With the economy hinting at a recovery, new business owners should learn that first priority is marketing, before they run out of money and/or patience.
Driven by a cautious return to normalcy in the markets, at long-last signs of life in the residential and commercial real estate markets, and most excitingly positive conditions in “Web 3.0” technologies like social networking, mobile gaming, and interactive advertising, the 2011 timeframe shows some real economic progress potential. This mini-boom as some are already calling it, however is fundamentally different from the one that drove the NASDAQ to absurd heights in the late 90’s leading to the DOT.COM bust, or even the “Web 2.0” social networking hype of 2006-2007.
1. Individual Investors, NOT Venture Capitalists, are Leading the Charge. So-called “super angels” – wealthy, technology-savvy high net worth individual investors – and NOT traditional venture capitalists, are now the preferred funding source for the most dynamic entrepreneurs in the hottest technology sectors. The reasons for this start with the fact that most VC’s are suffering from that awful business curse that they look for in industries ripe for new entrants – legacy costs. Quite simply, VCs have lost so much money for so long that they can only dig themselves out with massive investment wins.
This in turn requires them to put very large sums of money to work in companies with huge, – as in multi-billion dollar – potential exits. But the modern technology world is not built for this model of investing. Readily accessible, off-the shelf, open-source development tools COMBINED with the ability to launch a product extremely cheaply via creative social marketing, makes it easy to build a big-time technology company these days without a lot of money.
The result? Most of the highest Return on Investment opportunities need just a little seed or bridge money – sometimes just a few hundred thousand dollars or less – to “ignite” their business models. Any favorites? Entrepreneurs that identify over-looked market needs, and then utilize out-of-the box creativity to inexpensively develop and market products and services that address those needs. Straightforward, but of course not easy. But in a world of historically low interest rates, significant inflation risk entering our daily lives as we write this and a public stock market still trading on mostly a 10-year flat run, it is by far the best game in town.
2. Foreigners, maybe more than ever, are investing heavily in U.S. Technology Companies. Possibly best evidenced by the Russian investment firm Digital Sky Technologies and their investments in Facebook, Zynga, and Groupon, foreign investors more than ever before are placing bets on early-stage U.S. technology companies. This is driven by a number of factors, not the least of which is that the relative liquidity in the world has shifted radically away from the U.S. to the rest of the world.
As importantly, because of the rise of global social networking – Facebook now has more than 340 million non-U.S. members – overseas investors can now connect faster and find more transparency with deals and entrepreneurs than ever before. And these investors feel that they can be higher value-added. Both in terms of outsourced development assistance and because the very act of their investing serves as the kind of high-profile validation that used to be the domain of only the most prestigious American venture capital firms.
3. Exit Strategy. It used to be that investors and venture capitalists looked at a 3 to 5 year exit strategy but these days a quick and early exit is by far the desired and preferred outcome for both the entrepreneur and the investor. The dirty little secret of modern business is that the real money in entrepreneurship is made in SELLING a company, not running it. Today, the optimum financial strategy for most technology entrepreneurs is to raise money from angels and plan for an early exit to a large company in just a few years for under $30 million. That’s why investors look for companies with quick and early exit potential and with the smartest angels and foreign investors behind them.
It is natural to the type of business consultancy we’re in with SearchAmelia to often land involuntarily in the role of marketing and sometimes business advisor and I have to admit that it often scares me how many people put their savings, or, worse, take out loans from friends and family without the slightest clue of the formulation of a business plan. Yes, it is encouraging to see that the American Enterpreneural Spirit has lead to the incorporation of some 550,000 new business in the last month alone; my concern is however that statistically 90% of those businesses fail in the first 2 years.
Two reasons. One– Going after a Dream deeply under capitalized and Two: Flying by the Seat of their pants without a Business Plan, a Marketing Plan or a Back Up Plan.
I see too many new businesses take off with enthusiasm, but no allotment for marketing and advertising and even though the Internet has given us a very inexpensive targeted marketing alternative compared to the previous often exorbitant mass marketing options, spending your entire budget on operations, inventory and equipment, without consideration for marketing leads to failure.
Advice to the start up entrepreneur: With a start-up business, your first priority is always finding the optimal selling strategy. The optimal selling strategy is a combination of copy, media, and offer. Your job is to figure out – before you run out of money or patience – which particular advertising message works for you at what price and where. To do this effectively, you have to test all sorts of variables. But the three most important are copy, media, and offer. Everything else is secondary.