Easy as hailing a taxi in New York, right?
Yet neglecting these three critical steps are the most
common reasons many start-ups fail shortly after getting off
the ground, consultants say.
When it comes to e-business flops, Michael Drapkin,
principal and founder of Drapkin Technology, a Monsey,
N.Y.-based management consulting firm specializing in
e-commerce, claims to have seen it all.
[Michael Drapkin]
Who needs a crystal ball?
Start-ups without a solid business plan and top-notch
management may be doomed. |
A
big problem for start-ups is funding, he says. Typically,
dot-coms need approximately $5 million to get started, he
says. But even before the funding from seed investors or
venture capitalists, a fledgling company needs to have more
than just a nifty business idea to begin pulling in VC
dollars.
"You can't just have an idea to start a business," Drapkin
says. "You have to have something of value to get investors."
Michael Rockwell, chief architect for Microsoft
technologies at Lante, Chicago, says many entrepreneurs fail
to do their homework before trying to launch a business.
"See if there is anyone else in the space [before
committing to it]," Rockwell says. "Do networking to find out
what the landscape is."
A surprising number of companies neglect to properly
develop the income equation, Rockwell says. A business with a
poorly planned revenue stream won't make it, he says. And
while ambition is great, trying to offer too many services
from the start creates headaches.
"Many companies have a laundry list of services they want
to implement," Rockwell says. "We boil it down to the critical
services."
Rockwell also has seen entrepreneurs pick out technology
before they finish their business plans. "We've got to
convince them not to do that," Rockwell says. "We go through
the technology and help the customer see it isn't well thought
out."
After nailing down a road map to success, recruiting a
quality management team becomes the next step. This is a tough
but vital key for start-ups, some of which have difficulty
realizing the value of "field expertise," Drapkin says.
"You have founders who have a good idea but not the
experience," Drapkin says. "Lots of technology start-ups
[have] no one [on their staff] as an expert in technology.
Attracting the right management is a huge problem."
Though VC firms will sometimes offer to help find a person
for a company they are backing, not letting the funding
vehicle take over becomes tricky, Drapkin says.
Head hunting firms can help with the talent search, but
they often ask for a stake in the new company, he says. Also,
while job boards are popular with many companies, they are
more appropriate for finding lower-level professionals,
Drapkin says. "That's just not the place where a senior
executive is going to go."
Networking remains the best way to find the people a new
company needs.
"Network, network, network," says William Spruill,
executive vice president of StartUpStreet.com, Durham, N.C., a
company specializing in connecting high-tech start-ups with
investors, service providers and advice. "Surround yourself
with the right people. If it's the right concept, it should
catch on fire."
The right management team makes all the difference to
investors. William Jefferson Marshall, a partner at VC firm
VantagePoint Ventures, says investors will even overlook weak
technology if the leadership is strong enough. "We won't back
a poor team," he says. "Even with bad technology, a good team
can turn it around."
And the days of bleeding money with no profit in sight are
long gone, he says. VCs work on 18-month cycles. During the
second round of funding, investors want to see a product and
customers who want the product. "Money follows excitement;
performance matters; fads end," Marshall says.
Yet VCs aren't the only sources of funding. Start-ups
should look high and low for funding,angel and seed funds or
investment banks,to keep the fledgling business going.
Strategic and channel partners are often willing to invest in
a partner they believe in, Marshall says.
As the early years are lean, start-ups will need continual
streams of funds to move forward. They can't wait until it's
too late.
"Look down the road to calculate when you'll run out of
money," Marshall adds. "If it's six to nine months [ahead],
don't wait until it's four months before you're out of money.
Raise enough capital to get through these milestones."
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