels (http://cambridgeangels.angelgroups.net/) with Robert Sansom in 2001 we took the decision to only charge the other Angels and never to charge the entrepreneurs at all. This extended well beyond a pitching fee. Our reasoning then was that many start-ups had good ideas but no money and we would be arbitrarily denying ourselves valid opportunities because they lacked the very thing we were in a position to commit: money. Second, that if we indeed took money it would be difficult to turn away the opposite entrepreneurs: those with bad ideas and enough cash to pay a fee.

As it turns out, the commentary surrounding Calacanis’ blog supports our decision back then with one ex-employee of Keiretsu Forum describing the business as follows,

“Keiretsu recruited me directly out of college, yet I only worked for the company for about [REMOVED] months: the amount of time, I suppose, that it takes a reasonable and ethical person to come to terms with the reality of this scam…. These networks charge because they have to. They know that they have their business model upside down; I know that they know this because that was the first input that I offered to the head of one of the largest branches….Why didn’t Keiretsu charge the investor? Because no investor was willing to pay to be a member. While they say that they have membership dues (and other branches may very well collect them), I watched as a full year’s worth of membership dues went uncollected for the branch where I worked. When I asked multiple Keiretsu investors (off the record) what was up, they explained that, if they were charged even a cent, they would simply terminate their membership. And why was this the case? 3) Because Keiretsu attracted sub-par entrepreneurs, of course. For the exact reasons that you described. The goal, in any given month, was to have five entrepreneurs pitch, yet it was a rare month where we could dig up that many who were willing to pay Keiretsu’s fees ($7,500 to pitch at all four regional locations). So, in reality, we were essentially accepting anyone who was willing to pay.” (http://calacanis.com/2009/10/13/and-now-some-smoking-guns-or-part-two-of-angels-that-charge/)

I note with interest that Keiretsu Forums who have received much of the negative publicity in the US also apparently have a London chapter (http://keiretsuforum.com/frontend/ManageChapterSection.aspx?Page=Welcome&ChapterID=9) which is fascinating as I had never even heard of them prior to this controversy. I have sent them an email asking if they charge in London as well. I shall await their response.

One other UK group that was highlighted on the Calacanis site is Angels Den (http://www.angelsden.co.uk/) who apparently charge £800 to present. (http://calacanis.com/2009/10/09/why-startups-shouldnt-have-to-pay-to-pitch-angel-investors/)  Bill Morrow, the founder of Angels Den has vigorously defended his right to charge. He was quoted in the Guardian as saying,

“The base assertion that if you’re an angel, you should not be charging people to see you, is quite correct,” he said. “But there really has to be a distinction between those companies who actually have the capital and companies, like ours, who introduce you to people with the capital.”

“For £800 we help you write your business review, we spend half an hour on the phone with you, meet you, give you pitch training,” he added. “I’m happy to stand up and say that we genuinely believe that it’s a service for both sides – before we started the training or help you with a business plan, nobody’s getting funded.”  Asked whether it was fair to take a potential portion of funding away from young companies, Morrow said it was normal practice for European investment networks to do this – in fact, he said, many of his competitors demand much more for their services.  ”We’re slightly bemused that he [Calacanis] has chosen us, as we are by far and away the cheapest,” he said. “We’re the largest player, we’ve got the largest number of angels and we’ve got the most activity in the marketplace – but we’re also the cheapest. The number two charges £15,000 to pitch, a 5% success fee and then a 3% equity stake. The next biggest player charges £7,000 and charges a 5% fee.” (http://www.guardian.co.uk/technology/2009/oct/13/angelsden-funding)

Bill makes an interesting point but one that needs clarifying. But first I do not agree with him that prior to Angels Den nobody was getting funded. That is plain silly. Further I do not think that a 30 minute phone call and help with writing a business review is what separates the fundable from the unfundable. The final point I disagree with is that it is normal practice for angel networks to charge. Cambridge Angels don’t and have raised millions of pounds from its members and friends over its 8 years of existence.

In deference to Bill though, he does make a serious point. He is essentially differentiating between three activities: corporate finance, angel group investing and rip-off artists. In the first group are organizations that have rolodexes of people with money and who charge entrepreneurs to raise money from those networks. Corporate financiers usually charge a fee and a percentage of the money raised, just as Bill at Angels Den does. So to the extent Angels Den is essentially a boutique corporate finance house with a network of high net worth individuals then his business practices are no more or less legitimate than any of the other corporate finance houses.

But there are differences. Corporate financiers do not make their money on their fees, they make their money on the percentage they get of the money raised. And the “book” that they prepare is a time consuming, very professional document that is created to show the company in its best light and to also preserve the reputation of the corporate financier who is as worried about maintaining his money relationships as he is about any given entrepreneur. The evidence of their success is seen in the wall of tombstones that every corporate financier has on their site (See http://www.gpbullhound.com/trans.php or  http://www.cobaltcf.com/index1.php?page=track for examples). Their ability to raise money (or sell or buy businesses) is transparent.

Angels Den does not have that transparency. There are some case studies on the site but every money raising is not listed on the site. Given how radical a departure that is from customary practice it leaves one wondering how much money has been raised? How successful have they been? It is easy enough to remedy. If Angels Den is to be regarded as a proper corporate finance house then it should probably present itself as one and be very transparent about their successes to date.

I do not know who he is referring to who charges £15,000 or $7,000 for the right to pitch but I would assert on those numbers alone that they fall squarely into the third group: rip off artists.

I started this post noting that what astonished me about Jason’s post was how astonished he was. I am not. When I wrote the report for the Conservative Party on small business support and its effectiveness or ineffectiveness (http://www.bl.uk/bipc/pdfs/richardreport2008.pdf) I was struck by the number of bottom feeders in the marketplace who make their money by preying on insecure and inexperienced entrepreneurs.  If you know of, or encounter, businesses that engage in this practice, I hope you will let me know at info@schoolforstartups.co.uk.

Related posts:

1. What Angel Investing & 1 Night Stands Have In Common
2. UK Startups are Prey for Rip Off Artists Disguised as Angel Groups & Financiers, says Doug Richard
3. The Price of Money (At Least You Can Eat Catfish)

In his speech last week at Thomson Reuters, George Osborne asserted that there are two issues holding back UK business: credit and confidence. I could not agree more. Whilst he did not touch on what he might do about confidence, I think that in the context of existing small businesses and potential startups, the best way to increase confidence is to reduce real risk. And we can decrease risk by improving the skills of our entrepreneurs so that they make fewer mistakes. Its about education.

As for credit, well, that’s another kettle of fish entirely. Anecdotally there is no doubt that it is more difficult for small and young businesses to get commercial credit, ie loans. Mind you it has alway been difficult and probably rightly so. Commercial and retail banks (the kind that take deposits and lend it back out using the spread to make a profit) have historically been conservative lenders because the margin of profit has been slim. Working on a spread of less than 10% they cannot afford for loans to go bad, or if they do, for there to be no way to recover their money.

Thus, they have historically been asset-backed lenders; that is they have always looked for assets worth the value of the loan to secure the loan in case it went bad. That could be machinery in the business, or your family home and a personal guarantee. I have never had a problem with this given how little they make on the money they lend. But it does make commercial lending inappropriate for young businesses, most high tech businesses and many small businesses without hard assets.

The logic of the Small Firm Loan Guarantee Scheme (SFLGS) which was recently renamed the Enterprise Finance Guarantee (EFG) has always been sound: if a firm could show that it could service a debt the government would step in and provide up to 75% of the asset backing, thus broadening commercial lending to those firms that were cash flow positive or could become cash flow positive, but did not have adequate assets to support the loan.

It is a shame then that the banks have used the EFG primarily to reduce their risk to lend to firms that they would otherwise have already lent to rather than broaden the scope as the scheme was intended. How do I know? Because I have repeatedly sent companies I have invested in, or mentored, in pursuit of loans and in each case the banks involved have always looked for the firm to have assets or guarantees that covered not only the 25% of the loan that was at risk, but the 75% that was not at risk. They justify this on the grounds that they “do not want to have to go to the government after the other 75%.” Meaning, in simple English, that they want the firm to have precisely the same lendability criteria it would have if the scheme didn’t exist!

Thus, when George Osborne calls for a national guarantee scheme, I begin to think that we are merely reducing the risk of the current portfolios of the banks. Perhaps we should look for remedies that don’t involve the banks at all. Perhaps we should be looking for means of encouraging people to directly invest or lend to small or young businesses. What we shoulld do and how we should do it is for another post but I will say one thing. From the front lines, it is perfectly clear that these schemes, under their old name or under their new name should be called RBR Scheme, because Reducing the Banks Risk, is all they really do.

I am holding a full day workshop on November 18th in London at the Royal Institution. It’s called Find, Pitch & Close: The Art of Securing Investment. In addition to looking at the various government schemes that work (or don’t), we will be working through the ways you can really raise money, and what you will have to do to get it. If you are interested, just go here to sign up:  http://findpitchclose-blog1026.eventbrite.com.

Related posts:

1. A Plague On Both Their Houses: Mandelson vs Lambert
2. Small business e-commerce scheme launched
3. Sex, Lies and the Bottom Feeders of the Angel Community