Today I’ll continue with my series on the Entrepreneur’s Guide To Venture Capital.

The Grandmother Test

Most people never get into see venture capitalists because their business plan doesn’t get read.

Why?

The executive summary is poorly written. The executive summary is the two to three pages at the beginning of your business plan that gives an overview of what’s in the document. Your business plan might be 30 or 50 pages and the venture capitalist doesn’t have time to read it if they don’t think they will make a potential investment. If your executive summary doesn’t compel the investor to read on… she won’t. Your plan will end up in the garbage can and they’ll move on to the next deal.

Here’s an example of the first paragraph of a poorly written executive summary that came across my desk a few years ago. I’ve blanked out the company name for confidentiality purposes:

“ _____ has developed collaboration applications that are based on a flexible, modular, and extensible software framework. Our products are ideally suited to cross-enterprise, cross-platform applications. Our system architecture gives us a strategic advantage for deploying collaboration to many platforms – including the latest generation of wireless hand-held devices – while providing organizations with strongly encrypted collaboration capabilities, fine grained security and access control.”

So what the heck do these guys do? I came from a software background and it took me three reads to try to understand it. If you’re not technical then forget about understanding this company’s value proposition.

Remember that VCs will not understand your business and your industry to the extent that you do – you’re the industry expert and if you put in too much technical jargon and don’t answer the simple question of: “Why is this important?” then you’ll lose most of your potential investors right from the start.

The Grandmother test is a great tool to use to help you get funding. It basically means show your executive summary to your grandmother (friends, family, people who don’t really know what you do) and see if she can understand the value. If your grandmother gets it then chances are the VC will to. If it’s too technical for grandma, rewrite it and put it into plain English.

He’s one of the Top 25 Businessmen Who Broke The Rules And Won, he made a $4.5 million salary last year and he’s the #14 Top Celebrity Entrepreneur.

In 1999, Michael Dell was giving a lecture on the ABCs of entrepreneurship to a business class at his psuedo-alma mater, the University of Texas. When it came time for the question and answer period, one of the students eagerly stood up and asked Dell why, despite being worth over $17 billion, he continues going to work each day. “You’ve got so much money,” the student said. “Why don’t you just sell out, buy a boat, and sail off to the Caribbean?” Dell stared back at the student and replied, “Sailing’s boring. Do you have any idea how much fun it is to run a billion-dollar company?”

Dell transformed a dorm room venture into one of the world’s largest billion dollar corporations. He became the youngest CEO in history to ever head a Fortune 500 company and he created a revolutionary new model for doing business in the information age.

How did he do it?

“I saw that you’d buy a PC for about $3,000, and inside that PC was about $600 worth of parts. IBM would buy most of these parts from other companies, assemble them, and sell the computer to a dealer for $2,000. Then the dealer, who knew very little about selling or supporting computers, would sell it for $3,000, which was even more outrageous.

At the root of it, I was probably just opportunistic. I had and still have a great interest in computers. There was a business opportunity [with] this product that I really liked, and it all kind of lined up together.

Well, we started the company by building to the customer’s order. And interestingly enough, we didn’t do it because we saw some massive paradigm in the future. Basically, we just didn’t have any capital [to mass-produce].

One of the things I benefited from when I started this business was that I didn’t know anything. I was just instinct with no preconceived notions. This enabled me to learn and change quickly without having to worry about maintaining any kind of status quo, like some of my bigger competitors.

I had to give it a full go and see what happened. I couldn’t resist the opportunity. The deal was, I would start into business full time in May, and at the end of August we would take a look and decide if it was doing well.

There are a lot of things that go into creating success. I don’t like to do just the things I like to do. I like to do things that cause the company to succeed. I don’t spend a lot of time doing my favorite activities.

I dropped out of college because that’s what I thought would happen. So, that for me was in 1984 and I started a company around that idea, believing that more and more people would know how to use PCs, that they would become easier to use, that even people could buy them without going to a store. We had a sense for it in the early ’80s but certainly couldn’t say we imagined it. It is just the way it happened I was, you know, rebellious–an 18, 19-year-old and just did what I wanted to do and all worked out OK.

The key is to listen to your heart and let it carry you in the direction of your dreams. I’ve learned that it’s possible to set your sights high and achieve your dreams and do it with integrity, character, and love. And each day that you’re moving toward your dreams without compromising who you are, you’re winning.

Don’t spend so much time trying to choose the perfect opportunity, that you miss the right opportunity. Whether you’ve found your calling, or if you’re still searching, passion should be the fire that drives your life’s work.”

Are you still waiting to find the “perfect opportunity”?

This week’s Entrepreneur University comes thanks to Robin J. Elliott. For more than 19 years Robin has worked with small business owners helping them attain success through joint ventures.

You may remember Robin from his previous contributions:

• 3 Easy Examples Of How To Joint Venture
• 50 Benefits Of Joint Ventures – Entrepreneur University

Today Robin shares with us his thoughts on how to create a motto that works for you:

“What is your motto for your life? The Elliott Family Crest contains the Motto, “Fortiter Et Rechte” – Bravely and Truly. My person Motto is “Freedom at Any Cost”. Your Motto tells you a lot about yourself, your values, purpose and beliefs, your goals and your philosophy. And using your Motto correctly can empower and revitalize your life. When I come home the first thing I see on the wall is the Elliott Crest and my Father’s ceremonial Air Force dagger. It reminds me of my Warrior mindset, the love and support of my family and my Motto. There are some really motivating and inspiring Mottos out there, especially military Mottos. Look at these:

The Pain is Temporary; The Pride is Forever (Israeli Military)
Who Dares Wins (English SAS)
Through Adversity to the Stars (Canadian Air force)
Fortune Favors the Brave (American 3rd Marine Regiment)

A Motto that is displayed, remembered and honored will help to focus and ground you. How would you feel if you were entering a difficult situation and you repeated your Motto, “Any Time, Anywhere, Any Weather” (USS Salamonie) – would you be more resolute? Would you be more determined? How about, “Do Right, Fear No one” (Norwegian Artillery)? If you were to repeat your Motto on a regular basis, it would undergird and encourage you. What about creating a wall plaque, a desk sign, a banner, a screensaver, an e-mail signature with a strong Motto that really worked for you? It would tell the world a lot about you as well, of course. (When I see some loser wearing a marijuana leaf pendant, I know exactly what his Motto is.) Here are some you might want to consider for yourself:

Can and Will
Deeds not Words
Rise Above the Rest
Yield to None
The Higher I Climb, the More Gallant I Am
Bound to Win
Hard as a Rock

If you’re religious, here’s an opportunity to use your favorite verse, like “I can do all things through Christ who strengthens me.” One of my mentors, whenever you asked him how he was, would reply, “I’m Happy, Healthy and Successful.” Isn’t that great? What you say and believe becomes a self-fulfilling prophecy. The DollarMakers Joint Venture Forum Motto is “Together, we do amazing things.” What do you call yourself? I’m the Prophet of Profit.”

Do you have a motto for yourself and your business? What is it?

Even though I have been studying luck and fortune for quite a while now, I am still surprised by how many successful and famous people attribute at least part of their current position to luck.  People like Jack Nicholson, Paul Newman, and even Bill Gates have been quoted citing the significance of luck in their lives.  It takes a strong person to work hard for what he or she wants.  It takes a stronger person to admit that it took more than hard work.  If you want to be a successful entrepreneur, you know you will have to work hard.  You may not know that you will have to be lucky too.

Luck is not some mystical, magical pseudo-science.  A first-century Roman philosopher defined it best: Luck is what happens when preparation meets opportunity.  These simple words are often dismissed as a little too cute to be true, but I think an entrepreneur can benefit from this definition of luck.  To become a luckier entrepreneur, all you must do is improve your preparation and increase your opportunity.  Too many of us focus on seeking more business opportunities.  This unbalanced pursuit will be fruitless without preparation.

How many opportunities have passed you by, because you were unprepared?  An investment opportunity with no capital?  A site traffic spike with no content?  A new market segment in a foreign culture?  Is an opportunity without preparation really an opportunity at all?

For an entrepreneur, preparation usually comes in the form of research and education.  Studying markets, assessing customer needs, learning news skills, and expanding your abilities are all forms of preparation that can make your next opportunity a lucky one.  Some of my favorite preparatory entrepreneurial activities include:
•    Reading relevant blogs like YoungEntrepreneur.com,
•    Contributing to entrepreneurship forums,
•    Studying a second language to work with larger markets,
•    Reading books by masters like Kiyosaki and Trump,
•    Expanding skills like web design to cut down on unnecessary outsourcing, et cetera.

Preparation is only half the equation, though.  A good entrepreneur must locate (and recognize) great opportunities.  Sometimes they can be spotted while doing the above activities, but additionally one should be alert for places in which relevant skills can be applied.  Some key things to remember about lucky entrepreneurial opportunities:
1.    An entrepreneur might spot an opportunity in the classified ads or on a community bulletin board or just walking down the street.
2.    Read what your customers read, and be alert to signals that they will be changing their spending habits.
3.    A lot of good luck has come my way when I least expected it, but no good fortune has ever sprung up while I was on the couch.  In other words, be where the action is.  Interact and mingle.
There is a lot of work to do before you can become the owner of a successful business.  You will have to do everything better than your competitors.  You will have to rise earlier, work later, make more calls, deliver better service, and be more flexible than everyone else in your industry.  After all that, with a little luck, you will be exactly where you want to be.  Good luck!

About the Author

Skyler Reep is the 25-year-old entrepreneur behind PEER Enterprises, LLC.  Early projects included web services and widgets like his cash dimensions calculator, but most of his recent effort has gone into the research and writing of his first book, Luck-Struck: How to Take Control & Create Your Own Luck.  He is lucky enough to live and work in the shadow of the Tetons in beautiful Jackson, Wyoming. www.skylerreep.blogspot.com

Today I’ll continue with my series on the Entrepreneur’s Guide To Venture Capital.

What To Do In Your Meeting With A VC

Lose Your Ego

Nobody wants to work with an egomaniac. As entrepreneurs, we tend to be passionate about our companies and many of us have a certain amount of ego. Don’t let it get in the way of your company’s success. Be open and listen to the advice and feedback you get from the venture capitalists. Show them that you’ve made mistakes in the past and that you’ve learned from them. You have a long memory and won’t make the same mistakes twice.

Get To The Point

Be able to succinctly explain what your business does and why it represents a great investment opportunity. This is otherwise known as the “Elevator Pitch.” Imagine that you’re on the top floor of a building and you get into the elevator only to find that a potential investor also gets in the elevator with you. Now you have from the time you get on the elevator on the top floor to the time you reach the lobby to convince the investor that there is something of value in what you’re doing. Have a 60 second pitch ready as well as a longer five minute version and get to the point when you go to your investor meeting!

Back Up Your Numbers

By the time you get to the meeting with a venture capitalist you would have sent in your business plan and attached financial plan. VCs love numbers and will scrutinize every detail of your plan. Make sure you can back up your numbers with explanations as to where it came from and what it represents! Venture capitalists too often see financial plans that have been strung together with little thought or analysis and if you can’t answer their questions about your numbers then you’ll be associated with that group of unprepared entrepreneurs. A good practice exercise is to meet with your accountant first and ask her to pretend she’s the VC. Accountants usually are very detail oriented and will grill you appropriately on your numbers.

Merry Christmas everyone!

Thank you for your loyal readership, for all the comments and advice you’ve left over the past year and for helping us break new subscriber and traffic records!

I hope you had a wonderful Christmas and take the time to enjoy the things that are important to you!

After celebrating, make sure to come back to the blog because I’ll be updating it every weekday throughout the holidays and I have some exciting posts lined up that I would love to get your feedback on!

Today I’ll continue with my series on the Entrepreneur’s Guide To Venture Capital.

Investment By Industry

As I’ve mentioned in previous posts from this series, venture capitalists look for high growth companies where they can earn a substantial return on their investment in a short amount of time.

This generally leads VCs to invest their money into companies that are in explosive and constantly changing industries. It’s not impossible to grow quickly and make substantial gains in an established industry but it’s more difficult.

As mentioned in Part 6 of the series, in the third quarter of 2008, venture capitalists invested $7.1 billion into 907 different deals. Today we’ll look at where they money is going by industry.

In terms of dollars invested, the Biotechnology industry came out at the number one position with $1.35 billion invested. Software was a close second at $1.34 billion. The Industrial / Energy industry came out in third position with $1.2 billion and in fourth spot was Internet-specific companies receiving $1.1 billion. Rounding out the top five was Telecommunications with $323 million.

In terms of number of deals done, the Software industry is the clear winner with 214 companies receiving funding. Internet companies came in second with 194 deals, Biotechnology was third with 114, Industrial / Energy was fourth with 96 deals, and Telecommunications was again fifth with 45 deals.

What’s interesting is that Internet companies were number four on the money list but number two on the number of deals list showing that VCs don’t think it takes a lot of money to start an Internet company and that they have an appetite to invest in online business models.

He had spent his entire life tinkering with ideas, most of which the rest of the world would call him crazy for. I

t was not until King Gillette was in his 40s that he would patent and begin to sell his disposable safety razor.

It was an invention that made him a household name and revolutionized the shaving industry in the process.

Today, Global Gillette continues to rank as one of the most dominant brands in the industry.

The idea might have come to Gillette in an instant flash of inspiration, but how did he manage to turn it into a profitable company that has lasted for more than a century?

“As I stood there with the razor in my hand, my eyes resting on it as lightly as a bird settling down on its nest, the Gillette razor was born. In that moment I saw it all: the way the blade could be held in a holder; the idea of sharpening the two opposite edges on the thin piece of steel; the clamping plates, with a handle halfway between the two edges of the blade.

They made money for others, but seldom for myself, for I was unfortunately situated not having much time and little money with which to promote my inventions.

The greatest feature of the business is the almost endless chain of blade consumption, each razor paying tribute to the company as long as the user lives.

There is no other article for individual use so universally known or widely distributed. In my travels, I have found it in the most northern town in Norway and in the heart of the Sahara Desert.

The razor was looked upon as a joke by all my friends. A common greeting was, ‘Well, Gillette, how’s the razor?’ If I had been technically trained, I would have quit.“

This week’s Entrepreneur University comes thanks to Donald F. Pooley. Donald, “The Advisor’s Advisor”, has shared his marketing know-how with audiences of life insurance men in all major Canadian cities, London, Australia, Chicago, New York, San Francisco, Hong Kong, and Singapore, and now in his free ezine.

Donald is a popular resource for the blog and has already been featured twice before:

• 7 Myths About Successful Selling – Entrepreneur University
• 6 Steps To Getting Referrals – Entrepreneur University

Today Donald discusses how to get more mileage from your marketing:
“If an article about you (or by you) appears in a newspaper or magazine, don’t just show it to your family then file it away, use it as a marketing tool thusly:

1. Reprint, Reprint, Reprint

A favorable article on your company or service is marketing gold. It implies that the publication or website has given its endorsement.
The best part is that you can enjoy the benefits of this third-party endorsement long after the article appears.

To re-print an article from any publication in its entirety, you must get its permission. Most publications have special re-print departments to help you.

2. Add it to Your Website

Show off your newly acquired media placement on your website. If you get a lot of publicity, set up a special area (for example, “As Seen In”)to display your placements.

Take a screenshot of the article including the publication’s logo, and place it permanently in the “As Seen In” area.

3. Mention Your Placement in Your Newsletter

If you send out a regular newsletter to your clients, and prospects let them in on your popularity with the media.

4. Contact Existing or Potential Clients

Impress your existing or potential clients by tooting your horn with an email or postcard, alerting them that a story about you (or by you) has been published.

5. Pitch it Again!

Take your story angle to a different publication or website. Make sure to bend the angle to match the publication’s editorial slant.

6. Internal PR

Place your article in a handsome frame and hang it in a visible area of your business or office. The story adds legitimacy to your business and provides entertainment for your waiting customers.

If you don’t have a waiting area, put the article behind your desk facing your visitors or in your meeting room.

7. Other suggestions

* Sales Materials. Brochures, Marketing Materials and Trade Show Handouts, like claims in self-produced brochures, are taken with a grain of salt. But if a credible publication makes those same claims on your behalf, make sure it gets front page placement in your sales materials.

* Speech handout. One way to keep a speech working for you long after the chairs are folded up is to distribute your article with your business card and company information to all attendees.

* Business card. Place an important quote from your article on your business card.”

How have you managed to get more mileage from your marekting?

Our 31st Review our Blog entry comes thanks to Brian from Nothing to Lose. You can read what he had to say about us in his blog post: Weekend Review: YoungEntrepreneur.com is Not Just For the Young.

Brianlinton.com is home to Nothing to Lose, a blog about the trials and tribulations Brian Linton faces as a young entrepreneur.  This website, however, is not just for young entrpreneurs to read, but anybody aspiring to either start or grow their own business.  The lessons on this website relate to marketing, branding, selling, PR, customer service, tradeshows, motivation, and any other topic that entrepreneur’s face on a daily basis.

Brian started his first company, Sand Shack, at the age of 19 in Cape Cod, MA.  He started his second company, Kofi Coffee, at 20 after he moved to Philadelphia, his current home and headquarters for everything he is currently involved with.  In addition to his two companies, he is involved in a variety of other entrepreneurial projects, which include mentoring and advising other startups.

Thanks for the review Brian!

If you are interested in doing a review, check out our Review Our Blog initiative for instructions.