Participating in the panel discussion were Amy Pressman (co-founder of Medallia), Carol Realini (founder of Obopay), and Wendy Lung (of IBM Venture Capital). Moderating the discussion was Sramana Mitra (founder of One Million by One Million).
As usual, I cannot hope to cover everything that was discussed in this very interesting and informative session, so I will try to touch on some of the topics/points, that really stood out to me.
- No one funds concepts anymore. There are no more VC term sheets based solely on a PowerPoint (or a white-board) presentation to be had. That means, a business has to make its bootstrapping dollars stretch to cover product development and even initial customer acquisition.
- Bootstrapping is healthy for the business. White we can bemoan the point above ad infinitum, the fact of the matter is that bootstrapping can force a young enterprise to stay narrowly focused on quality and on those things that add value. VC money can be a moral hazard! So easy to spend without any personal accountability. But when the money in play is that of the entrepreneur, his close friends and family, the purse strings stay tight, growth occurs when it is supported by infrastructure, and risks are minimized (as much as they can be in a startup).
- Contained growth. In fact, being forced to grow at a slower rate (one supported by the revenues) allows a fledgling company to "catch up" to its growth, building the infrastructure and maintaining the culture.
- Simple is better. An entrepreneur's life is hard enough, so whenever possible, the advice of the panelists was, simplify. If your business model can support bootstrapping, it is much simpler to operate without outside capital. The entrepreneur continues to control the board. The consensus required to get big things done is that of a smaller group. The pressures are different--a bootstrapping entrepreneur does not have to have an exit in 8 years.
Early Customer Acquisition
Since, as we said before, it is generally no longer possible to get funded based on a PowerPoint presentation alone, a company needs not just to develop a product, but to prove that there are customers willing to pay for it. The unavailability of funding early on places added significance on early customer acquisition. So what are some effective ways to get early customers?
- Alumni networks. Once you identify your ideal customers or the "lead users" for your industry (see a case study out of MIT for a discussion on lead users), look for relevant contacts in your alumni (or other) network.
- Customer input. It is essential to engage customers (or prospective customers) early, to take their input. (This is straight out of Steve Blank's The Four Steps to the Epiphany.)
- Listening. When you are an evangelist for your new product, there will be plenty of people who have something to say about it. Not all of it will be feedback that is pleasant to the ear; not all of it will be encouraging; and, importantly, not all of it will be constructive. You have to listen to all of it. And you have to filter, based on who the feedback is coming from, their experience, expertise, and credibility. Naturally, feedback from domain experts and customers is more valuable than feedback from your hair stylist. An entrepreneur must develop thick skin and be ready for rejection--entrepreneurship is not a popularity contest.
- Utilizing Channel Partners. Building channels is expensive. If you can build channel partnerships (like with IBM), your company valuation goes up. But beware--large channel partners can slow you down as well, as they don't operate in startup mode. It is very important to find stage-appropriate channel partners, starting with younger, more flexible companies to partner with.
- How much? When going out for investment capital, determine how much capital you need, then add a little on top because you are probably a little optimistic.
- It's a process. Getting funding is always painful, whether you are a first-time entrepreneur or a seasoned one. The difference is that you can become more efficient about it.
- Think outside the box. Sometimes the economy is such, or you are in the kind of market, that tradition VC capital funding is impossible. The trick is, not to get single-threaded about the funding process. Think of alternate funding methods and alternate investors. This can come in the form of institutional investors or channel partners. Stay persistent and creative.
It is a well-known fact that when it comes to building a business, it's not what you know, it's who you know. In today's world of information excess, the only way to get noticed is via introductions, and the only way to get relevant introductions, is to have a broad, active, and "well-networked" (for lack of a better term) network. How does one go about building a network?
- Follow up. Sometimes you think that an introduction to a particular person is going to be determinative, and then nothing comes of it. And at other times, you may get business or referrals or something else extremely valuable to you from someone you had not expected. So, as a rule, follow up with everyone. You never know who your most valuable connections may turn out to be.
- Meaningful Connection. It is not enough to swap business cards. We all know where those usually end up. You need to share about yourself--about your passion, your business, maybe something personal, that will stay with the person you are talking to. And, of course, you need to find out about them. Not in a way that's intrusive or obnoxious. Different people will have different comfort levels with sharing. But to the extent that they are willing to share, you should get them to talk and see if there is anything of value that you can offer.
- Know what you want. When you are utilizing your network, don't just ask for an introduction. Have specific questions. It's more genuine. And it will yield better results.
- No free lunch. This is kind of obvious, but no less important, all the same. You have to give something to get something. When you are networking, don't expect people to just give you business or referrals. Be proactive about offering something to them first (as a gesture of good will), whether access to your network or to information in your possession. Sometimes it's the thought (or the willingness to give) that counts more than what you've actually given.
Overall, this was a very frank and insightful discussion, with some amazing, smart, and very successful female entrepreneurs. I would like to thank the organizers for putting this together and the panelists and moderator for participating.
|Emergence Law Group, specializing in assisting emerging technology companies in Silicon Valley and beyond, provides incorporation, financing, and licensing services as well as general corporate counseling.|