Tag Archives: New York Angels

7 Small Businesses Lessons From Tech Startups

Small Business Lessons from High Tech

What can every small business learn from tech startups? David Rose, founder of Gust.com and long-time leader of the New York Tech Angels, says normal businesses are different from tech startups, and offers small business lessons he’s taken from decades dealing with what high-end tech startups do as they start. He says:

One of the most valuable lessons I’ve seen proven true over and over again, is that many of the biggest obstacles that businesses face along the way can be avoided IF you take care to start things up correctly from the beginning. When launching a company, investing a little bit of time and money at the very start can pay large dividends later…but only if you have a solid foundation, a thoughtful structure, and a strong focus.

That’s from 7 Lessons Small Businesses Can Learn From Tech Startups, published in Forbes yesterday.

What’s a startup to you?

For the record, David’s view on startups is somewhat different from mine. I think of every business that starts up as a startup. He defines startup more narrowly:

While all businesses “start up” and start out “small”, not all “small businesses” are “startups”. Whereas a small business is founded to be profitable and create a good living for the entrepreneur and his or her family, a “startup” is founded with the intention of rapidly achieving exponential growth through scale, and either being acquired in a few years by a larger company, or becoming a “unicorn” and going public in an IPO…in both cases bringing in massive returns to its founders and investors.

The 7 Small business lessons

We come back together, however, on what David Rose recommends all businesses do. He’s recommending all businesses should take the same care that his version of startups do. That includes:

  1. Get smart. Read up on it. There’s so much wisdom available for a few dollars. Take the time to browse the essentials. David doesn’t mention it in this context, but his book Startup Checklist is a good one.
  2. Resolve your business model. Know how you make money. How will people pay you, and why.
  3. Get initial feedback. Talk to people about it. Find people you know who have experience. And listen.
  4. Analyze the market. “You must understand the landscape you are about to enter, inside and out.”
  5. The business plan. All businesses deserve business planning. I’m quoting him in detail in the next section, below.
  6. More feedback. Now you have market knowledge and an initial business plan. “At this stage you are looking for substantive comments about the business and market, along with specific critiques (don’t take offense; listen to them carefully!) and actionable insights.”
  7. Put it to the test. Launch. Do it. “The biggest test will be to see if customers really want or need what you are providing, and to understand if they are willing to pay for it at a price at which you can afford to supply it.”

The business plan we all need

And my favorite of David’s recommendations is the business plan.

“Many entrepreneurs draw up a complicated business plan as step one, but end up wasting a lot of time rewriting it as they work through their business concept. If you’ve done all the previous legwork and feel confident that your concept is marketable, viable and profitable, the next step is to begin to write it down. You’ll want to use a simple, structured format to note the various things that you are going to need to do to implement your business idea. For now, don’t worry about a long document for investors…just start by writing down bullet points outlining what is supposed to happen, a timeline, assignment of responsibilities, cost analysis, and revenue projections.

I strongly agree with him on this. We may not all need a that “long document for investors,” but we can all use the kind of business plan he suggests, “bullet points outlining what is supposed to happen,” and so forth, in that last sentence.

And then there’s this, my favorite part of David’s article, his recommendation.

There are some great resources available for this, and the best I’ve seen is the web site leanplan.com, by Tim Berry, the legendary author of Business Plan Pro. The site offers an online course you can purchase, as well as commercial online tools such as LivePlan, but it also includes the entire text of Tim’s book ‘Lean Business Planning’ for free. As you’ll learn from Tim, the most important thing about a business plan is not that it be long, but that it be live. An effective business plan is a living document, reviewed and updated every month, that adapts to the market, the field, and your actual results.”

Did I bury the lead?


More About Angelsoft.net and Angel Funding

(I posted Organizing Angel Investors Monday on Up and Running about positive developments in angel funding. David Rose, CEO of angelsoft.net, added the following as a comment to that post. Although I haven’t had guest posts on this blog, David’s comment is worth it. And I’ve been using angelsoft.net for a while now, I know it’s good. So I’m posting David’s comment here as if it were a guest post.)

Tim, you are absolutely correct in your observations about what’s happening in the angel world. Historically, angel investing has tended to be a personal, haphazard thing, with entrepreneurs and angels finding each other almost by chance. During the dot-com boom, however, angels in various cities who repeatedly found themselves in the same deals began to organize into semi-formal groups, in order to share deal flow and expertise, and pool their funds to make larger investments.

After the crash, when venture capital firms effectively stopped funding during the ‘nuclear winter’, the Kauffman Foundation, dedicated to supporting entrepreneurship, figured that the best way to help entrepreneurs was to jump start angel investing (which, as you know, accounts for more startup investing annually than all VCs put together.)

So Kauffman convened a summit meeting of the major angel groups from around the country, and out of that arose the Angel Capital Association, the professional alliance of angel groups, and the Angel Capital Education Foundation, which trains angels and entrepreneurs in best practices. This past week we held the 2009 ACA Summit in Atlanta, at which over 300 leading angels and group managers from around the country got together to meet each other, share best practices, and work on syndicating deals.

At the same time the ACA was being formed, many of the angel groups were in need of a solution to help administer their organizations, encourage collaboration among angels, and enable cooperative investments both among groups, and between angel groups and VCs. Thus arose Angelsoft, which today provides the back-end infrastructure for virtually the entire global, organized angel investment community. Five years after its founding, Angelsoft supports 17,000 accredited investors in 450 angel investment groups in 45 countries.

While Angelsoft is not a ‘matching service’, nor does the company itself make investments, the platform functions much like the CommonApp for college admissions. The difference is that because the vast majority of angel groups use the system to manage their deal flow and collaboration internally, there aren’t parallel systems. So if an entrepreneur applies for funding to a group using Angelsoft, they’ll be working on an Angelsoft-powered application no matter how they got to the group in the first place.

This provides a number of advantages, among which is the need to only fill out an application once. After that, applying to any other Angelsoft-based group is a matter of a single mouse click. And entrepreneurs can find groups that invest in their type of company by using the Kayak-like sliders in Angelsoft’s investor search engine at http://angelsoft.net/startup-tools/investor-search.

Another by-product is that for the first time entrepreneurs have some visibility into the often-murky operations of angel groups. Because Angelsoft powers all the group’s processes, the system can provide entrepreneurs with statistics including how many other companies have applied for funding this month, how long it typically takes the group to review a submission, what percentage of applicants to a group actually get funded, and so forth. For example, check out the profile page for New York Angels, my home angel group here on the east coast, at http://angelsoft.net/angel-group/new-york-angels

Finally, one of the coolest things is that with all the angel groups on a single platform, Angelsoft is now also being used by other parts of the early stage industry, including, as you pointed out, VCs. Over 50 venture funds use Angelsoft to process their deal flow, and many of the leading venture law firms, such as DLA Piper and Cooley Godward, are beginning to use the platform to refer clients to angel groups and venture funds for consideration.

We are living in a fascinating time with fast moving changes in every area, and the expansion and growth of the Internet promises to bring some much needed order to the chaos of early stage funding!

-David S. Rose
CEO, Angelsoft
Chairman, New York Angels