Your Top Start-Up Questions Answered

Money & Finance

Investors Vs. Bootstrapping

Q: I am seeking funding in one of the most unforgiving economic climates in modern history. My company specializes in making CD business cards. Initially, I drew up a business plan with a budget for $150,000. However, this is way too small for venture capital, while being a hefty price tag for an individual investor. By the way, friends, family, credit and SBA loans have all been explored.

So I drastically altered my budget, creating a $28K model. Now, after wining and dining one angel investor for months only to have him back out in the end, my question is this: Where can I find and approach people who would be interested in an investment of this size?

A: Yours is a classic problem, and it is difficult to solve. Most people don't want to invest in unproven businesses or people-they want to think that something is about to take off, and then get on board. That doesn't seem fair to an entrepreneur who is trying to get off the ground, but unfortunately that's the way it works.

If there is any way to bootstrap it-to take a job and work on this at night until you got revenue going-that would be my first recommendation. Getting investors is a major step, and after you have them, your life will be harder, not easier. Before that, you are only responsible to yourself-after that, you have to keep their best interests at heart, and there is responsibility and liability that goes with that.

If you believe that getting investors is the only way to go, then look around for a local incubator (preferably a nonprofit) by searching at www.nbia.org. You'll find people there who can help you network with investors.

Setting Prices

Q: I am in the process of starting a landscape design company. I have management degrees, horticulture degrees, affiliations, etc., but I seem to be clueless on where to set my baseline costs. I need some type of schematic for costing. Should I tell the potential client that it will cost a flat rate to visit-creditable to the design should they choose to undertake my services? What if they do not like my design and I have spent the initial time (five to 10 hours plus travel, photos, measuring, etc.)? Reimbursing them would be out of the question!

Currently, I visit a client, explain my fees and request $100 (nonrefundable)-this covers the usual one- to two-hour interview and measuring plus travel and photos. It is barely enough. Halfway through, I show them where my design has taken their yard, and at that point they may change it (somewhat) without penalty. Once we have all agreed on a direction the yard will take, I bring the design back to the drawing board for the homestretch. Upon finalization, I request the balance. The problem is, I am leaving myself open to a lot of gray area regarding personal interpretation of the design, and consequently nonpayment. I have not run into this yet, but it's only a matter of time.

A: It seems to me that you really have a handle on this business and are asking all the right questions. After reading this, I'm struck by the similarities between your business and mine (contract software development). The sales process is very similar.

My thoughts are that you should develop a nice one-page "fact sheet" or something that explains how you work. In it, I'd lay out the things that you will deliver and what you'll charge for them. This will give people a clear understanding that this is how you make your living and that they shouldn't expect free stuff.

At my company, we developed a two-phase development process. We would have a meeting with the client and learn about the project, and then tell them that phase one was the design phase. For that, we charged $X per hour, and at the end of that they would have a complete design for the project. Then we could do the implementation phase for $X per hour or they could take our design to someone else.

Now, your business seems to be different in that you only have the design phase, but I think you can handle it in the same way. I would meet with potential clients and tell them that there is no charge for an initial meeting. I'd talk about what they are doing, give them some ideas (a taste of your talent) and learn what they're looking for. Then I'd go back and work up a design proposal, saying that you charge $X per hour and that you estimate that this project will take between X and Y hours. Then bill them for every single hour you spend on it.

Depending on how large a job it is, you can give them preliminary reports to show them the direction you're taking-if they don't like it, they can either change it or stop it. Either way, you get paid. If they don't like your design, well, that's the way it goes.

The chance that any client of yours is taking is that they will need to spend a little money to see how good you are. I think that anyone who isn't willing to do that is probably going to be more pain than they are worth, and you probably don't want them as a customer anyway.

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