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At a presentation I gave recently, the audience’s questions were all along the same lines: “How do I get in touch with venture capitalists?”  “What percentage of the equity do I have to give them?”  No one asked me how to build a business!
– Arthur Rock

It is interesting to read this quote from Arthur Rock, think about who and what he represents (he is often credited as the father of the venture capitalism concept) and realize the profound accuracy of his words.   When I left an Arizona law firm to pursue the ideas that eventually became STARTright, I determined what I had to offer was worth the inevitable risks.  Having helped so many business owners start and run their LLCs, I knew the concepts I taught could be implemented in an application.  Starting a business is difficult however.  It rarely goes as planned, and usually administers a painful hindsight education.  Sometimes, however, we are fortunate enough to have front row seats to the experiences of others that can save us some buffetings. If we are perceptive, we can have one of those rare moments in business where we learn the truth without weathering the trial.  Such was my experience when I started Trinacle in the summer of 2007.

After renting office space in Orem Utah, I met my neighbors, a mobile application company that had been developing for three years.  At first I was in awe and insanely jealous of the guys who owned this company. They had received a quarter million in investment from friends and family and lived quite well for most of the three years.  I had lunch and talked with them many times; the conversation was always the same.  “This application is going to be as ubiquitous as the cell phone itself.  It will revolutionize advertising.  We have spoken with Google and they estimate our value at 2 billion dollars!”   WOW!  That is a lot of dollars!

Over the five months in which we shared a building, I watched them go from stars (or dollar signs) in their eyes, to panic, and eventually they settled on hopelessness.  The problem was not specifically a failure of looking beyond the mark, rather they were looking at the wrong mark.   These guys were four very accomplished developers who understood little about business.  They were developing to be bought, and had no intention of ever trying to market the product themselves.  I had asked one of them when they could have released their initial product if they had done so in portions or stages.  He speculated the some time in the previous year.  In the same breath however, he reiterated all the reasons to stay in development and not go to market.

They had conceived the product in their minds, and determined its value in the same abstract forum.  The goal was set to be rich.  The strategy went like this: “Develop to be purchased, getting purchased equals getting rich. Going back to Arthur Rock, and his musings about his MBA schooling years, he remembered a Professor Georges Doriot to have said, “If you’re interested in building a business to make money, forget it. You won’t. If you’re interested in building a business to make a contribution to society, then let’s talk.”

When they started out, they failed to answer two key considerations.
1. Will the public truly want or benefit from this venture?
2. How will we prove that?

Most of us think that the public will benefit from our product.  But, until we go to market, we haven’t proved it.  If a venture capitalist or investor finds you on your path to prove it, you will be in a much better bargaining position.  Do not go into business to get bought however, such is the road of the mercenary.  Go into business to build something, and if it is right, those with the money will come.

Tags: Funding, Small Business, Start Up, Venture Capital