Dingman Center for Entrepreneurship

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.

Elana Fine, Managing Director of the Dingman Center recently participated in a live chat on Wednesday October 17with the Capital Business section of the Washington Post for their Business Rx column. Elana answered questions from regional entrepreneurs on improving and starting a business. This post features some of the questions from the live chat. 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.  Elana, I am building out my software business and I want to have an advisory board. Is this a good idea? How do I compensate them?

Elana Fine:  All startups should have an advisory board that can balance out any voids in expertise you might have and to help make additional connections. Some advisory boards are given equity, but some also volunteer their time because they enjoy working with early stage companies.  More importantly, you will need to differentiate between an advisory board and a Board of Directors (BoD).  A BoD has very specific rights and accountability whereas an advisory board does just that – advises the company, but does not have the same kind of decision making power as a BoD.  Typically, board seats refer to a Board of Directors and are related to equity stakes granted via angel or VC financing terms.

Q. I am a graduate student at a local university and I want to start a business with my engineering professor. How do I get started? No lawyers please – I already have lots of loans!

Elana Fine: You don’t need lawyers…yet.  If you and your professor are interested in spinning out a company based on university IP, the first place to go is your Office of Technology Commercialization. They will help you through the process of licensing the technology from the university. I’d also suggest doing lots of market research as well as speaking to a lot of customers in different industry verticals to understand the commercial opportunities of your product. Steve Blank’s Lean Launchpad class is a great model for this. Startups based on university technologies have significantly better chances of success, so good luck!

Q. My business has experienced a lot of growth in the past year and I can no longer run daily operations alone and I’ve recently hired 4 new employees. I have experience running a business, but very little experience being a boss. Can you give me some general advice on how to manage my staff? 

Elana Fine: We see a lot of entrepreneurs start to stumble a bit while they transition from starting a business to growing a business.  At your stage you need to make sure you hire staff members that are also self-starters who will not need to be micro managed.  You need to find people who will be almost as passionate and committed as you are, or your will lose momentum.  You also need to make sure that you keep your team focused.  A lot of startups fail because they lose focus and try to do too many things at once.  I’d make sure that 80% of what your team is working on is part of your plan (which will always be evolving) and the other 20% of their time is available to be opportunistic.  Have a checklist of top three priorities and if something doesn’t fit, don’t do it.  You should also make sure you understand your team’s work style and make sure they understand yours.  For example, if you’d prefer to be in touch via email. If you plan to have daily or weekly meetings, make sure they are on the calendar and don’t get skipped.

Q. Are you aware of any new state funding or tax breaks for entrepreneurs in Maryland? I want to start a kids clothing boutique but the tax breaks and credits seem to be only for biotech companies.

Elana Fine: There are a number of new funding opportunities in Maryland through TEDCO, such as the Propel Baltimore fund and Maryland Innovation Initiative but these are all more focused broadly on technology vs. apparel and retail.  I do not know of any breaks for a retail boutique.

Q. I have a full-time job and sometimes I do some side work by helping friends with their websites. While I charge for my services, I haven’t created a formal business. I know that if I ever formally create a small business, I will have to separate my personal expenses from my business expenses. Should I begin separating personal and business expenses now while my business is still informal?

Elana Fine: I’m certainly not an accountant, but sounds like you are at the point where you should keep a separate account for those expenses. Business expenses are generally tax deductible (so I hear) so you are better off keeping them separate.  If you are charging for services it is kind of like being half pregnant – you either have a business or you don’t.

Q. Does Maryland have any areas where students can run their businesses? It would be great if I could operate at a football game or at a basketball game.

Elana Fine: Our team at the Dingman Center is working very hard to create additional opportunities for student businesses on campus. There are a few regulatory/bureaucratic hurdles we are facing, but we are working with a number of partners across campus to create student marketplaces. Stay tuned!

Q. I am currently interested in starting my own brand of ice cream. How do I get in touch with an ice cream manufacturer who will be willing to produce my ice cream?

Elana Fine: I’d suggest networking with ice cream shops to understand who supplies their product. If you create a flavor they like, they might be more likely to make an introduction! You may also want to look in the dairy cases of high end stores like Fresh Market and Whole Foods who carry a lot of upstart ice cream companies – I know a few are made locally. There could be some partnership opportunities there.

Q. My friend and I started a company. I designed the product and he was going to be the COO/CFO. Now, we are close to getting some VC money and I am afraid I am going to be Eduardo from Facebook, the co-founder who winds up with nothing. What do I do?

Elana Fine: I just gave a few answers above that indicated not needing lawyers, but in the case of protecting your equity stake and rights you do need counsel. When you are negotiating term sheets with VCs, make sure you understand the anti-dilution provisions and what will happen in future funding rounds. Most founders will get diluted along the way, but you need to make sure you understand how, why, and when that will happen. In many cases you will have a smaller stake of a larger pie if the valuation of your company continues to increase. In general, I will repeat three pieces of advice that one of our angel investors gives 1) READ THE DOCS 2) READ THE DOCS and 3) READ THE DOCS.

Q. If the fiscal cliff happens, where do you see angel funding in 2013?

Elana Fine: I think the biggest driver in angel funding in 2013 will be related to increased VC funding or exit opportunities. Angel investing has been incredibly strong these past 2 years, but investors will hold back if they don’t see their companies receiving follow-on capital to grow the business and increase its value. The same goes for exit opportunities, if strategic buyers sit on cash and don’t grow through acquisition, angel investors will be less inclined to take the risk and will allocate investment dollars in safer alternatives. I think crowd funding is only one aspect of the JOBS Act that will have an impact. The increased cap on private shareholders, reduced disclosure requirements and broad classification of “emerging growth” public companies increase the access to capital and reduce the cost of taking companies public.

Q. We are trying to sell a new product in a fast growing market with existing competitors. Any thoughts on how we can introduce our product and gain some attention without cutting our prices too low or being forced to spend a ton on marketing? 

Elana Fine: It’s hard to say without knowing more about the product or the market you are targeting.  However, the key is just that. Understand what part of this growing market you can gain the best traction. Is there a customer segment that will appreciate a feature of your product vs. another? Is it a high end product that differentiates by a high level of customer service? Or will you in fact gain more traction by being a low cost provider? In a fast growing market, a newcomer can often be more nimble in attacking the fastest growing portion of the market, but you have to do your research to find your own niche. We often suggest that companies identify their first target market and then test three different ways to attract that market whether via social media, paid advertising, earned media, promotional events, or word of mouth. See what works and then double down.

Q. Hello, my wife and I have a small non-franchise residential cleaning service in Maryland. So far, our only marketing is through word of mouth and a simple website. Where should we go from here in terms of marketing our business?

Elana Fine: There are actually a couple of new local companies like Seva Call, Urgnt.ly and Trust Pages that are focused on connecting residential service providers to customers. Word of mouth is really the best way when it comes to service providers coming in to your home so you need to think about how you can engage new customers that will make referrals. You could think about going out to real estate agents and offering to clean houses for free before going out on the market.  If you do a good job they may recommend you to whomever buys the house or they may pay you to do the next job. One free cleaning may pay dividends in the future.

Q. I have an idea for a business I’d like to start, but I’d love to have an advisor who could help me think through all the particulars. Is there a resource in the D.C. area for that?

Elana Fine: There are a lot of great resources for startups around the area, such as FoundersCorp, Maryland’s SBDC, Startup MD/DC/VA, Foster.ly, DC Tech Meetups, ProudlyMadeinDC, Rockville Economic Development Inc., etc.  However, before you start thinking about paying for an advisor you need to first find the right advisors that understand the problems your company is tackling as well as the challenges that you are facing.  When you network, specifically say “I’m looking for someone with a skill set in X that can help me with Y.” I know I’m always more likely to make connections when it’s good match.

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.