Eight Strategies to Consider Before Starting A Tech Business
So, you’ve got an idea for a tech business, but you’re unsure about your prospects. What are important strategies to consider before starting a tech business?
A premier consultant, Joey Tamer, consults to Fortune 500 companies and capitalized start ups to launch, build and expand technology companies. She knows where to find capital and she is a wonderful person with whom to work – a true professional.
Here are Ms. Tamer’s answers to questions on how to launch a tech business:
Q: How much capital do you recommend?
A: Have at least one full year’s capital to support yourself and the costs of your business before beginning; have six months of capital liquid at all times. Nothing kills a business like lack of capital. Recovering from an under-capitalized business failure, particularly one fueled by debt, can take years. Beyond that, you are likely to make mistaken decisions based on the pressure of your debt. Capital allows you options and room and time to stumble.
Q: What kind of support system do you recommend?
A: Ensure your partner’s support. No matter what kind of business you start, get your partner’s support. Nothing will erode your joy or confidence at becoming an entrepreneur faster than negativity at home. What does your partner really feel? If you have chosen a business partner, ensure that partner’s support by creating clear legal documents spelling out ownership, roles, and responsibilities, including a buy/sell agreement, should one of you change your mind.
Q: What do you mean by planning for the hidden year?
A: Understand that there is at least a full “hidden” year in beginning your own business. This includes the thinking, the planning, the testing, the preparation…before you actually get into play, begin to raise capital, or bring your service to a client or your product to a market. Plan for the time and cost of this hidden year.
Q: What about assessing the risk of capital?
A: Whether you risk your own money to begin your business, or your extended family’s and friends’, or outside investors’, be careful to understand the impact of taking this money for your venture: what it will mean to succeed, and to fail with it; if and how it needs to be paid back or rewarded. If possible, build your first business simply, without needing outside investment, to go up that learning curve with less pressure. If possible, do not risk your mortgage or your pension to build this first business.
Q: What about starting a service vs. a product business?
A: Product businesses require more time and capital to build than service businesses. Certain back-bedroom businesses, particularly Internet-based ones, can reduce your capital outlay. Consider building a service business, like consulting or internet-based services, focused on your professional expertise, for your first business. If you do build a back-bedroom Internet business, put out your product or service as soon as possible, even as a “free trial” offering, so you can understand the market response. From this response, you can adapt or expand the product or re-direct its target market before too much time or capital is committed to an untested idea.
Q: You offer a great reminder that business is not revenue and revenue is not profit. Can you explain?
A: You may be fooled that you are working successfully because all of your time and thoughts are absorbed by the new business. Not true. Being busy does not necessarily create revenue. And revenue coming in does not necessarily create profit. Learn to work smart, not hard and to judge whether you are adding any profit to your pocket – what remains after the business costs and the taxes, including a reasonable salary to you. The IRS considers any business that does not show a profit within the first five years to be a hobby.
Q: You recommend getting needed expert help by creating a virtual team. How so?
A: There is much that you are expert in; there is much you do not know. Get the help you need from industry experts in start ups, technology, finance, marketing, law and so on. Network among your colleagues, friends and groups to find these experts, and pay the experts what they are worth. Get at least five references on each candidate and check every one.
Be clear what you need, what the expert will provide, and what costs you will pay for that help. If your expert does not completely please you during the first couple of months, determine what needs to be done to get you satisfied. If that fails in the next 30 days, find another person to help. You can create your initial staff through virtual teams, avoiding the complexity and legal demands of employing folks.
Q: Finally, you advise staying flexible and create no blame. What do you mean?
A: Running your own business is not for everyone. If you don’t like it, or you find it too overwhelming, or it is more trouble and cost than it is worth, close the business. Eight out of 10 businesses fail in the first two years; of those remaining, another eight out of 10 fail by year five. To fail at your first business is not to fail as a person. If you liked running your business but it failed due to unanticipated market changes, or unexpected product competition, or some other factor, learn from what happened, assess the risks, and build your second new business. Life is long, and filled with opportunity.
Note: As a fellow member of Consultants West (www.consultantswest.com), a roundtable of consultants that meets regularly in Los Angeles, I’m proud to say I’m well-acquainted with her credentials. Ms. Tamer also advises consultants on the growth and profitability of their service companies. Clients include J.P. Morgan Capital, Sony, IBM, Apple, Hearst, Blockbuster, Technicolor, Harper Collins, NEC, Time-Warner, Agfa and Scitex.
Her Web site: www.joeytamer.com.
For more of her strategies, here’s her blog in the Wall Street Journal on Strategies For Finding Venture Capital In 2010.
From the Coach’s Corner, here’s a tip on branding your business:
Not to point fingers, but the State of Washington’s failed branding tagline, “Say WA,” serves as a good reminder about creating top-of-the-mind awareness.
It drew widespread criticism, including from me, when it was unveiled a few years ago. After market research, the Washington Department of Community, Trade and Economic Development finally dropped the approach.
The slogan failed to answer the basic Marketing 101 question, “So what?” that every buyer subconsciously asks. It’s all about value mixed with a dose of minimalism, thriftiness and conservation. That’s especially true even in our recovery from the Great Recession. Many Americans have learned the lessons that senior citizens have known since the 1930s.
The economic climate reminds me of what my beloved dad used to say to me during my misspent youth: “It’s not how much you make; it’s how much you bring home.”
A cute tagline may appear to be clever, but it usually does not deliver a return on the marketing investment.
Another way of putting it, make it easy for your target audience to make a buying decision by keeping in mind a consumer-oriented acronym, WIIFM, or what’s in it for me? Remember every buying decision is based on emotion. Pique the emotional interest of your target customer. If the consumer can easily make a favorable decision after seeing the slogan, you’ve got a winner.
Has China Prompted U.S. Tech Innovation and Funding?
Hopefully, recent developments are much like the U.S. space program thwarted Sputnik threats in the 1950s
While China depends heavily on commodity imports to fuel its economy, the country has developed a strategic advantage in technology with serious implications for U.S. security. And as Google has learned, China has cybersecurity issues.
China has surpassed the U.S. as a provider of technology information and products. China has also cornered the market in minerals known as “rare earths,” which are needed for production of technology products, such as computer disk drives and missile guidance systems.
Aside from dominance in the rare-earth sector worth about $1 billion, such developments have serious implications for the U.S. in commercial and military development. The minerals include cerium, dysprosium, lanthanum, and neodymium. China has invested in its rare-earths mines. But it now has gained control of processing technology and has underwritten the largest system of rare-earth research and development in the world.
Helping to fuel its growth, many U.S. companies have moved sophisticated facilities for manufacturing and research and development to China. The companies include Cisco Systems, Microsoft, Motorola and Nokia. That was 10 years after two Chinese companies, with the help of U.S. partners, reportedly bought an Indiana company, Magnequench. Magnequench was responsible for 85 percent of minerals used in the production of “smart bombs” for the U.S. armed forces.
That meant the U.S. military no longer has such a domestic manufacturer using rare earth technology.
In addition, you might remember the China-Unocal controversy in which the oil company was eventually acquired by Chevron. It’s now theorized that the state-run Cnooc also coveted Unocal because its subsidiary, Molycorp, owns the only rare earth mine in the U.S., but it isn’t operational for economic and environmental reasons.
China’s Partners
China has made global friends by initiating other global information-technology inroads:
It inked an agreement with Kenya to provide low cost wireless e-mail and telephone services. Kenya is in an 800-million person continent where such technology has been unfathomable in many areas.
A Chinese company also built a major telecommunications facility in Angola. Surprisingly, the Chinese company will forego revenue opportunities to service Angola’s new telecommunications system.
China is also making inroads in radar and remote sensing technology in the use of microwaves for high-resolution aerial pictures. Scientists can now take aerial photos that have greater clarity even under difficult inclement conditions, day or night, even to photograph underground objects. The new system is called Synthetic Aperture Radar, or SAR.
The applications for aircraft and satellites are enormous – from agriculture to defense.
China has developed another global ally in economics and politics – Spain. Ostensibly, hoping for economic favor, José Luis Rodríguez Zapatero – the socialist Prime Minister of Spain – lobbied to remove the U.N. arms embargo of China.
Senor Zapatero was also instrumental in the sale of 20 Airbus A330 jets to Air China. Spain, Germany, France and the UK help underwrite Airbus. The jets were worth $3.1 billion.
The socialist is reportedly a devotee of the late Chinese Premier Mao Tse-tung, who was a founding member of the Chinese Communist Party in 1921.
Possibly prompted by such developments involving China, a bipartisan series of bills were introduced in the U.S. Senate to step up spending for domestic scientific education and research. Co-sponsors are also citing competition from India.
A package of legislation known by the acronym PACE, or Protect America’s Competitive Edge, was prompted by 20 recommendations by the National Academy of Sciences in 2006. The organization called for job creation and innovation.
PACE doubled funding for research, provided scholarships to entice new math and science teachers, and extended the credit for research and development. It would alter the visa process to encourage foreign students to remain in the U.S. after they complete their educations.
The minimum price tag for the first year: $9.5 billion. It received support, for example, from the Institute of Electrical and Electrical Engineers – U.S.A. The public-policy group was formed in 1973 and has 235,000 members.
PACE captured headlines abroad. A headline in The Indian Express read: “U.S. tech bill: Boost our team but retain foreign talent.”
Competition from China and India and the resulting Senate bill and a wave of patriotism are reminiscent of a major event nearly 50 years ago during the Eisenhower presidency. Those were simpler times when manual typewriters were widely used, many Americans used a party-line telephone with their neighbors, and there was no Super Bowl.
Suddenly, the Soviet Union launched Sputnik I into space in the fall of 1957. Just weeks later, Sputnik II was launched carrying a dog. That was powerful stuff just before America was to celebrate Thanksgiving. Americans were caught off-guard and they went on alert.
Those two colossal events were the catalysts that prompted the U.S. to massively promote science and technology.
It marked the launch of the space age and the space race between the U.S. and Soviet Union, which deepened the perceived threat to Americans at the height of the Cold War. I was very young, but I remember the bold headlines and elementary-classroom safety drills, as Americans were fearful of the implication that Soviet nuclear-armed missiles would be capable of demolishing the U.S.
The difference between then and now is that relatively few Americans today seem to notice the threat to this nation from abroad in science and technology.
While the PACE Act never passed, and with the nagging federal deficit, deeper problems persist. High school dropout rates are enormous. Even with the current resurgence in MBA school enrollments, it’s still troubling that only about 25 percent of young Americans are interested in obtaining an undergraduate degree.
In 1956, President Eisenhower was sufficiently liked by a majority of voters who enabled him to easily ride to re-election on an “I like Ike” theme. He couldn’t acknowledge that the U.S. already had significant knowledge about the Soviet military and space buildup, as a result of the CIA’s reconnaissance U-2 spy plane built by Lockheed. But the Soviet threat was widely acknowledged in this country and it was easy to rally Americans.
That’s not the case now.
While a significant number of Americans are wringing their hands about job outsourcing, many parents aren’t stressing education to their children. They aren’t connecting the dots between quality jobs and education.
PACE would have been a good start but it won’t solve the underlying cultural issue – nonchalant American attitudes toward education. PACE will need a well-orchestrated, bipartisan promotional effort to motivate parents and children about the benefits of higher education. We can’t afford not to get it done.
From the Coach’s Corner, how would you like more Wi-Fi choices when you’re on the road? There’s a Web site that will help you locate a Wi-Fi location before you even leave your home in the morning. It isn’t a complete listing, but it does list 110,000 hotspot locations in 26 nations. Many are free.
You’ll need to enter the city or zip code where you’ll be traveling at this Web site: http://www.technewsworld.com/hotspot-locator/. (Caution: Even if your system is encrypted, you risk the security of sensitive data by using such hotspots.)