Thu Jun 24 14:00:46 CST 2004
Guy Kawasaki is the CEO of Garage Technology Ventures, a venture-capital investment bank for high-technology companies. Previously, he was an Apple Fellow at Apple Computer. Guy is also the author of seven books. He has a B.A. from Stanford University and an M.B.A. from UCLA, as well as an honorary doctorate from Babson College. He is currently on the board of BitPass, a micro-payments systems company for online content.
Q: How do you identify your target audience? How many samples are sufficient to yield good indicative results?
There are three theories. First, because of your extensive industry or educational background, you have intimate knowledge of your target audience. Second, you build a product that you and your spouse want to use. Your sample is exactly one. Third, you build it and assume "they will come."
The first theory is the one most venture capitalists (VCs) like. Peter Lynch would favor the second one. My favorite is the third one: Take the shot, ship it and then test it.
Q: I can't seem to find any VCs that finance independent entertainment events and projects. Where should I be looking for this type of funding?
I don't know of a VC who would do this either. You're going to have to find someone who falls irrationally in love with your entertainment event. Don't try institutional investors unless they're investing their "play money." You're barking up the wrong tree.
Q: In a previous column you said, "If you have a good idea, five other companies are doing the same thing." As a VC yourself, would you even meet with a startup whose business plan competes directly with five other companies?
Sure, we do this every day. At least we know that lots of people think there's a market. The critical issue is why you'll succeed and the others won't. When someone tells me that "no one else is doing this," I conclude one of two things: (a) there's no market; or (b) you're so clueless you can't even use Google to find out that five other companies are doing the same thing. Neither conclusion is conducive to an investment.
Q: I know that a solid business plan is the key (in addition to personal funding) to securing funds for a startup. Can you give some pointers as to what investors are looking for and what types of investors will help in the business consulting field?
If you're referring to the document itself, then you're off target. A business plan isn't the key to securing funds. A business model is. There are three important components to a business model: the team, the technology and the size of the market. A few years ago, you didn't need any of the three to get funded. Today, you need all three. When the tide comes back, you'll need only two.
Q: I currently have a successful independent consulting business developing specialized test hardware and software for ASIC and IC designers. What is your recommendation for the best way to fund this type of enterprise?
Bootstrap it. It's hard in this environment to get funding for such hardware and software. Time after time, you'll hear that chip companies aren't buying anything right now or the existing testing companies can already do this. Sign up a few chip companies using your own cash and then try VCs in a few months.
Q: We have a product that would streamline job seeking and recruiting processes immensely. Yet our potential VCs told us to "cut this and cut that" out of the product in the beginning--but then we would be a "me-too" product! How can we differentiate ourselves and not get swallowed up by the big companies?
This doesn't sound like a VC deal. When VCs were telling you what to cut, it was their way of saying, "No," without saying actually saying it. I guarantee that if you made those cuts, they still wouldn't fund you. I must admit that I don't see the pain that you're solving for customers. The pain in the job market is caused by the recession...not by business processes.
Q: In December I was laid off as a director of sales and marketing for an Israeli high-tech company. Instead of jumping into the job market, I set myself up as a contract provider of sales and marketing services. No business plan, no fooling around, I just opened up the Rolodex and started dialing. After seven months I have three significant clients, two part timers on board and the cash flow equivalent to what I was earning before. My question is what can I do now to make this business a "property" with real value?
It sounds like it already is a property with real value. It's not going to go public on the Nasdaq, but not every company can or should. If I were you, I'd build a nice, profitable consultancy and live a happy life. As the Japanese say, "Who needs the tsuris?"
Q: I am pursuing a business-methods patent related to the health care industry. Have you witnessed any missteps by startups during the patenting process? Do you have any advice to avoid such pitfalls?
Unless it's hardcore technology (principally in biotech or medical devices), I wouldn't depend on a patent at all. Go ahead and file for it. It's not that expensive, and if you get it, it will impress your parents. But as a startup, you don't have the time or resources to litigate. The most common pitfall that I see is that entrepreneurs think patents make a company fundable in the eyes of VCs and that patents can make a company defensible.