Many times you find that entrepreneurs come up with these awful ideas that they think are going to become the “next big thing”. There are even amazing ideas that are brought down with the worst of presentations and awful valuation of their company.
But those one percent of ideas that get an offer – it wasn’t through a good product alone. No, it’s a combination of everything that makes for a good investment: a solid plan, a good valuation, an excellent presentation, an innovative product, and confident and reasonable employees. The ideas that don’t have all of those features are eventually burned to the ground by time.
There are some smart lessons to be learned when it comes to creating your product – so I’ve come up with a list of great tips for entrepreneurs who are starting up their business:
1 ) Create an engaging presentation. Imagine this: you’ve got thirty seconds to make $50,000. You’re going to do it by going on Shark Tank and making your pitch to Mark Cuban to invest that amount of money to take 10% of your company. To make this amount of money, you’ve got to sell your product like you’ve never sold it before, all within fifteen or thirty seconds.
You better be sure that you’ve got a great presentation that can entice potential investors, and to do so, I’d you to keep in mind the practice of an elevator pitch. From Wikipedia:
An elevator pitch is a short summary used to quickly and simply define a product, service, or organization and its value proposition. The name “elevator pitch” reflects the idea that it should be possible to deliver the summary in the time span of an elevator ride, or approximately thirty seconds to two minutes.
Take the time to really master your elevator pitch venture capitalists will be well on their way to investing in your product. If you can’t present your idea in under two minutes, you can be sure that you’ll have greatly limited your investors (and customers).
2 ) If you can’t sell it, hire someone that can. You know what? You don’t have to do the selling yourself. If you’re not going to be great at that elevator pitch, find someone that can do it for you in your place. Know a friend in sales? Get them aboard.
Put ads in college newspapers or on university job boards. Sign up for Monster.com as an employer. Put an ad on Craigslist when all else fails. Finding a great salesperson will allow you to concentrate on other issues, like finances and product innovation.
3 ) You better have a plan – but it doesn’t have to be your typical business plan. You don’t necessarily need to know sizes of your market, or have five-year business plans that detail the ins and outs of valuation and cash flows. What you do need, however, is a plan of how you want to spend your money and market your product.
Even use a quick Google Calendar to schedule yourself for trade shows, cold-calling, meetings with clients and licensees and so on. Having a real rough skeleton plan is infinitely better than no plan at all.
4 ) Don’t create something that’s already been made. If your idea is something that you can already buy on shelves, throw it out. There’s no way as a small business owner you’ll be able to compete with the likes of Unilever and Johnson & Johnson for your organic spray cleaner.
There’s a reason companies like Facebook and Google are Number One – they were first to get to the market.
That being said, there are certain asterisks that could be made to this point. Food, for instance, is an industry where quality trumps all. If you’re sure that the quality of your product is better than anything that’s out there, use that as your selling feature. You’ll have a lot of trouble selling the other features of your product (especially if it’s very well known).
5 ) If you’re getting a patent: Make it airtight, and defend it. There was one episode on Shark Tank where one entrepreneur created a pot with a self-contained strainer – basically there were holes in the side of the lid, so when you tilted it to the side it would pour out all the water. Great idea, right?
He admitted that large kitchen equipment manufacturers had already rolled him over by putting the holes in the top of the lid instead, and he didn’t have a leg to stand on since the patent was for the holes on the side. The lesson learned here: if you’re going the route where you’re getting a patent, you better make sure it’s airtight.
Also, if you’re getting a patent, defend it. Do you see a product on the shelves that matches yours? Get a patent lawyer right away to take it out of there. The reason you got a patent was so you had exclusive rights to it – it’s yours, take ownership of it!
6 ) Know your market. Who are you selling to? Find out and market the hell out of that sector. Go to trade shows, market on google, do what you have to do, just know your market and sell it to the people within that. And no, your product isn’t for “everyone”, don’t even think about it!
7 ) You don’t need an MBA to know about business – educate yourself. Look, I get it, an education is expensive. Plus you’d rather put your money into product innovation and marketing rather than that University of Phoenix degree. But that doesn’t mean you shouldn’t know the fundamentals of economics, marketing and business.
There are some great books out there these days that will teach you the value of business without the bells and whistles of a professional education. Don’t know where to start? Here are some books I’ve personally read that have helped me with knowing great business strategies:
- Moneyball by Michael Lewis
- Rework by Jason Fried and David Heinemeier Hansson
- The 4-Hour Workweek by Timothy Ferriss
- Strengthsfinder 2.0 by Tom Rat
- Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher
- Getting Things Done by David Allen
- The Black Swan: The Impact of the Highly Improbable:by Nassim Nicholas Taleb
- Purple Cow by Seth Godin
- Tribes by Seth Godin
- The 22 Immutable Laws of Marketing: Violate Them at Your Own Risk by Al Ries
Have you read all of these? Congrats, you’ve now got an MBA.
8 ) Understand your valuation. I’d say 99% of people that go on the poppular Shark Tank have no clue why they value the company the way they do. They say to themselves, “oh well, this product could be worth $10 million someday, so that’s how much it’s worth today”. WRONG.
The company is based on a combination of gross revenue, assets, liabilities, patent worth, liquidation worth, cash flow, the employees, and a bit of speculative magic. Fortunately there are some good quick-and-dirty ways to evaluate the net worth of your small business:
- Use an Industry Multiplier and Crunch the Numbers: Read this guide (from the Canadian government, but very easily applicable across countries), and realize what your company is really worth and find out how likely it is expected to grow in your industry using a multiplier based on historical data.
- If your industry is typically more mature and very conservative, use a lower number (such as four), but high-growth sectors such as biotech could be as high as eight.
- Find Comparables: Is there another company similar to yours in a similar market? Use their data to determine your net worth – better yet, use a variety of companies as comparables to find an average.
Unfortunately, as I mentioned before, there is a lot of speculative magic that goes into valuation. However, if you sell it right, you can play up the numbers and make your company worth more. Just ask Enron…
9 ) You’re a cockroach – know your role. Kevin O’ Leary loves calling people cockroaches. But you what? He’s right. Understand that you’re a small fish in a big pond. There are huge companies out there that would just love to crush entrepreneurs and take all their ideas and market.
However, if you make a quality product, start a brand, have some loyal customers and word-of-mouth marketing, it’ll be hard for the these big guys to take you down.
10 ) Don’t sink all your money into the idea. Got a great idea? Ok, cool, now, to create it does it require you to put a second mortgage on your house? It might be time to go back to the drawing board. Please, don’t take out extravagant amounts of debt to follow your idea, you may be digging yourself into a hole you’ll never get out of.
11 ) Finally, ask yourself: Do you really need investors? You should probably ask yourselves the following questions:
- Can you create your brand online through blogs and forums?
- Can you utilize Alibaba and Freelancer to create your product?
- Do you really need to hire people right now, or can you cold-call licensees and retailers to get your product on shelves?
- Are you in a city that has trade shows all the time that you can utilize to further sell your product?
- Can you create pamphlets using Microsoft Word and Kinkos?
- Do you have any friends in the industry you want to get into?
- Do you really want to give away 50% of your company to some money-hungry venture capitalist who is only looking out for themselves?
The world is a lot smaller than you realize – get out there and realize your dreams and sell that product. Who knows, it might be the “next big thing”.
How about you readers – got any good tips for small business owners or entrepreneurs?