Elana Fine, Managing Director of the Dingman Center recently participated in a live chat on Wednesday January 23, 2013 with the Washington Post’s Capital Business magazine for their Business Rx column. This post features the answers to some of the questions posed by regional entrepreneurs on improving or starting a business. Follow the Dingman Center’s Facebook Page and Twitter Page for information on the next live chat and other Dingman Center news and events.
Q. I’ve seen a trend for healthy eating, but there doesn’t seem to be any major chain known for its fast food being completely good for you. Do you think a chain of drive-through healthy fast food restaurants would prosper in today’s market?
Elana Fine : This has proven to be a very tough market to crack. It turns out there is actually only a small part of our population that demands healthy fast food options. In fact, we are actually seeing the opposite happen with burger chains and cupcake shops exploding. Subway might be a good model to try to imitate. They took something standard like a sub and pitched it as a healthy choice. Look for a product that requires limited behavior change, but is significantly healthier than a burger.
Q. I have a great idea for a small business that would allow me to do something fun while filling a void in local services. That being said, I’m a federal employee who is slowly paying down my law school debt while saving for a house and starting a family. How would you advise someone like me to deal with the insecurity of giving up a steady paycheck and benefits?
Elana Fine : This is often the hardest obstacle in getting started. A lot of times entrepreneurs are the only ones who think their idea has legs, so it becomes hard to build support and justification for leaving a job. You need to back your idea with data on market needs, look closely at those examples, and understand the startup costs and runway needed to fund the business. You will probably need to max out your credit cards and sacrifice some savings, so if you don’t completely believe in the idea or your ability to execute, then hold off. Finally, you will need to sell the idea to the people who will be supporting you! Start by pitching to them the same way you would pitch your business to a customer.
Q. I think that one of the reasons that I continue to work for someone else is that I know I don’t have all of the skills needed to run a business by myself. I need a partner who could take the lead on sales while I take the lead on other aspects of the business. How can I find a like-minded partner for a new business?
Elana Fine : You are smart to understand your own skill set and where you might need help. I’d suggest starting your search with a couple avenues. First, find industry networking opportunities where you might find others with similar interests, yet complementary skills sets. Second, look for resources, such as CoFoundersLab, a local startup that works with entrepreneurs to find their co-founders. Third, you can always recruit in the way a larger corporation or late stage startup would, look for successful companies in the sector and try to hire their executives. You might find that there are a lot of people itching to do something new.
Q. I recently read that VCs base their investment decisions more on the entrepreneur than on the business. I am used to focusing on selling my business idea when I pitch. Do you have any tips on how I can better pitch myself and my team as entrepreneurs to VCs?
Elana Fine : I’d say it isn’t just the entrepreneur, but the entrepreneur’s ability to execute. While the idea and the business are important, the real differentiator is the entrepreneur’s plan for growing the business. VCs are looking for unique business models and monetization strategies rather than repeats of past successes. An entrepreneur can’t walk in and say they are going to start a mobile app company that will generate revenue through downloads and ads — that has been done before and VCs want to hear something different. It is the entrepreneur’s job to sell them on how they see and do things differently.
Q. I’d like to start a business to help people with personal finance like investing for retirement, saving for college, debt management, etc., but most businesses like this are located in office parks where people aren’t likely to see it by passing by. How do I market such a business?
Elana Fine : These kind of service businesses typically don’t require a high priced storefront location because someone looking for a personal finance company is probably not looking for one while they are taking a stroll like they would a coffee shop. Storefronts have high fixed costs, making it hard for a services business that may have more variable revenue streams. You would be smart to consult a marketing professional, but from a startup perspective, you should look at other companies on the market like HelloWallet, Mint.com and others that are building Web-based, scalable offerings in this market.
Q. I have a full-time job as a Web developer and often think that I could jump ship and become a freelance developer. However, I also know that when someone sends me an unsolicited email offering a service, I almost always ignore it. How can someone start offering a freelance service without having their offers ignored?
Elana Fine : There is a huge void in the local market for development talent, though I wouldn’t suggest sending unsolicited emails. Instead, you could make a name for yourself quickly by taking on some small projects for local startups (even if for equity at first). The startup community is close-knit and likely to make referrals for you if you do a good job. Announce yourself at a D.C. Tech Meetup, local FB community or other events and you might be on your way!
Q. I recently read that one of the biggest mistakes a startup can make is asking for too much money. How can entrepreneurs zero in on the right amount of funding to ask for? Should you ask for the amount that you need or the average amount a particular firm usually invests?
Elana Fine : It is a delicate balance to find the right amount, but it does lend to your credibility as an entrepreneur. Different companies will have different funding requirements, so I wouldn’t go for an average. You need to target the firms based on whether they write checks in the range you need. If you need $10M, don’t go to a VC that focuses on $3-$5M. I’d make two recommendations. First, you need a solid financial model that credibly factors in R&D, sales and marketing and other expenses (low on salaries!). Once you figure out the best case, figure out the worst case and plan for that scenario. Think about how you can raise money in tranches, receiving the 2nd tranche after you have hit some performance milestones. Second, make sure you are approaching VCs that invest in your sector, stage and dollar amounts. Don’t waste your time if there is not a good fit.
Q. What is your opinion on using crowdfunding platforms such as Smallknot and Kickstarter as a way to fund small businesses? Is there anything small business owners should be mindful of?
Elana Fine : I think Kickstarter and other crowdfunding platforms are a viable alternative for bringing new products to market, but I’d suggest learning the ropes before engaging. Each platform has its own limitations and learning curve. You could spend a lot of time on a Kickstarter campaign and never get close to reaching your goal. I’d be sure to pursue other funding alternatives in addition to crowdfunding. You need to be thinking about your next move after you fund the initial project – what will you do next to build a business? How will you fund your next steps?
Elana Fine was appointed Managing Director of the Dingman Center in July 2012, after joining the team in 2010 as Director of Venture Investments. As Managing Director, Elana’s primary focus is leading the Dingman Center in support of its mission and strategic plan. Key responsibilities include oversight of our student venture incubator, Dingman Center Angels investor network, business competitions, and technology commercialization efforts.