Lessons Learned

You Can Manage

While picking through the tangled dotcom wreckage, Janice Reynolds, author of Logistics & Fulfillment in E-Business: A Practical Guide to Mastering Back Office Functions for Online Commerce, has seen some common mistakes and distilled them into lessons learned. "You can learn not to be all over the place," she says. "You can learn that you have to have seasoned management. Some of them had really good ideas, but they forgot that at the end of the day, business is still business."

Reynolds recommends assembling an advisory board with an eye toward hiring one or two of the board members for your executive team once funding comes through. Having a solid advisory board from the get-go shows you're serious about bringing in seasoned expertise, and you'll be able to avoid immediately putting out the cash to pay high-level salaries.

When selecting executives, shore up your weak areas, and don't be afraid to rely on more experienced managers. Tanguay knows all about bringing in the right people. "Even as a CEO, you have to find management that really complements you," he says. "If you're weak in finance, you have to hire a good finance guy and let him drive the show." Pay special attention to your weaknesses before you solicit funding.

Indeed, a strong business plan (that old brick-and-mortar holdover) is now back en vogue for dotcom start-ups. The days of scribbling your idea on a napkin and fending off salivating venture capitalists are over. Market research, seasoned management and, yes, profitability are all back in the equation in a big way when it comes to cornering funding.

Reynolds sees it all coming back to basics. "[Funding] hasn't dried up, but venture capitalists have changed," she explains. "They've gone back to the old established way of dealing out capital. They want the real business plan. They want financials. They want to know that you've done your research, that you've got marketability. You've got to show them they can get probably a 40 percent return on investment."

Find out what not to do in those presentations in "7 Investor Presentation Pitfalls."

Lee Mikles' Internet advertising agency start-up, Insight Interactive Group, didn't go after the VCs at all. "We investigated venture capital," says the 33-year-old co-founder (with Mike Russell, 39, and Karen Warth, 34) and partner, "but we couldn't have gotten a meaningful amount without giving up significant equity."

It's a typical start-up dilemma: Get VC; lose a portion of the company. Don't get VC; fend for yourself. As it turns out, Insight Interactive, which opened its cyberdoors in early 2000 and is now a profitable venture, did just fine on its own. "One of the things that really helped us grow and made us survive the first year was a strong focus on financials," says Mikles. "We were able to do debt financing as opposed to equity financing. Our personal property was going to be on the line, so we brought in a rent-a-CFO. The banks commented that the work we did on that made it very easy for them to understand the viability of our business."

Whether you go to a bank or a VC for funding, get ready to be interrogated, and prepare accordingly. Reynolds has spent time gearing entrepreneurs up to go into battle with their business presentations. "I would have somebody grill me as if I was on trial for murder," she says. If you've done your legwork and fortified your responses, you run a much better shot of squeezing out funding from skeptical investors.

Like this article? Get this issue right now on iPad, Nook or Kindle Fire.

This article was originally published in the June 2001 print edition of Entrepreneur with the headline: Lessons Learned.

Loading the player ...

Former Apple CEO John Sculley: Steve Jobs Sold Experiences, Not Products

Ads by Google

Share Your Thoughts

Connect with Entrepreneur

Most Shared Stories