Start Here

Not every startup fits the popular Silicon Valley “We’re going to be a billion dollar tech company” model. In fact, the vast majority don’t. But, most of the startup literature (hence startup advice) assumes you want to hit that $B mark.

I understand.

Starting a small local business is much different than starting a billion dollar tech company — or something in between. Before you start, it is reasonable for you to know what to expect.

Photo by John Baker on Unsplash.

We’ll set some baseline expectations by considering two factors: your startup’s Scale and its Stage. Start here to scope your kind of startup and learn what you should expect.

Scale

Are you planning to start a small business, defined as self employment or a relatively local (or regional) business? Or, are you planning a large venture that will scale nationally or globally?

This is an important distinction, for two reasons.

First, only large ventures can provide enough return to appeal to angel investors and venture capitalists (and even then, only a small percentage will be funded). Yes, I know you can argue that some small businesses receive something that looks like angel investment, but those investments are typically just a form of friends and family investment. True angel investors who make a seed or early stage investment expect the venture to continue on to a Series A investment to finance going big. Let’s put a number to this. For investment, you should be working in a market capable of generating at least hundreds of millions of dollars per year.

Second, the team you will need to put into place will be substantially different. A small local business might get by with good old Uncle Billy helping with sales, but a global venture requires an experienced, seasoned industry expert. The same holds true for other positions — marketing, finance, operations, HR, etc. Sorry Uncle Billy.

Stage

Let’s be frank about where your business “is” right now.

Do you have a business idea, but haven’t yet established much or any traction for it? Have you already demonstrated significant customer traction for your idea — and are ready to kick it into higher gear? Have you demonstrated traction and also have a strong team in place for that jump to high gear?

Knowing the difference is important.

Without customer traction, you aren’t a candidate for either investment or bank financing. Banks simply want to be paid back — if you aren’t selling, you can’t do that. Investors want an even higher return. Often, new entrepreneurs think, “I’ll go get some investment and use that money to develop some traction. That’s why they invest, right — to get us entrepreneurs started?” Sounds great, but it is totally backwards. Investors want to see traction before they invest.

A quick aside about customer traction.

Traction can be defined as proof that customers will buy your product. The best traction is sales [obviously] — the more the better. Those purchases need to be from strangers, not from your mom or your friends. You may not be in a position to obtain sales — maybe you need more funding to make products. In that case you need to work hard to establish some other proof that customers will buy your product. Think creatively about developing preorders, positive customer trials, email signups from landing pages, beta test signups, or at least some other documentable engagement to strongly signal that customers love your product. At the very least, go talk with multiple prospective customers, show them at least a brochure or web mockup of your product, and keep track of how they respond.

Here are some things that ARE NOT customer traction.

  1. That guy at the store saying, “Yeah, I could sell lots of those.” That may be encouraging, but he’s not a customer — he’s a seller. Ask him to introduce you to some customers.
  2. People who are willing to try your product for free. Customers, by definition, pay you. Ask them to buy one.
  3. Your professor, teacher, classmate, local business guru, advertising sales rep, buddy, neighbor, or anyone else telling you, “Wow, that’s a great product — you’ll sell a bunch,” Unless, of course, they happen to be customers and want to buy one for themselves. Ask them to introduce you to some customers.

If you are planning a large national or global venture and want to achieve investment, traction is not enough. You also need to have a top notch team in place (or at least have candidates who are committed to join once you are funded. Investors are interested in knowing that you not only have a customer-loved product in a huge market, but you also have the ability to address that huge market successfully. That’s where team (and other factors) are key.

So, in Regard to the Age Old Question of Funding …

Truth — lots of startup entrepreneurs have been known to spend time working on the wrong things — trying to establish funding prematurely or from the wrong funders. Here are some tips for what to expect and how to effectively use your time.

  1. Small scale and no traction. Prepare to fund your business yourself (maybe through sales) or with the help of family and friends. Go get some traction. Yes, that means you’ll have to build a product yourself — probably with little funds — be creative.
  2. Small scale and traction. Ask yourself if you even outside need funding other than sales (assuming your traction is in the form of sales). If you have sales traction, and need more funding, prepare to talk with a bank (prepare historical financial statements, projected financial statements and accompanying business plan, and a personal financial statement).
  3. Large scale and no traction. Prepare to fund your business yourself (maybe through sales) or with the help of family and friends. Given the scale (and a great enough product), you might find a potential team member with industry experience who is willing to be a co-founder and either provide sweat equity, funding, or both. Go get some traction — you will need plenty. Yes, you will need to create a product — maybe a prototype or trial version at the very least — be creative.
  4. Large scale and traction. Now you are ready to talk with investors. You’ll need to prepare two great pitch decks (one to send or leave behind with prospective investors, one for in person meetings). Your deck must include a compelling and simple explanation of your venture — team, market, history, projections, etc. — plus a funding ask, the milestones you will achieve with that funding, and the possible exit for the investor (so they see how they can get a return). Those of you who are confident should start to assemble the documents investors will want to see when they begin due diligence (i.e. be prepared to get a term sheet). And start to find warm introductions to potential investors. Meanwhile, keep on growing your venture. Investors love growth — you don’t want to be stagnant.

Sure, boiling the world of startup funding down into just those four options is simplistic. But, as a baseline view, they are valid. And now you may have a better idea of how to focus your time and effort — to get your startup going.

More Fort Wayne Entrepreneur Resources

Can you feel the positive momentum happening in the Fort Wayne entrepreneur community?  I haven’t been this jazzed about what is going on in a LONG time!

I’ve added two new resources to this site’s list of local entrepreneur resources.

  1. 1 Million Cups Fort Wayne has now joined the over 70 cities that host 1 Million Cups every Wednesday morning.  The program was established by the Kauffman Foundation to encourage entrepreneurs to meet and learn from one another.  In Fort Wayne, 1MC meets at Sweetwater Sound [meet at the Crescendo Cafe] every Wednesday at 9:00 a.m.
  2. Start Fort Wayne has established itself as the go-to hub for entrepreneurs and tech in the city and region.  Want to know what is going on?  Want to connect with any of the organizations promoting entrepreneurship in the area?  Check out the SFW website, get on their distribution list, and follow their Facebook page.

Enjoy!

 

Read This Book – Zero to One

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I just finished reading Zero to One by Peter Thiel with Blake Masters.  Refreshing!

If you are tired of the endless march of pop startup articles and books that advise how to use yet another variation of Lean Startup (or the Business Model Canvas, or SEO metrics, or social media prowess, or crowdsourced innovation, or …), then Peter is your man – and Zero to One is your book.

The title is derived from the difference between building another version of something already built or well known (going from 1 of something to version 2, 3, 4, etc.) and building something entirely new (going from 0 of something to the first 1).  Peter presents a framework for building a business that is entirely new (and valuable), and he injects various bits of standalone wisdom along the way.

The book is related to a 2012 startups course that Peter taught at Stanford.  Blake was one of the students, and he published his detailed course notes at http://blakemasters.com/peter-thiels-cs183-startup.  Zero to One will be published in September, 2014.  Before then, you may still be able to order a pre-release copy at http://zerotoonebook.com.

I don’t intend to summarize the book here (sorry – you’ll just have to buy it), but I would like to give you a few examples of why I called Zero to One “refreshing”.

  1. Peter’s preference for a monopoly mindset.  While most tend to view monopoly as a dirty word, Peter acknowledges that “… every business is successful exactly to the extent that it does something others cannot.”  He explains that fixating on competition tends to produce small value in the form of incremental improvement because companies tend to compete in large numbers around an existing model.  A monopoly, on the other hand, will produce tremendous value as a single new firm captures years or decades of profits from a decisively new (and valuable) technology. True, monopoly that somehow captures and controls a non-changing market is certainly bad.  But, monopoly that introduces a new technology to the world is good.  It drives innovation and progress and makes the world a better place.
  2. Peter’s observation that convention is a killer.  Being conventional produces incrementalism, risk aversion, complacency, and homogeneity.  Finding the unconventional secret, the important truth that few others agree with, is the beginning of creating something new and valuable.  If you can also find those few others who agree with you, you just might have the beginnings of a company.  As Peter puts it, “… every great business is built around a secret that is hidden from the world.”
  3. Peter’s explanation of how the Power Law works in business.  One venture will outshine everything else in the VC portfolio.  One market will dominate your company’s markets.  One distribution channel will dominate your company’s channels.  Even the decisions you make will follow the Power Law – the decisions you make when you found your business will likely influence your future far more than those you make later on.

Those of you who have read Zero to One realize that I’ve cited probably 1% or less of the ideas Peter presents.  Two things are important to know for those of you who haven’t read it yet.

  1. Peter cites and explains business first principles that are insightful.  Some may appear contrarian, but as he puts it, “The most contrarian thing of all is not to oppose the crowd but to think for yourself.”
  2. He then explains the implications of those principles for those of us who operate or are starting a business.  Although he states that no formula exists for creating a new, highly valuable business, I’ll state that Zero to One gives you plenty of practical advice toward that end.

Buy it.  Read it.

Three “Co”s

Since I last wrote here back in October (wow, has it been that long?), a lot has changed here in the Fort.  Let me tell you about three “Co”s that I’m excited to see happening in Fort Wayne.

  1. Co.Starters at Artlink’s Fort Wayne Arts Incubator
  2. Co Work Fort Wayne
  3. Coder Dojo

Co.Starters at the Fort Wayne Arts Incubator

I have the pleasure of facilitating the first cohort of Co.Starters in Fort Wayne.  Artlink licensed the program from the Chattanooga company to use in the newly formed Arts Incubator.

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Arts Incubator Co.Starters cohort digging in one day one.

Over 1,000 entrepreneurs across the nation have built business models and graduated from this program, producing ventures with over 2,000 jobs.  Now there are 11 more entrepreneurs a few weeks from graduation – right here in Fort Wayne.

They are a diverse group of creatives.  Their ventures include a craft beer operation, fine art, digital media marketing, retail gallery or store art, musical performing art, product photography, and food venture.  They are intensely engaged in the process of thinking through a business model – and, at the same time, staying true to their art.

It is enormously gratifying to see Artlink step up and provide a venue for creatives here to make a living with their art.  Kudos to Rebecca Stockert and Deb Washler.  I thank them for giving me the opportunity to facilitate this group.  If you’ve visited my about.me page, you’ve noticed that I am interested in growing both the entrepreneur and arts communities here.  This program touches on both goals!

 Co Work Fort Wayne

Some good people, led by Dave Sanders and Chad Clabaugh, have banded together to create a coworking space with a great location and an even better view.  Located in the Murphy Building right across the street from Pint and Slice and the Dash In, Co Work Fort Wayne sits on the 5th floor overlooking Calhoun Street.  It is a shared-cost space.  Right now $125 will buy you a monthly table space with some amenities, and the cost will go down as more member join.

Co Work Fort WayneOne of Co Work Fort Wayne’s conference rooms overlooking downtown.

Coder Dojo

Last year, Noel Knox got the idea to start an after-school coding program for kids.  Well, actually his son may have had the idea – or at least was the first intended beneficiary.

Coder Dojo

February Coder Dojo Meeting

That idea turned into the Fort Wayne Coder Dojo.  It started small, with just a few kids showing up to code together for a couple of hours on a Saturday at the Indiana Tech computer science lab (thanks to Brian Lewandowski).  The group grew, affiliated formally with the Coder Dojo global network, and now includes a diverse group meeting twice a month with kids working on everything from Minecraft, robotics, Arduino, MaKey MaKey, web apps, and more.

Three new initiatives that add a lot to Fort Wayne entrepreneurial and arts cultures.  Go check them out!

Listen for the Whistle …

Before dawn on a chilly Saturday morning in October, they lined up at least a quarter of a mile long to board the train.  Why?  Steam locomotive Nickel Plate 765 was going on an excursion!  Tickets had sold out within hours!

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Even more remarkable, all along the way from Fort Wayne to Lafayette – and then back -they lined up at nearly every crossing to take pictures, movies, or just wave.  They  pulled over on the side of the road.  They stood outside in yards and fields.  Where the track parallels Highway 24, they caused a traffic jam in one lane by slowing down en masse to keep pace with the train.

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They stood in crowds or even by themselves, anywhere they could, to get a glimpse of 765 – to see the steam and hear the whistle.  There were hundreds of us riding the train, but I am absolutely sure that more than that were on the roadside – in groups of 1 to 30 or 40.

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Aboard 765, the atmosphere was a cordial throwback to the warm personalized service you’d expect from days gone by.  Here’s car host Scott giving us our overview of what to expect (yes, 765 might just lurch a bit now and then, so be careful when you get up to walk to the concession car).

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Fernando Tarango and one of the smoothest sax players around were adding to the mood.  Here they were teaching us how to sing the Wabash Cannonball (since we were in fact tracing part of the path of the Wabash Cannonball).  Fun fact – the gentleman on the left side of the photo below is one of the original engineers of 765, along for the ride!

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Perhaps the best part of the train experience is that you see an entirely different vista than when you travel by car.  Here’s a view of downtown Fort Wayne that I hadn’t seen before.

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765 is operated by volunteers, like Scott, associated with the Fort Wayne Railroad Historical Society.  Here they are poring over the locomotive at our stop in Lafayette to make sure we were ready for the return trip.

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This isn’t a 765 thing, but while we were in Lafayette I was able to grab lunch at a great food truck, EMT – Emergency Munchie Truck.  Gotta put in a plug for them.CAM00043

And, of course, Fernando couldn’t resist playing some more music as we waited for the shuttle to take us back to the train from downtown Lafayette.

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Among all of the volunteers, I need to call out Kelly Lynch.  Not only does Kelly handle communications for the Fort Wayne Railroad Historical Society, but he is leading a bold vision to bring Nickel Plate 765 to downtown Fort Wayne.

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The concept, Headwaters Junction, is on the table along with other plans to transform our downtown riverfront area.  It is a superb plan that deserves to happen – not just because it would be fun or cool – but because it can do so much to improve the quality of life in our city and bring tourism revenue here.

Think about it for a second.  For this weekend’s two excursions, 700 tickets sold out in a mere couple of hours.  Hundreds (maybe thousands) of people lined up at crossings, along highways, in fields, on overpasses – on both days – just to catch a glimpse of this historic steam locomotive.  Given the number of cameras I saw on tripods or being held by hand, I’d hazard a guess that more videos were shot between Fort Wayne and Lafayette this weekend than in Hollywood during all of last year.

I personally urge you to support this project however you can.  You can start by visiting the Fort Wayne Railroad Historical Society, googling the many videos online about 765, going to see 765 in its current home outside of New Haven, or riding the Santa train in December (yes, there’s another excursion coming up soon).

Whatever you do, remember to … Listen for the Whistle!