I received quite a lengthy comment on my previous post on this topic and rather than posting a lengthy comment in reply, I decided to post something instead as a follow up. The comment was posted by an anonymous reader:
Well, I don’t know about South Africa but in America if you are a
small business (and you sound really small) a venture capitalist won’t
be interested unless you have a really great/new idea. However, many
businesses that are looking for funding start with an angel investor
first. This is someone who likes your business plan and is willing to
invest his own money in the venture.
You do have a business plan don’t you? If not, no serious investor
will go near you. If you want to attract investors you need to have a
plan for launching, running and growing the business.
Be prepared to give up a large portion of your business and when all
is said and done your investors may end up with majority ownership.
Also be prepared to demonstrate that you have the experience and
background to run this business. You started a year ago and bombed and
by your own admission you didn’t know what your target market wanted.
You need to be able to answer tough questions like this. Venture
capatilists want a significant return on their investment so they are
very selective with choices for their funding.
I don’t mean to sound harsh but it sounds like you think enough
money will make your new idea successful and this is not the case.
True, a lot of start-ups fail because they are under-capitalized but
there are many other factors that determine business success.
While things here work slightly differently (for example, the Department of Trade and Industry has set up an organisation called Business Partners with the specific purpose of supporting and developing small and medium enterprise and this includes a range of investment options), many things probably remain the same. I think the tough questions that I will have to answer are the same questions that help me (and any other entrepreneur) improve and develop the best model for the business. One thing I have no doubt about is that no investor will give up his/her money for a great idea. One important lesson to emerge from the late 1990s is that a cool idea is not enough, you have to have a good business.
I have gone back to basics with my business (something I kinda glossed
over when I launched last year) and the more I flesh out the idea, the
better the actual business seems. The business I am referring to is a
revised version of the site I launched last year October. At the moment the site is a bit rough (I made a very rough set of alterations to the pages to incorporate AdSense banners) and is pretty close to the original version. To add to it all, I had a huge fight with the original developer who created the site and have since moved to Wizardworx (their banner is at the top right) who have been really great.
As things stand now, the site has to be revamped. Together with the guys at Wizardworx, I have planned the new site and the business that it will support and it is going to be completely different to the current site. I am basically going to turn the whole thing on its head and go from a Google style site to more of a Yahoo! style site. The big catch at the moment is that it will cost a fair amount of money to do that work and promote the site and that is where I am. It isn’t that money will make it alright and transform the business into a brilliant proposition for its customers. Why the money is important is because it is a great enabler. It will enable me to achieve what I wish to achieve and free me to focus on the business itself instead of working on ways to finance the business.
Ultimately this is all a learning experience, particularly for entrepreneurs like me for whom this is really the first few steps away from employment into the relative unknown. I have a few options so far and I am still doing all that work I ought to have done last year (for example, a business plan). So far I am confident I have a better handle on the business than before. I’ll see just how well I have done my homework when I upgrade the site in due course.