Make sure your cycle is virtuous.

I prefer to think of it as the two of you bailing me out of my personal financial crisis.

Please leave your firearms at home. Thanks.

Every first-time entrepreneur eventually must convince a complete stranger to hand over his or her hard-earned cash. It’s difficult to do because, by definition, a first-time entrepreneur has no track record. And, to quote serial entrepreneur David Cancel, “no one cares how smart you are except your mom.”

You need to build value to find investors, but how do you build value with no investors? Enter the virtuous cycle.

In an earlier post, I wrote that if an early stage startup “is valued on anything, it is valued on people, both those in and around the company.” People don’t cost you anything (in cash, at least), but they are the most probable way to start off a virtuous cycle of value creation in your first startup.

So, who are these people? If you know your industry, you probably know who they are already. Start by making a list of the 10-20 people you’d have involved with your business in an ideal world, and aim high!

Then, get connected. As someone who meets total strangers on a regular basis, I have three rules I try to follow whenever possible. I think these are just as valid for entrepreneurs:

  • Get a warm intro if you can: It’s never been easier in the history of the world to find someone who knows your target. Rule the interwebs, rock your social networks, and don’t be afraid to be persistent.
  • Come bearing gifts: Offer some sort of insight into the market, exclusive access to a beta pilot, free coffee, or whatever you think that person would find most relevant to them in exchange for taking the call.
  • Seek advice: Most successful people love to give advice — especially to young entrepreneurs in whom they see themselves. Use this to your advantage (not in a manipulative way, of course) to initiate the premise of a discussion.

As you form your portfolio of (a) informal advisors, you will naturally want to transition some of them to be (b) formal advisors to the company. Some of these may even become (c) board members, and (d) maybe even investors. You don’t always jump from (a) to (d), though, so it’s important to manage your pipeline to get at least 2-3 to the finish line.

While doing this, you should be cognizant of the mix of advisors/directors/investors you’re assembling. The goal should be to have all the necessary skill sets around the table you’ll need during the first 12-18 months of operations. Depending on your particular business, you should target:

  • Someone who has built a product like yours
  • Someone who has sold to customers like yours
  • Someone who has grown a company to a successful outcome in your industry
  • Someone who is a world-class technical expert in your field

Finally, remember that it doesn’t pay to aim low. Because you’re trying to set off a virtuous cycle, each person you bring to the table must be more impressive than the last. To the contrary, if person x+1 isn’t as impressive as person x, than person x-1 must be even worse, etc…

That cycle runs back to you, so you need to make sure your cycle is virtuous.

This entry was posted in Advice, Entrepreneurship. Bookmark the permalink.

Leave a comment!

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s