The Business Blog at Intuitive.com

Dave Taylor has been involved with the Internet since 1980 and is widely recognized as an expert on both technical and business issues. He has been published over a thousand times, launched four Internet-related startup companies, has written twenty business and technical books and holds both an MBA and MS Ed. Dave maintains three weblogs, The Business Blog at Intuitive.com, focused on business and industry analysis, the eponymous Ask Dave Taylor devoted to tech and business Q&A and The Attachment Parenting Blog, discussing topics of interest to parents. Dave is an award-winning speaker, sought after conference and workshop participant and frequent guest on radio and podcast programs.

How do I raise money for my startup?

In an ongoing discussion on a great entrepreneurs mailing list I'm involved with, a member has begun talking about his desire to raise some serious capital to grow his business faster. In response, another member challenged him to write an "action plan" to detail what he was going to do so his business would evolve from its current nascent state. That's not enough, however, and here's what I wrote in response...

Actually, as someone who consults with investors and companies raising capital, I will say that what you need, and what any entrepreneur needs isn't an action plan, but a business plan. You need to really flesh out the business opportunity, not the idea. Your business (Painted Snapshot), as a business, would need to have a quantified marketing plan, partners, affiliates, staff, a scalable backend, a method for identifying, qualifying and training additional artists (if needed), and a projected profit and loss statement with an emphasis on costs. Worry about 12 months, not years out, but you have to be able to show unequivocally that it is a lucrative, scalable business.

In my experience, the very last thing any investor does is loan you money to get your business fully fleshed out. The odds of an investment of that nature being a success (e.g., earning a decent return in 24-36 months) are very, very slim. Far more likely is what happened to one company we invested in when I was Entrepreneur in Residence for a small incubator: the guy just vanished once the check was signed and two weeks later I bumped into him at a café. He was showing off his brand new Harley. Not good. VCs know this and there's a whole "yacht money" syndrome referring to this problem, actually.

Realize too that you don't need to have a great business plan because in many ways, it's the process of going through the steps to develop and realize your plan that are the most important. Instead of saying "we'll get to marketing once we have funding" you have to actually plan out a coherent and comprehensive marketing plan, for example. Far more valuable. (see this too: how important is my business plan?)

Also, there's a classic catch-22 in the staffing department worth mentioning too: too many startups tell investors "we have great execs lined up once we have funding". That's the wrong answer. The senior people need to already be on board and committed to the project, or they're just filler in the plan, not real executives you can leverage when trying to raise capital. If they can't afford to work full-time without pay for a few months, well, maybe they're not the right match for your business after all. Remember, it's passion that drives a young business, not capital.

So my advice to you as it is to all entrepreneurs is that you need to really get into the mindset of growing a business, not "doing something cool" if you really want to raise investor capital and grow your business to the next level.

Good luck!

Side note: The business in question is Painted Snapshot, and I'm a happy customer. Tom does brilliant work turning photographs into oil paintings. They're splendid gifts too. Nonetheless, as discussed in this article, is there a business here, or just a very cool hobby?

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