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?
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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.
Originally published in the July 2002 issue of HomeOfficeMag.com