Situation: A company sells personalized content as well as a tool kit. The long-term plan is to monetize storage of personalized content. When they speak to venture capitalists, the VCs advise them to focus on just building their user base and not to worry about revenue. What would you do? Where should you focus – eyeballs or dollars?
Advice from the CEOs:
Take advice from venture capitalists with a grain of salt. Remember that their game is to fund companies that they like incrementally, taking a greater share of ownership of the company with each increment in funding. The more you lack revenue, the more you’re dependent upon them.
Gain traction by offering free content with up-sell opportunities for premium access.
The give-away strategy is a great model to build your initial user audience. Consider micropayment options for special features, content storage, and so forth.
Going slow and steady may not be the right model for this space. Company growth for a web-based platform is different from the typical bootstrap model.
It’s hard to get good advice for viral marketing opportunities from CEOs who have bootstrapped their companies. Look for other input. Seek the advice of CEOs who have been successful in the viral online marketing space and learn as much as you can about their business models.
Gaming is another opportunity – premium or virtual world sales.
Situation: A CEO has identified a new business opportunity that looks promising but will require raising additional cash short term. What are good sources of short term cash, and what will simplify access to these resources? How do you raise cash short term?
Advice from the CEOs:
You must be the biggest critic of this opportunity. If it doesn’t fly to your critical eye, it will be hard to sell to others. As a reality check, ask yourself whether the opportunity is something on which you’d bet your house.
Build the new capability around a web distribution system that compliments your other capabilities. This broadens the appeal of the offer.
Generate an investment proforma and revenue stream. Most investors or debt financers will want to see this. You can position it as an immature business plan backed by your best estimate of the numbers.
You’ll need a business plan unless you’re lucky enough to find someone who believes that you can turn any opportunity into gold.
Presell subscriptions to target clients to prove the value of the offer – both to you and for investors.
Assure that any payments due from you go into an escrow account, to be released on a quarterly or other phased basis pending performance from the other parties within this deal.
This is not a venture capital story. Angel investors will seek a lower return for lower risk than VCs. Set some milestones for the Angels that will help them to see that you are monitoring their risk.
Situation: A company has been approached by a customer with a proposal that the two companies combine. The customer believes that the combined companies will represent a greater market presence than either presents alone. This may make it easier for the combined entity to gain business from larger customers. How do you merge two firms under one umbrella?
Advice from the CEOs:
For a company to merge with a customer is a tricky process, assuming that the company has more than one customer. The merger places the company in competition with its other customers who may respond by seeking alternate providers. If this happens it will create a short term hit to revenue. This possibility has to be modeled into merger financial forecasts.
Different companies have different cultures. This fact is often ignored in merger discussions because culture is difficult to quantify or measure objectively. However if you ask those who have been through mergers, culture conflict between merging entities is most often the reason for their failure.
It may make more sense for the company to focus on ongoing sales to the customer than to entertain a combination that would result in the current owners losing control. In declining the proposal, it is important to emphasize your interest in maintaining a healthy ongoing relationship with the customer.
If the customer offers terms that are appealing, an alternative to a merger is a limited scope joint venture as a trial project to test the viability of collaboration.
Establish with your co-owners a price at which you are willing to give up control. This will help you to refuse offers that are below this price.