Blog: Is It Really a Business?
Besides being an Angel investor I have worked with student entrepreneurs at local universities.
I run across many situations, where there isn’t an understanding of the difference between a product to build a business and a product that is an opportunity.
In my small business consulting days, I actually lost some customers, when they came with their product that was just an opportunity. When I tried to convince them is wasn’t worth trying to raise capital, they said, is essence, okay, “I go find someone who would tell me what I want to hear.”
To me, that is very common in today’s app world where numerous app products do not make it in the Angel investors’ world.
I have reviewed numerous presentations and incubator applications regarding student entrepreneurs. No doubt almost all of the product/services can help in the markets they propose, but can they build a business? Today you could form a company within an hour on the Internet, but I believe a business is a company that will eventually create a return on the dollar investment of investors and the hours of entrepreneurs and teams. Building a business can take many years.
In the early structure, as needed, validating the product and fund raising have to be in the top priorities, but I believe more attention in the coaching and training is needed for the business model.
Two action items have a way of separated opportunities from a business potential. One, is the difficulty in building a business model and two, in the validation period, not finding customer to say they will pay for it, even though the express excitement.
If I had to rate the recent ones I have seen as to be an Angel investor very few will survive because they haven’t thought out the business model. An example, app products can grow to hundreds of thousands of customers or clients but the question is, how to support that many and quite often that isn’t thought out on the amount of customer service that is needed.
Not too surprising, some presenters do a bad job in the basics, proving there is a market need, proving they have a solution and identifying they have a marketing/sales program to prove they can get investors to pay for their product.
In one case regarding the support estimate for seniors’ service, I told them, being a senior, I can relate to the many calls they can anticipate including the customer forgetting to plug the unit in. In this case, using just one-minute per call per year from the customers we figured out it would take six times more people than was planned for customer service. Of course most problems with first time entrepreneurs is for lack of experience.
I had a team that planned itself as a self-styled company. This was a company planning to grow with a small three-person team. I asked at what level did they think would be a success and they said $2 million in revenue. Dividing the $2,000,000 by the subscription price would require supporting 5000 customers -way beyond a three-person company.
There is a very good model called Canvas Business Model us that can be found on line under that name. I do believe the business model can be too a low priority, by some, in early planning, but at the same time it can be the foundation for building a successful business.