Entrepreneurship and Incubation News

BY CAROL TICE

Hiring a celebrity spokesperson is a proven way to drive sales. It’s also frightfully expensive and has the potential to backfire. Consider all of the brands that had Tiger Woods signed up as pitchman when his marital scandal hit and his golden career suddenly imploded.

A better way to go for many brands may be to get a celebrity to either use your product or even to just appear with your brand for a brief time. Here are three ways to involve celebrities in your business that are lower cost and have less downside risk if your chosen celeb has a breakdown:

Swag bags. Events that attract celebrities usually put together gift bags for attendees. The mother lode of all swag bags is coming up — the Oscar show and attendant parties. This year’s Oscar bag overflows with $75,000 in goodies, including a Kim Kardashian signature watch, beauty products, jewelry, and two different vacation trips. (The luxury swag is reportedly one reason nominees are always “just happy to be nominated.”)

Swag providers know the cost of supplying those freebies is pin money compared to the sales boost they could get if even a single celebrity uses their products. There are scads of swag-bag donation opportunities each year, from local events to huge national ones. The hope here is also to get more than one star talking about your brand, which helps spread your risk if one of them enters rehab.

Direct mail. Some fashion companies try the direct approach, mailing out product samples directly to celebrities’ representatives in hopes a celeb will later be snapped (and widely circulated in social media) using their product. This approach helped skyrocket startup fashion-watch company RumbaTime to over $1 million in sales their first year. They mass-mailed their watches out to oodles of style-conscious celebs, and their brightly colored watches were soon photographed on the wrists of Snoop Dogg, Jaime Pressly and others.

One-off celebrity appearances. It’s much cheaper to hire a hot band to play your annual meeting, as Starbucks regularly does, than to hire them to pitch your brand year-round. But the glitter still rubs off and their presence gets you some extra spin. The Office‘s Rainn Wilson, a.k.a.Dwight Schrute, was brought in to heckle Adobe executives as they presented new products for a large trade-show audience.

This approach serves up a quick hit of celebrity sparkle — the star is in, it’s cool that they’re doing something with your brand and then they’re gone. Their personal-appearance fee is going to be a fraction of the cost of signing a famous name to a 12-month endorsement contract. If your chosen guest-celeb goes off the deep end a few months from now, the association with your company is looser and you’re probably outside the collateral-damage zone.

You may think hiring a celebrity isn’t in your budget no matter how you slice it — but remember, there are all levels of celebrities. The host of your local news show or the chef of your town’s hottest restaurant is big with your customers. They could probably give your brand plenty of buzz at a modest personal-appearance rate.

Read more here 

BY MELINDA F. EMERSON

Do you like organizing cluttered garages? Do you make mouth-watering cakes? Do you love to make jewelry? Are you good at planning special events? If you’ve been thinking about starting a business as your next career, now could be a great time to turn one of these hobbies into a thriving small business — even on a bare-bones budget.

Starting a business on the side is a smart way to get your feet wet as an entrepreneur. Look first at the services and goods you already provide for free to friends and family. “The best way to start a business for less than $500 is to figure out how to get paid for what you love to do,” says Clyde Anderson, a financial lifestyle coach and CNN contributor in Atlanta. “It’s crucial for anyone who’s looking to start a business to determine what gifts and talents they already have and to convert them into an actual business.”

Here are 7 cool businesses to start on a shoestring.

1. Baker
Cakes and cupcakes are the highlight of any party, and reality foodie shows such as Cupcake Wars have made baking a popular new business idea. Brooklyn blogger and cupcake expertNichelle Stephens says you can start a cupcake business for $500 or less, as long as you aren’t trying to open a storefront. “You spend more time than money when starting a baking business,” says Stephens, who shares baking and business tips on her blog. “You need to find a neighborhood where there is a limited number of baked goods available and identify your niche.” Once you get your mixer, the next expense is quality baking pans and cooling racks. Use your co-workers as your test market and promote your business in the groups you belong to, especially if you have children. Other parents are a great potential customer base. Keep in mind it’s illegal in most jurisdictions to bake and sell food from your home. Here’s a website where you can research commercial kitchens in your area.

2. Mobile Notary Public

Despite technological advances, documents such as property deeds, wills and loan papers still require an official signature and stamp by a notary. Some banks and real estate agents have a notary license, but the current trend is using notaries who come to your home or business on call. Setting up this kind of business has strict rules: Most states require you to take a course to learn the notary business and pass an exam, and all require a state license. Check with your state for regulations and costs, and visit the National Notary Association for materials and more information. It’s important to put out the word to friends, family and co-workers about your new notary business. Set up a professional website with search engine optimization so that your business can be found locally. “Pick a niche,” says Dany Victory, owner ofmobilenotarypublic.com in Southern California. “I specialize in loan documents, and it’s helped me earn referral customers such as realtors and title companies.” As a mobile notary, your costs are low and there are fringe benefits: You can drive around, meet interesting people and charge a premium for providing door-to-door service. “My income is higher because I charge travel fees on top of the standard notary charge of $10 per signature,” says Victory.

3. Personal Trainer
Many people’s New Year’s resolution is to lose weight, and many of these same individuals are looking for professional help to shed those unwanted pounds. If you are a fitness buff or avid runner, you may be able to make a living by teaching others what you’ve learned. You can be a general fitness instructor or specialize in marathon prep, yoga or Zumba. The first step in launching a fitness business is to become certified as a personal trainer. You also may need some basic equipment such as a portable CD player, exercise ball, stair step and mats. To launch your training business, start by telling your own weight loss story. Don’t be afraid to share your before and after pictures on your website and Facebook page. To find clients, try to build relationships at the gym you already attend. Inquire about becoming a trainer on staff to learn the business. Reach out to friends and colleagues who either don’t have time to go to a gym or feel embarrassed in a room full of people running on treadmills. Fitness enthusiast John Leber of Paramus, N.J., became a trainer in retirement. Leber studied, took a workshop and an exam, and within months got his personal trainer certification from the National Academy of Sports Medicine(NASM). “I worked for a large fitness chain gym for 18 months, and it was like your first job out of college, but after I left that company, my old clients started calling me for services,” says Leber, who is 63.” He specializes in working with clients 50+ and with people recovering from injuries. Here’s more on how to become a personal trainer.

4. Personal Organizer
Clutter is stressful for everyone, and you can make a living helping people get their homes, offices and lives in order. Professional organizing is a perfect business for people with a knack for neatness and developing systems. You can charge hourly or set half-day and full-day flat rates for your time. Not all clutter is the same, so it’s a good idea to choose an area of specialization, such as cleaning out garages, helping people plan for moving or downsizing, or assisting professional women with busy lives. Devise a system for how you will approach new client projects. Some organizers interview prospects; others ask for a tour of the space that needs organizing; some just throw everything on the floor and start from there. Philadelphia-based professional organizer Debbie Lillard, author of Absolutely Organized, wanted to work part time after years as a stay-at-home mom. She launched her business by contacting old friends who were stressed by the disorganization in their lives. She created business cards and flyers and distributed them in grocery stores in affluent neighborhoods. “I wrote a sales letter explaining who might need an organizer and sent it to everyone I knew, which landed me my first clients; from there, it was all word-of-mouth referrals,” Lillard says. Within a few months, she also launched a do-it-yourself website. Lillard went on to write two books about getting organized and shared organizational tips during media appearances, which helped her business grow. Collecting before and after pictures and client testimonials are good ways to promote a business as a professional organizer. For people interested in this business, consider joining the National Association of Professional Organizers, which provides education and training for new business owners in the field.

5. Social Media Marketing Assistant
The social media world is growing, and most business owners don’t have time to keep up. You can create a business as a social media marketing assistant or strategist if you have strong writing skills and a working knowledge of the major social media networking sites. Copy editing skills also are in demand for customers with blogs. Prior experience in public relations and marketing can also set you apart from those who just know social media tools. This business involves helping clients develop a social media strategy, build blogs, and set up Facebook Fan Pages, Twitter accounts, LinkedIn profiles and Google+ accounts. lf you know how to set up and maintain WordPress websites (they’re free), you can specialize in that service and charge a higher hourly rate. Cathy Larkin of Web Savvy PR in Aston, Pa., shows her small-business clients how to make social media marketing less intimidating. She provides strategies and shortcuts to keep her clients up to date online. “The first thing I did was learn the tools; then I picked a niche for the kind of customers I wanted,” Larkin says, “Be willing to work for free at first, just to prove you know what you are doing and get some references.” A low-cost way to quickly sharpen your social media skills is to attend a social media conference such as a PodCamp, which are held all over the country. The key to being successful as a social media marketing assistant is keeping your skills updated and making sure you stay on top of the constantly changing features on the social networking sites.

6. Jewelry Designer

People like handmade, one-of-a-kind jewelry, and this hobby is a good choice for a home-based business. Settle on your signature style or specialty — whether you’ll create pieces with bead design or design molds for silver and goldsmithing or stainless-steel items. Then you need to name your business, create samples, produce high-quality photos and start developing marketing materials. Patricia Miller, owner of the Velvet Box in Flint, Mich., got hooked on the craft while helping a friend with her holiday jewelry orders. Miller launched her own business with small orders for bracelets, and then she began doing home shows. Later she created an online shop at Etsy.com, which makes it simple for crafters to display and sell handmade goods. “Ninety-eight percent of my business has come from repeat customers and word-of-mouth referrals,” says Miller. Jewelry sellers also should look into setting up booths at craft fairs, flea markets and community events. Try partnering with local art galleries, hospitals and boutiques to sell higher-end pieces in your catalog. Don’t forget to wear your own jewelry everywhere you go — you are your best advertisement.

7. Image Consultant
Are you the person everyone stops and says, “Wow, you look great! Can you go shopping with me?” You are not just a trendsetter; you also may have the skills to be an image consultant or visual branding specialist. “Both women and men need to present their very best to the world. I help people reinvent and update their look,” says Tracey Reed, who runs a Philadelphia image consulting firm, Tracey Evelyn Beautiful You. “I do everything from color analysis to make-up lessons and personal shopping.” If you want to start a business as an image consultant, you need to have an understanding of color basics, textiles and clothing silhouettes. Reed, who has a master’s degree in theater make-up and costume design, suggests taking courses in color theory and retail merchandising to sharpen your skills. She started out in the beauty business as a licensed aesthetician and later expanded her services to include wardrobe and image consulting. Potential clients include professional women too busy to shop, brides-to-be who want makeovers, and men who want to sharpen their images to get ahead at work. Having a personal network is key to building your initial clientele. Set up a blog to share style tips, and then use Facebook and other social media to attract new customers. You also can use your website to post special packages, share testimonials and feature before and after photos of clients. It could be your best sales tool.

All of these are great businesses to start, but keep in mind that you still need a marketing plan and business plan to get your fledgling enterprise on track. Start with a free version of businessplan software at enloop.com to get rolling and later invest in a business plan course at a small-business development center or local community college. Business plans help make sure your budget and costs are something you can measure as your new business grows.

Read more here

By Christine Comaford

An internet infrastructure company couldn’t crack the Fortune 1000. So they brought a former CIO of Cisco onto their advisory board. Within 6 months their software was in trial at 5 Fortune 1000 companies. 18 months later the company was sold for 5x gross revenue.

A lighting company needed to quickly infiltrate the hospitality and retail sectors. They put executives from Marriott, Wal-Mart, Target, and Southern California Edison on their customer council (an advisory board without compensation). 3 years later the company’s revenue has increased by 10x.

Advisory Boards used to be the darling of startups and small companies. Now we’re seeing a new trend: mid-sized and large companies adding advisory boards. These Advisors have no fiduciary responsibility or mandatory meetings. They help with strategy, connections and company growth in their specific area of expertise. They’re a perfect way to “try then buy” new talent for the team or Board of Directors or to simply expand your brain trust. The ideal size for an advisory board is 8-10 people. With a group of this size you’ve got plenty of room for diverse skills and contacts.

When designing your advisory board, pick advisors who are:

• Executives from the trenches who’ve been on the business battlefield longer than you
• Experts from a different industry or field who provide unique skills and perspective
• High profile executives who will lend you credibility and will help secure customers, financing, leverage

Advisors are terrific to bounce ideas off of, provide a reality check, tell you when you’re about to mess up, to confide in when you’re alone at the top of the organization or department. It’s often safer to discuss a risky move or sticky challenge with an advisor versus a Board Director. An advisor can’t fire you.

Here’s my proven process for getting, and keeping, advisors on your team.

1. Define your advisory board member profiles. List the skills and connections you want advisors to have. Be specific. A hip, high-end fashion company was careening out of control. The two founders, Karen and Kim, needed help managing their massive growth. They had two strategic goals: scale up the business operations and get a deal with a mass retailer like Target or Wal-Mart. They needed more hands-on expertise, yet they didn’t have the capital to recruit rainmakers and their Board of Directors was already big enough.

They wanted advisors to help their team:

• Cut favorable and binding deals with mass-market retailers
• Select, manage, assure quality of outsourced manufacturers, shipping, lines of credit, all aspects of back-end retail infrastructure and operations
• Secure celebrity endorsements in the music, film, TV
• Build and incent a field sales force to ensure hot boutiques carried their wares and merchandised it with high-profile displays
• Build buzz as an exclusive brand, and craft a mass-market entry-level brand that would cause consumers to crave the high-end product

2. Determine your expectations of each advisor. Start out by asking an advisor for 1 hour per quarter or month. This is easy to agree to, and you’ll get more time once they fall in love with your business. Be willing to communicate via the method most convenient for them. Don’t immediately ask for favors—ask their opinion, ask for advice. Don’t be greedy. Do be grateful. Over time they’ll build trust and will introduce you to their contacts. For more time, offer more compensation.

3. Create your pitch and comp package. Why should someone become an advisor? What’s in it for them? Getting involved in a developing company in a super cool field? Access to interesting/thought-provoking people–your executive team, Board, other advisors? Focus on the “soft” benefits especially if don’t have a lot of cash or stock for compensation. Your concise, compelling advisor pitch should explain the opportunity in 5 minutes or less. Standard advisory board comp is $10,000-15,000 per year plus stock. If stock is all you have, most companies offer .25+% of a startup/small company’s common stock (vested in equal increments over 24 months). My favorite comp is stock + cash compensation tied to performance. If your advisor wants more, it may be worth it—just make sure the expectations are set in advance.

Read the full article here

BY BRAD SUGARS

If there’s one piece of advice I’d offer to any entrepreneur starting out, it’s this: Never
discount—no matter how much you may be tempted to— always look instead to add value.

Many seasoned entrepreneurs discount as a way of doing business, without ever really looking at their numbers or the real costs of cutting their prices. They’ll point to “discount” success stories like Wal-Mart or complain that the competitive landscape forces them to cut prices. While Wal-Mart, one of the great retail success stories of all time, has built its brand on low prices, most business owners don’t see the very real distinction between “low price” and “discount.”

First off, a company like Wal-Mart knows every margin to the “nth” degree and can deliver low prices because it has created scalability based on the huge volume of products it sells. But very few companies have such pricing power. Unless you do, there are better ways to play the retail game than looking to compete against Wal-Mart.

If you don’t really know your margins or have any scalability on the cost side, straight discounts are a ticket to disaster, not only in terms of finances but also in people costs. In a discount environment, you are essentially setting your team up to work more for less money.

Here’s how …

Let’s say you’re selling a widget for $10 a unit, and your net cost is $7. Your net profit on each widget sold would be $3. If you sold 10 widgets at full price, your net profit would be $30.

Now let’s say you decide to have a sale with a 10% discount offer. After selling 10 widgets at $9, you have revenue of $90. The net cost for widgets remains constant at $70, but your net profit has decreased to $20.

That doesn’t seem too bad. Until we realize we need to sell 50% more widgets just to keep our profit dollars even, at $30.

Take a look: 15 units X $9 = $135

$135 – $105 = $30 profit

The numbers look worse the more we discount. At a 15% discount, we’d have to sell 100% moreunits (a total of 20 widgets) to keep our profits at $30:

Example:

20 units X $8.50 = $170

$170 – $140 = $30 profit

Would you really want to run a company where the pressure is on day-to-day to sell 100% more units just to stay even?

Now you can start to see why failure rates of businesses that continually discount are so high and why the burnout rates of their owners are equally bad.

Playing the discount game means you’re literally going into your company everyday to price yourself right out of business.

So what’s the solution?

1. Know your numbers and margins and protect your margins at all “cost.”
This simply means you need to know your cost basis at every level of your company andlook to lower it where you can. Then, at least, if you decide to offer a price incentive, you’re not cutting your own throat to do it.

2. Add to your value proposition at every opportunity.
While you shouldn’t discount, you should always look to add value, both real and perceived. That could mean bundling options or packages, or it could mean a better customer service experience. People are more willing to pay for good service these days than ever before.

3. Develop a growth rather than discount mindset.
The reality for any business is that you won’t ever be able to cut your way to success. You can cut costs only so far before some aspect of the business suffers. Growth is really your only option. So start to think of ways you can leverage your current resources in new or innovative ways. Reposition products or services, for example, with a private label at a higher price point.

Whatever you do, think twice about the ramifications of running a 10% off sale, unless you got a really great deal on your inventory. Just remember that “small” 10% discount means someone in your organization has to work 50% harder to earn the company the same dollars. At least in the beginning, that person will most likely be you.

Don’t fall into the trap of thinking if you don’t give discounts, you’ll lose sales. Look to add value and deliver an incredible experience for your customers. You’ll discover new ways to increase profits, while others find themselves caught in the discount trap — and soon out of business.

Read more here

BY CARMINE GALLO

I recently spoke at LeWeb, a large technology conference in Paris that’s filled with entrepreneurspitching to venture capital investors who are looking for the next big thing. In such situations where many people are vying for attention, the entrepreneurs who stand out are the ones who deliver their pitch in less than a minute, but still make their points quite persuasively.

Unfortunately, many small-business owners don’t think enough about their company’s story and how it comes across. I can say that with confidence because I’ve witnessed many ineffective pitches at conferences and chamber of commerce mixers. At the last chamber mixer I attended, I asked one person what he did. His response started with, “That’s a good question…” Five minutes later, he was still trying to describe his new company, and I was trying to find a polite way out of the conversation.

As a communications coach, I’ve developed a four-step exercise that will work for any company or product. You must simply answer each of the following four questions in no more than two sentences:

1. What do you do?
2. What problem do you solve?
3. How is your product or service different?
4. Why should I care?

By keeping each answer brief, you will develop a succinct story that should take no more than 60 seconds.

Let’s use the example of an entrepreneur who is starting a housekeeping franchise. Based on those four questions, the company’s story might sound something like this:

“We own Five Star Cleaning, an eco-friendly housekeeping service that pampers you and your home [what your business does]. Typical cleaning services make you prep your home ahead of time, supervise to prevent theft and hang around for hours while the cleaners do their work. Because we require no prep, this saves time right off the top, and we are bonded so our service is worry-free, allowing you to go about your day [what problem does it solve]. And, we always send a minimum team of three to get the job done quickly [how it's different]. Imagine coming home from a long day and your laundry is all done, your bed has been turned down and there are fresh flowers awaiting you. That’s the extra pampering we offer that sets us apart from all the rest [why you should care].

Your first sentence should be a “Twitter-friendly headline.” You should be able to describe your product or service in 140 characters or less, short enough for a tweet. In the example, Five Star Cleaning bills itself as an “eco-friendly housekeeping service that pampers you and your home.” But many small-business owners don’t create product descriptions that are short, catchy, distinctive and memorable. The Twitter exercise will help. If you can’t describe your product in a sentence, go back to the drawing board.

If you can tell your story in well under 60 seconds and have some extra time, be ready to relate an example or story that makes your product or service more tangible. You’ll notice that in the cleaning service pitch, we offered examples of pampering, such as turning down bed sheets.

Don’t let your idea die because you’ve lost the attention of your audience. Grab your listeners in the first 60 seconds and they’ll want to hear more.

Read more here

BY ANN HANDLEY

Why do you e-mail articles to friends? Or “like” a link on Facebook? Or retweet a post on Twitter?

Content that triggers an emotional response is more likely to be shared, according to a recent University of Pennsylvania study of the most e-mailed New York Times articles. What’s more, “surprising” stories (like one about free-range chickens hanging out on the streets of New York) were also more likely to be passed along.

But the most-shared articles are those that go beyond surprise to actual awe–or what the researchers defined as an “emotion of self-transcendence, a feeling of admiration and elevation in the face of something greater than self.” In other words, people share the stuff that ignites a little spark in them.

So what does that mean for you and your business? Why should you care about a kindergarten concept like sharing?

Because a clear way to generate and nurture leads is to create content: a blog and maybe an e-book and a Twitter stream and so on. But it’s pointless (and lonely!) to write a blog that gets no visitors and zero comments–and, consequently, affords no traction for your lead-gen efforts.

Websites that facilitate sharing generate seven times more mentions online than those that don’t (see below). So how do you grease the sharing skids? How do you get folks to share your stuff online? Here are some ideas.

BY LAMBETH HOCHWALD

It isn’t always enough to create and promote an outstanding product or service. Often, your sales approach matters just as much as what you’re selling. The most successful entrepreneurs create a connection with the customer by bringing their own personal touch to the sales process.

“People buy from people that they like and can relate to,” says Adrian Miller, a sales trainer based in Port Washington, N.Y. “When business owners overlook the importance of that personal connection, they run the risk of losing the prospect to someone else—usually someone who took the time to create a relationship and help the prospect buy something rather than trying to simply sell to them.”

Here are seven tips on salesmanship that can help you develop that special rapport with potential customers:

1. Model your business on the corner store. If you long for the days of shopping at a local business where the owner knew your name and your family, try to emulate that experience. For instance, remember one or two details about your customer and bring them up in conversation. “If you know a customer has a daughter finishing up grad school, ask for an update,” says Laurie Brown, who owns a sales training company in Detroit and is the author of The Greet YourCustomer Manual (The Difference, 2011). “Everyone likes to feel they’re important enough that someone remembers the little things in their life. It’s one important way we go past viewing customers as a dollar sign to a human who is appreciated.”

2. Ask questions first. Before you launch into a hard sell, take time to probe your prospect. Ask questions that will help your customer explain what he’s looking for. “Once you know that information, it’s much simpler to show how your product or service can satisfy his wants or needs,” Miller says. “Probing is fundamental to relationship building, and the more skilled you are at utilizing open and closed ended questions, the stronger the relationship you will be able to create.”

3. Court your clients. Selling is a lot like dating in that you have to woo customers and hope they return the attention. “Figure that for every 10 people you want to reach out to, three will want to set up appointments to hear more about your product,” says Mark Faust, an adjunct professor at Ohio University and the author of Growth or Bust! Proven Turnaround Strategies to Grow Your Business (Career Press, 2011). “To get a potential customer to call you back, you have to hook them somehow. Consider emailing them an article you found interesting that’s related to their business and then give them time to respond. Whatever you do, be respectful of their busy schedule.”

4. Talk about yourself. Another way to make it personal: Reveal something about yourself. Just be sure it’s something your customer can relate to and isn’t too personal, suggests Lourdes Martin-Rosa, an American Express OPEN Advisor who helps small businesses win government contracts. “It’s pivotal to connect in a real way. In fact, according to a study [in] the Journal of Consumer Research, if a salesperson shares a birthday or a birthplace with you, you’re more likely to make a purchase from that salesperson and feel good about it.”

5. Really listen to the prospect. There’s nothing more insulting than feeling that you’re being ignored in a conversation, says Matt Eventoff, owner of Princeton Public Speaking, an executive training company in Princeton, N.J. “Asking someone a question and truly listening to the response, rather than beginning to formulate a response while the other person is speaking, is so important.” In fact, small business owners may have a distinct advantage in connecting with customers because they are in touch with them so often. “The smaller the size of your business, the more encounters you’ll have and the more opportunities you’ll have to listen to your customers,” Eventoff says.

6. Step away from your computer and smartphone. While it’s often much quicker and less stressful to email a potential customer, face-to-face meetings and networking are far more effective in creating meaningful connections. “These meetings are still among the best ways businesses can establish relationships with decision makers,” says Martin-Rosa. “For instance, if you want to pursue the federal government as a customer, make the time to regularly visit the D.C. beltway. Communications should not be limited to email and phone—though both are important follow-up methods.”

7. Be patient. Like many important things in life, it takes patience to develop lasting customer relationships. Fight the urge to rush the process. “Take the time to explain how your product or service will benefit the prospect,” Miller says. “Be patient as you go about cultivating this new contact. You never want to make a prospect feel rushed or hustled.”

Read more here

by Brad Feld

[Foundry Group co-founders Brad Feld and Jason Mendelson are the authors of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, published by John Wiley & Sons. This excerpt is from Chapter 2: How to Raise Money]

Your goal when you are raising a round of financing should be to get several term sheets. While we have plenty of suggestions, there is no single way to do this, as financings come together in lots of different ways.

VCs are not a homogeneous group; what might impress one VC might turn off another. Although we know what works for us and for our firm, each firm is different; so make sure you know who you are dealing with, what their approach is, and what kind of material they need during the fund-raising process. Following are some basic but by no means complete rules of the road, along with some things that you shouldn’t do.

Do or Do Not; There Is No “Try”

In addition to being a small, green, hairy puppet, Yoda was a wise man. His seminal statement to young Luke Skywalker is one we believe every entrepreneur should internalize before hitting the fundraising trail. You must have the mind-set that you will succeed on your quest.

When we meet people who say they are “trying to raise money,” “testing the waters,” or “exploring different options,” this not only is a turnoff, but also often shows they’ve not had much success. Start with an attitude of presuming success. If you don’t, investors will smell this uncertainty on you; it’ll permeate your words and actions.

Not all entrepreneurs will succeed when they go out to raise a financing. Failure is a key part of entrepreneurship, but, as with many things in life, attitude impacts outcome and this is one of those cases.

Determine How Much You Are Raising

Before you hit the road, figure out how much money you are going to raise. This will impact your choice of those you speak to in the process. For instance, if you are raising a $500,000 seed round, you’ll talk to angel investors, seed stage VCs, super angels, micro VCs, and early stage investors, including ones from very large VC funds. However, if you are going out to raise $10 million, you should start with larger VC firms since you’ll need a lead investor who can write at least a $5 million check.

While you can create complex financial models that determine that you need a specific amount of capital down to the penny to become cash flow positive, we know one thing with 100 percent certainty: these models will be wrong. Instead, focus on a length of time you want to fund your company to get to the next meaningful milestone. If you are just starting out, how long with it take you to ship your first product? Or, if you have a product in the market, how long will it take to get to a certain number of users or a specific revenue amount? Then, assume no revenue growth; what is the monthly spend (or total burn rate) that you need to get to this point? If you are starting out and think it’ll take six months to get a product to market with a team of eight people, you can quickly estimate that you’ll spend around $100,000 per month for six months. Give yourself some time cushion (say, a year) and raise $1 million, since it’ll take you a few months to ramp up to a $100,000-per-month burn rate.

The length of time you need varies dramatically by business. In a seed stage software company, you should be able to make real progress in around a year. If you are trying to get a drug approved by the Food and Drug Administration (FDA), you’ll need at least several years. Don’t obsess about getting this exactly right—as with your financial model, it’s likely wrong (or approximate at best). Just make sure you have enough cash to get to a clear point of demonstrable success. That said, be careful not to overspecify the milestones that you are going to achieve—you don’t want them showing up in your financing documents as specific milestones that you have to attain.

Be careful not to go out asking for an amount that is larger than you need, since one of the worst positions you can be in during a financing is to have investors interested, but be too far short of your goal. For example, assume you are a seed stage company that needs $500,000 but you go out looking for $1 million. One of the questions that the VCs and angels you meet with will probably ask you is: “How much money do you have committed to the round?” If you answer with “I have $250,000 committed,” a typical angel may feel you’re never going to get there and will hold back on engaging just based on the status of your financing. However, being able to say “I’m at $400,000 on a $500,000 raise and we’ve got room for one or two more investors” is a powerful statement to a prospective angel investor since most investors love to be part of an oversubscribed round.

Finally, we don’t believe in ranges in the fund-raising process. When someone says they are raising $5 million to $7 million, our first question is: “Is it $5 million or $7 million?” Though it might feel comfortable to offer up a range in case you can’t get to the high end of it, presumably you want to raise at least the low number. The range makes it appear like you are hedging your bets or that you haven’t thought hard about how much money you actually need to raise. Instead, we always recommend stating that you are raising a specific number, and then, when you have more investor demand than you can handle, you can always raise more.

Fund-Raising Materials

While the exact fund-raising materials you will need can vary widely by VC, there are a few basic things that you should create before you hit the fund-raising trail. At the minimum, you need a short description of your business, an executive summary, and a presentation that is often not so fondly referred to as “a PowerPoint.” Some investors will ask for a business plan or a private placement memorandum (PPM); this is more common in later stage investments.

Once upon a time, physical form seemed to matter. In the 1980s, elaborate business plans were professionally printed at the corner copy shop and mailed out. Today, virtually all materials are sent via e-mail. Quality still matters a lot, but it’s usually in substance with appropriate form. Don’t overdesign your information—we can’t tell you the number of times we’ve gotten a highly stylized executive summary that was organized in such a way as to be visually appealing, yet completely lacking in substance. Focus on the content while making the presentation solid.

Finally, while never required, many investors (such as us) respond to things we can play with, so even if you are a very early stage company, a prototype, or demo is desirable.

Finding the Right VC

The best way to find the perfect VC is to ask your friends and other entrepreneurs. They can give you unfiltered data about which VCs they’ve enjoyed working with and who have helped build their businesses. It’s also the most efficient approach, since an introduction to a VC from an entrepreneur who knows both you and the VC is always more effective than you sending a cold e-mail tovcname@vcfirm.com.

But what should you do if you don’t have a large network for this? Back in the early days of venture capital, it was very hard to locate even the contact information for a VC and you rarely found them in the yellow pages, not even next to the folks that give payday loans. Today, VCs have web sites, blog, tweet endlessly, and even list their e-mail addresses on their web sites.

Entrepreneurs can discover a lot of information about their potential future VC partner well beyond the mundane contact information. You’ll be able to discover what types of companies they invest in, what stage of growth they prefer to invest in, past successes, failures, approaches and strategies (at least their marketing approach), and bios on the key personnel at the firm.

If the VC has a social media presence, you’ll be able to take all of that information and infer things like their hobbies, theories on investing, beer they drink, instrument they play, and type of building or facility—such as a bathroom—they like to endow at their local universities. If you follow them on Foursquare, you can even figure out what kind of food they like to eat.

While it may seem obvious, engaging a VC that you don’t know via social media can be useful as a starting point to develop a relationship. In addition to the ego gratification of having a lot of Twitter followers, you’ll start to develop an impression and, more important, a relationship if you comment thoughtfully on blog posts the VC writes. It doesn’t have to be all business—engage at a personal level, offer suggestions, interact, and follow the best rule of developing relationships, which is to “give more than you get.” And never forget the simple notion that if you want money, ask for advice.

Do your homework. When we get business plans from medical tech companies or somebody insisting we sign a nondisclosure agreement (NDA) before we review a business plan, we know that they did absolutely zero research on our firm or us before they sent us the in- formation. At best, the submission doesn’t rise to the top compared to more thoughtful correspondences, and at worst it doesn’t even elicit a response from us.

A typical VC gets thousands of inquiries a year. The vast majority of these requests are from people that the VC has never met and with whom the VC has no relationship. Improve your chances of having VCs respond to you by researching them, getting a referral to them, and engaging with them in whatever way they seem to be interested in.

Finally, don’t forget this works both ways. You may have a super-hot deal and as a result have your pick of VCs to fund your company. Do your homework and find out who will be most helpful to your success, has a temperament and style that will be compatible with yours, and will ultimately be your best long-term partner.

Finding a Lead VC

Assuming that you are talking with multiple potential investors, you can generally categorize them into one of three groups: leaders, followers, and everyone else. It’s important to know how to interact with each of these groups. If not, you not only will waste a lot of your time, but also might be unsuccessful in your fund-raising mission.

Your goal is to find a lead VC. This is the firm that is going to put down the term sheet, take a leadership role in driving to a financing, and likely be your most active new investor. It’s possible to have co-leads (usually two, occasionally three) in a financing. It’s also desirable to have more than one lead VC competing to lead your deal, without them knowing whom else you are talking to.

As you meet with potential VCs, you’ll get one of four typical vibes. First is the VC who clearly is interested and wants to lead. Next is the VC who isn’t interested and passes. These are the easy ones—engage aggressively with the ones who want to lead and don’t worry about the ones who pass.

The other two categories—the “maybe” and the “slow no”—are the hardest to deal with. The “maybe” seems interested, but doesn’t really step up his level of engagement. This VC seems to be hanging around, waiting to see if there’s any interest in your deal. Keep this person warm by continually meeting and communicating with him, but realize that this VC is not going to catalyze your investment. However, as your deal comes together with a lead, this VC is a great one to bring into the mix if you want to put a syndicate of several firms together.

The “slow no” is the hardest to figure out. These VCs never actually say no, but also are completely in react mode. They’ll occasionally respond when you reach out to them, but there is no perceived forward motion on their part. You always feel like you are pushing on a rope—there’s a little resistance but nothing ever really moves any- where. We recommend you think of these VCs as a “no” and don’t continue to spend time with them.

How VCs Decide to Invest

Let’s explore how VCs decide to invest in a company and what the process normally looks like. All VCs are different, so these are generalizations, but more or less reflect the way that VCs make their decisions.

The way that you get connected to a particular VC affects the process that you go through. Some VCs will fund only entrepreneurs with whom they have a prior connection. Other VCs prefer to be introduced to entrepreneurs by other VCs. Some VCs invest only in seasoned entrepreneurs and avoid working with first-time entrepreneurs, whereas others, like us, will fund entrepreneurs of all ages and experience and will try to be responsive to anyone who contacts us. Whatever the case is, you should determine quickly if you reached a particular VC through his preferred channel or you are swimming upstream from the beginning.

Next, you should understand the role of the person within the VC firm who is your primary connection. If an associate reached out to you via e-mail, consider that his job is to scour the universe looking for deals, but that the associate probably doesn’t have any real pull to get a deal done. It doesn’t mean that you shouldn’t meet with him, but also don’t get overly excited until there is a general partner or managing director at the firm paying attention to and spending real time with you.

Your first few interactions with a VC firm will vary widely depending on the firm’s style and who your initial contact is. However, at some point it will be apparent that the VC has more than a passing interest in exploring an investment in you and will begin a process often known as due diligence. This isn’t a formal legal or technical diligence; rather it’s code for “I’m taking my exploration to the next level.”

You can learn a lot about the attitude and culture of a VC firm by the way it conducts its diligence. For example, if you are raising your first round of financing and you have no revenue and no product, a VC who asks for a five-year detailed financial projection and then proceeds to hammer you on the numbers is probably not someone who has a lot of experience or comfort making early stage investments. As mentioned before, we believe the only thing that can be known about a prerevenue company’s financial projections is that they are wrong.

During this phase, a VC will ask for a lot of things, such as presentations, projections, customer pipeline or targets, development plan, competitive analysis, and team bios. This is all normal. In some cases the VCs will be mellow and accept what you’ve already created in anticipation of the financing. In other cases, they’ll make you run around like a headless chicken and create a lot of busywork for you. In either case, before you jump through hoops providing this information, again make sure a partner-level person (usually a managing director or general partner) is involved and that you aren’t just the object of a fishing expedition by an associate.

While the VC firm goes through its diligence process on you, we suggest you return the favor and ask for things like introductions to other founders they’ve backed. Nothing is as illuminating as a discussion with other entrepreneurs who’ve worked with your potential investor. Don’t be afraid to ask for entrepreneurs the VC has backed whose companies haven’t worked out. Since you should expect that a good VC will ask around about you, don’t be afraid to ask other entrepreneurs what they think of the VC.

You’ll go through multiple meetings, e-mails, phone calls, and more meetings. You may meet other members of the firm or you may not. You may end up going to the VC’s offices to present to the entire partnership on a Monday, a tradition known by many firms as the Monday partner meeting. In other cases, as with our firm, if things are heating up you’ll meet with each of the partners relatively early in the process in one-on-one or group settings.

As the process unfolds, either you’ll continue to work with the VC in exploring the opportunity or the VC will start slowing down the pace of communication. Be very wary of the VC who is hot on your company, then warm, then cold, but never really says no. While some VCs are quick to say no when they lose interest, many VCs don’t say no because either they don’t see a reason to, they want to keep their options open, they are unwilling to affirmatively pass on a deal because they don’t want to have to shut the door, or they are just plain impolite and disrespectful to the entrepreneur.

Ultimately VCs will decide to invest or not invest. If they do, the next step in the process is for them to issue a term sheet.

Closing the Deal

The most important part of all of the fund-raising process is to close the deal, raise the money, and get back to running your business. How do you actually close the deal?

Separate it into two activities: the first is the signing of the term sheet and the second is signing the definitive documents and getting the cash. This book is primarily about getting a term sheet signed. In our experience, most executed term sheets result in a financing that closes. Reputable VCs can’t afford to have term sheets signed and then not follow through; otherwise they don’t remain reputable for long.

The most likely situations that derail financings are when VCs find unexpected bad facts about the company after term sheet signing. You should assume that a signed term sheet will lead to money in the bank as long as there are no smoking guns in your company’s past, the investor is a professional one, and you don’t do anything stupid in the definitive document drafting process.

The second part of closing the deal is the process of drafting the definitive agreements. Generally, the lawyers do most of the heavy lifting here. They will take the term sheet and start to negotiate the 100-plus pages of documentation that are generated from the term sheet. In the best-case scenario, you respond to due diligence requests and one day you are told to sign some documents. The next thing you know, you have money in the bank and a new board member you are excited to work with.

In the worst case, however, the deal blows up. Or perhaps the deal closes, but there are hard feelings left on both sides. As we restate in several parts of this book, always make sure that you are keeping tabs on the process. Don’t let the lawyers behave poorly, as this will only injure the future relationship between you and your investor. Make sure that you are responsive with requests, and never assume that because your lawyer is angry and says the other side is horrible/stupid/evil/worthless that the VC even has as clue what is going on. Many times, we’ve seen the legal teams get completely tied up on an issue and want to kill each other when neither the entrepreneur nor the VC even cared about the issue or had any clue that there was a dustup over the issue. Before you get emotional, just place a simple phone call or send an e-mail to the VC and see what the real story is.

Read more here

BY CAROL TICE

It’s one of the big challenges of the wide-open, global Internet: How to use it to help customers in your town find you. At a recent two-day “hackathon” event hosted by the New York business incubator General Assemblyand American Express OPEN, more than 100 developers met to work on this problem.

They came up with more than 25 different software “hacks,” or applications, that help consumers shop local. The apps do everything from helping you find a good local meeting venue to turning up local properties for sale.

Here are a few highlights:

1. Building.ly — Want to send a special offer or incentive deal only to workers in a few nearby office towers or condo buildings? This is the micro-targeting app for that.
2. Eatpager — Eatpager helps diners explore which restaurants are near their current locale, using foursquare and data from your local municipality. So far, it has New York City data on board.
3. Poorsquare — Want to do a local giveaway? This app lets users search foursquare, cutting the data there to show only free deals. This one’s also just in New York City so far, but what a great idea. Watch this one spread.
4. Fresh Tomatoes – Wonder what customers are saying about your joint on restaurant-review sites? This hack aggregates reviews from Zagat, Yelp, CitySearch, MenuPages and many others into one convenient spot. It even boils down all the reviews for an eatery and gives you one average rating.
5. FarmerFare — If you sell at farmer’s markets, this tool allows consumers to connect with you even when you’re not at your stand. Consumers create a grocery list, enter their zip code, and are shown results with local farmers who could provide the goods they seek. This allows customers to quickly see what’s available and in-season, and then order ahead either for delivery, or for pickup at a nearby farmers market.

Read more here