A post from Scott Shane on the OpenForum blog stirred some interesting thoughts in me, from the perspective of an entrepreneur and from the perspective of a someone deciding whether to work with entrepreneurs.
The post discusses the pro's and con's of "ham and egging" a rather brilliant term, coined by Professors Amar Bhide of Columbia University and Howard Stevenson of Harvard Business School that encapsulates the challenge entrepreneurs have of getting both capital and customer commitments without having either in-hand. Salespeople are natural ham and eggers, particularly those who are selling in start-up environments. They have to make the case that their company is perfectly capable of providing service X without any experience of having done so successfully.
Having had my share of visits on Sand Hill Road, I can vouch for the importance of having customers in-hand to indicate the future profitability of your concept--the bigger the customers the better. And yet, often without funding those big customers aren't comfortable doing business with you.
The conundrum reminds me of a Superbowl Ad I saw several years ago for a brand I don't remember (go figure): A fledgling start-up gets the big order it's been waiting for, an order so big it threatens to destroy the business. Without capital, the big customer engagements that often attract more capital are meaningless.And yet, let's be real here: How do you get customers and capital without someone taking a risk on you? Without that friend and family round, or that friend on the inside of a large business who is willing to vouch for you? What gets a business without customers or capital off the ground?
This is a question that fascinates me.
I try to envision how we overcame this in my own business. We had customers before we sought funding, but how did we get customers? Based on my own experience and observation of other businesses, the following can help you generate the spark you can grow on:
Let the first risk be yours: When we launched our first BlogHer Conference (which would later grow into the media company) we goaled to have our costs covered by sponsors. And if we didn't close any? Credit cards. In fact, my partners had already opted to put the conference on their cards when I met them, which doubly incented me to help them find sponsorship. This gesture made it much easier to get sponsorship: We weren't asking for support of an event that we "hoped" to put on; we had a conference that was going to happen, period. This alone made our first sponsors--or customers--believe we were the real deal. We ended up paying off the credit cards immediately after the event.
Applying this further, what's your risk? Some pro-bono work? An out-of-pocket trip to a conference that will provide some needed visibility with future clients? Some savings you dip into to build a prototype? I don't know of a successful venture that has started without some initial outlay of personal resources. Related to this point ...
Don't freebie your way to the top: Yes we get it, you're in start-up mode and don't have the expense account or resources to buy your way onto people's radars. None of us did! In-kind deals you make for publicity, accounting services, office supplies, you name it, are smart at the outset and help you look the part of established business, but don't rely on them forever. At the end of the day, you get what you pay for. Companies tend to put their best foot forward with paying customers; chances are, you are getting the dregs of your partner's time and effort.
As you grow, look at your partnerships and consider if they are still providing value. Drop those you no longer need, or that are no longer giving as much value as they are getting. You need every last inch of your resources for growing your business. And if you realize that you are providing less value in an in-kind partnership that you still need, start paying for it.
Make your asks realistic: When we first approached companies for sponsorship, and later for advertising revenue across our network sites, we researched what the market valued and paid for and factored that into our pricing. When we partnered with more established companies, we made sure we offered up value to match the value we were receiving. This sounds like an obvious one, but there are businesses that learn this the hard way. They don't assess their value first, and so their requests for partnership, sponsorship, funding, you name it fall on deaf ears.A new entrepreneur asked me to review her business plan; she was hoping that her fledgling Web site would be acquired. Just the fact that she was already talking about acquisition concerned me:
"What's your growth plan?" I asked her. She turned over the one sheeter she'd handed me, which had a paragraph about "Future earning potential": She'd build an eCommerce component and syndicate her content. I wondered, to whom and with what? She had yet to earn anything with her site and had never done anything like what she was promising she'd do. She was ham and egging unsuccessfully.
Unless you have a tangible grasp of the value your business provides, you cannot effectively get customers or funding. How are you basing your projected earnings? How can you position your current status to indicate that you are providing value? How many people do you attract? How much savings have you achieved for clients? How many have reported you exceeded expectations? There are so many ways to find ways to quantify your value--just pick some!
By the same token don't undervalue what you offer."Getting by" is not a business strategy. When people ask you what you charge, have an answer and, provided you have a rationale for it, stick to it. When we first went into the marketplace, few companies were selling premium advertising on blogs. The market was still unproven and hence undervalued. But we insisted on our pricing, which was commensurate with what premium non-blog sites required. We argued the point with advertisers and were willing to make good if we underdelivered, but we didn't settle for free trials or egregiously lowering our rates to close. Now, there's more data on the effectiveness of blog marketing that bolsters our pricing, and we're glad that we don't have to argue to raise our pricing to the level where it should have always been. It's much harder to justify raising your prices after the fact.
Bloggers can be the worst offenders of undervaluing their product. Hey, I have nothing against blogging for others for free, but when I'm getting something that I need out of it--exposure, clients, or experience writing about a new topic. But if you are writing for a site that is leveraging your popularity and expertise for its own gain, of course you should be compensated. Ask yourself, "am I getting new readers, clients, or a credential from this?" If not, that's OK, but at least get paid for it.
As a rule of thumb, consider value first, then worry about the money. And if you can't afford not to worry about the money, plan a deadline in the future by when you must be making money, or stop what you are doing. Successful businesses must have proven value first and foremost. For all the debate over how well (or badly) Facebook and Twitter are monetizing, I still think they did things right by building addictive tools first, and then figuring out how to back in a business model. Imagine their first sales calls if Facebook had done it the other way around: "We're going to build the world's largest social network; and here's what we're going to charge you today for that ..." Would you have written a check?
Speak!: Speaking can help you leap over some of those nagging obstacles that throw off aspiring entrepreneurs. You know the ones--missing chunks of experience that on paper may make you seem like a bad bet, or a flimsy Rolodex. By speaking you can provide your know-how in a "warm" setting, for people who can catch a glimpse of your competence without the walls that they might normally set up when they feel they are being pitched.
When people feel they are learning something, they will give you and your product the benefit of the doubt. They are more willing to ignore, or find a way to compensate for, the unchecked boxes. I think of vendors that I meet at conferences that I might not normally think about as viable business partners, but whom I see present. Seeing their work in context, or their knowledge of a subject, I start to build a case for them: OK, he's never built a version in a live setting, but what if we get him in a conversation with our developer?... So this isn't a fit for me, but it's a TOTAL fit for one of my clients. I'll just provide an intro...I wonder if she'd want to speak at our business conference? You get the gist.
