How much do you need to start? Here is Paul’s Answer

Zero dollars.

What “should be” the minimum??

Nothing. It takes nothing to start:

1. Do the Marketing about the industry, competitors, history, potential partners and investors. All that is freely available.
2. Start talking to hundreds of people about the idea, mission, and vision. Validate it. Not with “customers” but with everyone and anyone. Does a 13 year old understand it and think it’s a solid idea? No? Keep talking till you get that right.
3. Build an audience and community online. This is also free by the way, start some social media groups, stand up a landing page and get email subscribers. Go.

Total spent? Zero dollars.

Now, is it worth proceeding? It should be otherwise why would you do anything else?? You should now have confidence and clarity that any spend will be worthwhile.

What do you start with? Build a website. This could be free too, but may cost a bit. A few hundred dollars.

Use that to prove you can grow demand and carve out a market. Also free by the way.

Finally, clear you have something?? Incorporate, which does cost something, to protect it. And start building. Now we’re spending money, but you should be certain of an ROI (return on that) because you have an audience and clarity to who customers would be (and that they’ll pay).

Most founders don’t proceed this way.

90% of startups fail.

Don’t be most founders.

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Why Am I Posting this Here?

I’m posting it here because it’s a good answer to several related questions as well. Such as “how do I start my business with no money” and “what do I do with my business idea” and “how do I check whether my business idea is valid?“ Paul’s makes an important point that many of us who write about startups often miss: what you can do, with or without money, to move forward with a possibility. If you search my blog here and the larger collection of articles on the main bplans site, you’ll find posts on how to estimate starting costs, how to make money on your idea, how to evaluate a business idea, and related. This one is a different approach, well worth adding into the mix.

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Investors look at startup forecasts for concepts, not accuracy. When investors look at your projections, they are looking not for just the numbers, but essential insight into the knowledge, experience, and goals of the founders.

Important: you need to forecast to manage your business. Hard as it is to forecast, it’s much harder to run a business without forecasts. Forecasts become budgets and budgets become spending and you don’t have the luxury of not guessing. You go from guess to truth to revisions to management.

However, this post isn’t about that. It’s about what investors look for.

Investors look at startup forecast for insight

Here are some examples of the insight investors will take from a startup. Investors look at startup forecasts for what’s beneath the numbers. They answer some very important questions.

Do the founders understand the business? Do they know what’s realistic? For example, do they show reasonable and believable levels of, say, marketing expenses to sales, and profits to sales? Do they realize they’re going to wait months to get invoices paid? Do they understand the length of the sales cycle, and what web marketing costs? Do they know what a direct sales team costs? Do they understand margins through channels?

Do the founders understand about investors, exits, and returns? Raw revenue numbers give us a sense of scale and founder’s goals. There’s a big difference between a business trying to grow to $2M in five years and another trying to hit $50M. That’s important not so much for the raw numbers — many times the $2M one is even more likely to get to $2M than the $50M one — as for what it tells us about founders.

Unrealistic projections don’t convince investors to invest; they tip investors off to inexperience. For example, just yesterday I just looked at four business plans projecting 70%, 49%, 48%, and 34% profits to sales in five years. That’s absolutely absurd. Although all four of them show naivete and inexperience, the 34% projection is way better than the 70% projection.

True story: I was present at a presentation where the founder proclaimed, at the beginning, “everybody knows financial forecasts are just BS … so we don’t have one.” Every investor in the room stopped listening at that point. None of them was going to touch that deal, ever.

But there is a silver lining

And, finally, a silver lining: Some fellow investors would disagree with me, but I am quite sure that bad financials are not a reason not to invest in a startup that has the more important factors such as a good team, a strong market, some way to differentiate, and ability to scale. I’ve said several times, in group discussions, that bad financials are the easiest flaw to fix. It exposes a gap in the team, and a weakness; but it doesn’t mean rejection. That is, as long as the founders are willing to acknowledge, learn, and fill that gap.

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My answer:

As an entrepreneur without salary,

I built a business and supported my family at the same time by continuing to consult in the same field I was developing software for. That’s not unusual. I did not have the luxury of not making an income. When I started Palo Alto Software, we already had four kids and a mortgage. Not making money was not an option.

So that was a lot of work.

It was hard. But it’s what really happens most of the time … entrepreneurs do a lot of work on the side, in between, to build their business without the luxury of working full time for free.

Few investors want entrepreneurs without salaries

I expect founders to work without formal compensation only during the very earliest phases, because they have to. I expect that to be temporary. And when I invest in them, I want there to be enough money to pay them. I don’t believe entrepreneurs without salaries is a sustainable idea as they grow a business. People have lives. They need money.

I don’t like it when founders promise to work for free over any extended period. It doesn’t work. They burn out. They need jobs and income so they quit.

Remember the big myth

The myth I refer to above is that startup founders are supposed to work for free, and that investors want them to work for free, even as there is capital to work with. That’s just a myth. IMO.

Originally posted on Quora:

My answer above has generated half a million view, more than 1,500 votes, and 61 comments so far on Quora, the big question-and-answer site.

And, if you’re curious, check out the other answers to this same question. There are several dozen of them.

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Here is my list

1. Empathy. Understand what other people feel, think, and want. You’ll need it to understand your market, develop business offerings, work with employees, customers, social media, everything.
2. Cash flow. Don’t think you can stay financially above water just by selling something for more than it costs you to make it. You have to pay for overhead, fixed costs, employees, etc. You need working capital. If you do b2b you’ll have to finance receivables, waiting for your customers to pay you. If you sell products, you’ll have to buy inventory before you can sell things. And you also have to repay loans, keep up assets, and other stuff. Cash flow is vital. There’s a huge difference between fixed costs and variable costs. This stuff really matters.
3. Listening. An often-undervalued skill. It starts by not talking. And it takes a while to realize, but listening is absolutely essential to selling. The great salespeople listen first, then solve customers’ needs.
4. Dealing with mistakes. You can’t do this without making mistakes. Perfectionists drive themselves crazy. You have to learn from mistakes, analyze, record it in your mind where you can recover it on demand, and then put it away. Mistakes are like boxes on shelves, to be used only when necessary.
5. Sorting through options. You have to be able to understand what knobs you actually have to turn, sort through options, and come up with the best decision that’s actually available, executable, now.
6. Writing simply and clearly. Another often-undervalued skill. Entrepreneurship daily life is a parade of emails, memos, messaging, explanations, and vision.
7. Time management. So much to do, so little time. It’s about choosing the right things to do, when. Not just being busy.
8. Summarizing. You have to be able to start with putting things in the right context, so your listener is oriented. Then figure out what’s most important to the listener (see #1 above, empathy) and start with that.
9. Presenting ideas. Speaking in public, speaking to groups, influencers, social media, etc. Slide decks and presentations. You can’t live without it.
10. Letting go. Closely related to #4 above, dealing with mistakes. You have to stay fresh without assuming that what worked in the past still works, or that what didn’t work in the past doesn’t work in the present. Be able to sort through each new issue on its merits.

Note: the original question asked, on Quora, was “what are the top 10 entrepreneurship skills I should learn before I start my business?” This is my answer.

Wait, what? Nothing about sales?

Not exactly … but if you combine my #1 empathy with my #3 listening, and add in writing well, summarizing, and presenting ideas, you’ve got sales.

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But then I read the answer here, written by Bret Fox, former CEO of Touchstone Semiconductor, and now a CEO coach.

Here is Bret’s answer:

And the following is Bret Fox’s answer to how to pitch a startup idea by email, on Quora. Direct quote.

When I was feeling really desperate (a common occurrence when I was raising our initial funding), I would build up a list of potential investors I had no way of getting a warm introduction to.

You can learn how to develop a cold email that works too. Just follow these three steps:

Email Pitch Step 1: Narrow the Target

Step 1: The first thing I would do was make sure I was targeting people who were investing in our product area.

It seems obvious. But you’ve got no chance if you target a random group of VCs.

So do your homework and make sure the firm is investing in your business area, and you identify the partner that actually does investments in your business area. Oh, and make sure the firm invests in the stage of operation your company is at.

Email Pitch Step 2: Make your subject line to the point.

In our case, we were making Analog ICs. So my subject line was: Analog IC investment opportunity.

That’s it. You can’t trick people into opening your email. They’re either interested or not.

Email Pitch Step 3: Make your message short.

Introduce yourself and tell them what you’re doing. A key point is don’t try and sell the deal in the email.

You want to provide enough information to let them know what you’re about, but not so much that you’re trying to pitch in an email.. The goal is to get a meeting or a phone call.

So, I did something like this:

Hi Name,

My name is Brett Fox. I am the CEO of Touchstone Semiconductor.

Touchstone is a high-performance Analog IC company (think Linear and Maxim) that achieves profitability with minimal funding.

The founding team, including the design team, are alumni of Maxim. The designers average over 20 years of experience.

We have a term sheet from a very good VC on Sand Hill Road, and we are looking for an additional investor. Please let me know how you would like to proceed.

Best regards,

Brett Fox

Let me break this down for you, so you can understand what we were doing.

Each sentence had a purpose.

Each sentence had a purpose. The sentences in your cold email should as well.

The first sentence was introducing myself and the name of our company.

My name is Brett Fox. I am the CEO of Touchstone Semiconductor.

The second sentence explained what we did, how to think about our company, and how we were different in a meaningful way:

Touchstone is a high-performance Analog IC company (think Linear and Maxim) that achieves profitability with minimal funding.

The two companies I referenced, Linear and Maxim, were considered the two most successful companies in the Analog Semiconductor space. The reference to minimal funding addressed a concern that investors had about the costliness of investing in semiconductor companies.

The third sentence showed that the team was strong:

The founding team, including the design team, are alumni of Maxim. The designers average over 20 years of experience.

The final sentence explained where we were at in the fundraising process:

We have a term sheet from a very good VC on Sand Hill Road, and we are looking for an additional investor. Please let me know how you would like to proceed.

Already having one investor in the bag, especially a highly regarded VC, is a good thing.

So what were the results of this simple, to the point, email?

It worked.

We got meetings with this simple pitch. I think we had about a 20% success rate.

Now we didn’t get an investment with this approach (the traditional warm-introduction approach eventually did the trick), but that’s not the point.

The point is you can get meetings with cold emails. Target the right investors and be direct and you put yourself in play.

For more, read: The Nine Facts Of Fundraising You Need To Know – Brett J. Fox

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But here’s my more complete answer:

No, of course not. It is in no way a red flag for a founder to have a child while a startup is in the early stage.

This question assumes several common myths about entrepreneurship. None of these is true:

1. That entrepreneurs are more likely to be 18–25 than 25–50 (not true).
2. That entrepreneurs are supposed to ignore everything else in life in single-minded obsession on the business (not true).
3. That having a life is bad for business (not true).

Here’s a general reminder: building a business is supposed to make your life better, not worse. It’s business serves life, not life serves business.

True, many, maybe most, entrepreneurs work like hell for a while, especially at the beginning, seem obsessed, and sacrifice some other elements of life, temporarily. There’s no denying that. But most of those who do (I did) realize later on that having a life actually enhances your business, rather than detracts from it. People are more productive in 8-hour days than 14-hour days. People are more productive when they have the rest of their life, and their people, to provide balance. IMO.

The original came on Quora.com, the question-and-answer site. Here’s the link to that: Is it a red flag for a founder to have a child while a startup is still in an early stage?

Image by Neil Dodhia from Pixabay

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No, it’s not really the format, the pictures, or the design … although those help. Ugly, confused, or disjointed is never an advantage. But what makes a successful pitch in a pitch presentation to investors is not the cosmetics; it’s the content.

Question: Is there one unique piece I’d seen in a successful pitch that made angel investors immediately interested in a startup? No, not really. No one unique thing comes to mind. But here are five things that I’ve seen that make for a successful pitch. Important, but not unique.

1. A line chart showing very fast — geometric, viral, hockey-stick — growth in subscriptions to a SaaS or website product.
2. A strong expression of commitment from a powerful distributor, with guaranteed minimum sales.
3. Substantial non-dilutive funding from a government agency funding research and development.
4. Strong evidence (patent along with real-world validation by some credible sources) of innovative technology that makes disruption of a big market a reasonable hope, and will offer barriers to entry.
5. An unusually strong group of co-founders with known successes already and a good match of skills to what’s needed.

Note: this comes from one of my Quora answers: What is one thing you’ve seen in a pitch that makes you stand up and take notice?

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This could happen to me or to you

Melinda Emerson, a good friend, tells the story herself in her SmallBizChat podcast from earlier this month.

That it fooled Melinda is very impressive. She is as knowledgeable and sophisticated about small business ownership as anybody I know. She is best-selling author of small business advice, and true small business expert. She’s on the web, and in social media, as Small Biz Lady.

A fake cashier’s check?

What would you do? You have a cashier’s check that arrived via Fedex overnight. You took it to your bank and the bank cashed it. So you spend a part of it, as agreed with the sender.

A cashier’s check is like cash, right? An automatic assurance? That’s Melinda thought, and what I thought too. But no.

The bank took the cashier’s check and put the money into Melinda’s account. She’s a longstanding trusted client. And then she donated part of it to a fake charity. Why not? After all, a cashier’s check is like cash, right?

A week passed. Then it turned out that the cashier’s check was fraudulent. The bank took that money back. And meanwhile, Melinda’s donation disappeared into a fake charity out of the country. The bank apologized as it docked her account the amount of the cashier’s check. But what Melinda spent as quid pro quo charity donation had already disappeared. So she was plain out of luck. And out of a lot of money too.

They are targeting experts

It’s a very sophisticated small business fraud. It involves people in three countries, a fake cashier’s check, a fake charity, and several websites and related materials, all fake. Melinda of course reported it to the FBI and is now cooperating with an investigation that includes other victims, apparently many of them are experts, like Melinda, who write books, give webinars, post on blogs.

But they could be coming after you next. Expert or not. So be aware.

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In my email and on Quora I get a steady stream of questions about moving first to start a business. Today, specifically: “If LA is so expensive, why do people start a business there?”

And also today, what is the best country to start a business...?

To be fair, this may be a flaw in Quora, a question-and-answer site I frequent. They started paying people to ask questions that generate answers.

However, it’s also something that’s been coming up off and on for the four decades I’ve been involved with startups. Should I move to Silicon Valley? What are the best startup hubs? Is New York city a good place?

Myth and misunderstanding

What bugs me is that — at least in the US — the idea of the best location, or a better location, is so much myth and misunderstanding. You start your business where you are. That’s where you have a home, roots, contacts, vendors, and a sense of local market.

And furthermore, in the US, the Internet is everywhere. Phones, couriers, libraries and airports are everywhere. While there may be more investors in California and Washington than in Idaho and South Dakota, the off-the-hub startups get investment too, when they are good investments. A few years ago I met two young entrepreneurs located in the woods about an hour from Talkeetna, Alaska. They’d go months unable to reach even Talkeetna, which is a very small town, four hours from Anchorage. The two of them were running several websites and making tens of thousands of dollars monthly.

I can think of three general exceptions:

• Maybe you’re young, left home for college, and want to start your life somewhere else, a new home, not where you grew up. The catch here is that young people are the exception in startups. Research shows that the vast majority of successful startup founders are in their 30s or 40s.
• Maybe you aren’t young, but you do want to move. I get that. My wife and I moved from Mexico City to Palo Alto in our 30s, and from there to Eugene OR in our 40s. There’s nothing wrong with that. But that’s not moving because your location is better for business.
• Maybe you are in an exceptionally bad location. Generally the urban vs. rural trade-offs work reasonably well, but if you’re hours from an airport, or can’t get good broadband, then maybe your location is a disadvantage for your startup.

Otherwise, the best place to start a business is where you already are.

Think it through… have you ever moved?

Moving is a royal pain in the rear. It’s very hard to find a new place to live, home or apartment, especially from long distance. When you get there, you suddenly have to find a new bank, new restaurants, new stores, new organizations, new people. Nobody knows you. Your social structure is back to zero. Your business contacts, locally, are back to zero. It’s hard.

Starting a new business is also really hard. Doing it in an entirely new place makes it a lot harder.

The obvious conclusion

The best place to start a business is where you already are.

The post The Best Place to Start Your Business … appeared first on Planning, Startups, Stories.

Except that the work, the risk, and the money is what gives the business idea value.

So nowhere. The answer to your question about where is: nowhere. Business ideas have no value. Nobody owns them. A good idea is like a beautiful day: do something with it or shut up. Execute on the idea or let it go.

Wait, what? Why am I such a downer? Why discourage you? No, I’m encouraging you. Get to work. Get going. Get started. Give that idea value by doing the work to create something with it.

Start with a simple lean business plan. Set strategy, tactics, major milestones, metrics, and essential projections.

At the same time, start recruiting a team. Find people you trust with the skills you need. Get people who are different from you, not the same.

And don’t talk about the idea indiscriminately. Tell only people you need on the team, whom you trust. No bragging, no sharing, because the only way you protect your idea, for now, is to shut up. Ultimately, you protect your idea by building a business on top of it. And people will copy it if it’s successful. So get going, and stay ahead of them.

Please browse through the business ideas topic here on this blog. And search this site for business ideas.

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