Does your business model need tweaking? Elana Fine, associate director of the Dingman Center for Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, was online at www.capbiz.biz recently to field your questions. Here are some excerpts.
Q: My partner and I are working on developing a beta version of our app. He says since it’s functional, we should release it to our beta testers. I say we need to make it much better before we let anyone see it, so that people are wowed and don’t get a bad first impression. What’s your take on this?
Elana Fine: Early users know that this is in early stages — but they can provide you very valuable feedback. That is really the purpose of a beta test. Many local start-ups have been extremely successful in launching companies following Lean Startup principles — get your minimally viable product out there and then get feedback early and iterate.
Q: What industries, other than tech, produce successful start- ups?
E.F.: Cupcakes! All kidding aside, I think we are seeing a lot of activity in the food space. Look at trends around specialty restaurants — burgers, cupcakes, frozen yogurt. Also a lot around organic, locally grown foods.
There is also a blurred line in many cases between tech and nontech — a lot of product companies now sell online. Is it tech because a product sells on a Web site? Start-ups around improving education and health care have no shortage of problems to solve.
Q: I would like to start a hair salon business, but not sure where to start. Most of the local finance sources are for tech companies. Should I just go to a bank or can I get funding from an angel investor? I am working on a business plan. Thanks!
E.F.: It is very hard to get angel funding for nontech businesses. I’d suggest talking to a bank and trying to get a small-business loan. The reason angels don’t invest is often because there isn’t an exit strategy. A hair salon can generate nice profits for the management, but angels typically like to see a return from a [merger and acquisition] transaction.
Q: I have been working on a great idea that will revolutionize the way people shop online. Problem is, most investors or prospective customers refuse to sign a nondisclosure agreement and I don’t feel comfortable talking to anyone about my idea without a certain level of protection. How do I protect my idea from being stolen?
E.F.: This issue comes up very often, so you are not alone in this dilemma. Investors at all stages rarely sign NDAs because they often speak to so many companies, they don’t want to be precluded from an investment opportunity. If you aren’t already in prototype or beta testing stage, you are probably too early to talk to investors. Select advisers that you know and trust for early feedback — and then conduct market research to determine if you are solving a problem or creating a product that potential users will find valuable. I think there are very few examples of investors stealing an entrepreneur’s idea — they have reputations on the line as well.
Q: My company is currently looking for angel funding. I am the brains behind the business, but I am horrible at pitching. Will investors be turned off if I bring in someone else to pitch my business for me?
E.F.: I always suggest the CEO should pitch because at the end of the day you are also the chief selling executive. Investors want to feel comfortable that you will be able to sell your vision to customers or other partners. Like anything, pitching takes a lot of practice. We spend a lot of time coaching students and local entrepreneurs on their pitches because it is for more than just raising money. Find some advisers and coaches who will help you — you’d be surprised how much progress you can make. Also, find the venues where you feel comfortable. Pitching investors doesn’t have to be in a crowd, one-on-one meetings are also very successfully in building rapport.
Q: My family is considering opening a pizza restaurant, but we are not sure what is the best way to look for location. My brother seems to think that we should look for a place with cheap rent; however, most cheap places seem to be in locations far away from busy places. My point is that we need to be in a busy place to get more people in. My brother seems to think that our pizza is so good that people will be willing to travel to get it and there is no reason to pay extra for rent. What would you recommend?
E.F.: The local restaurant scene is very competitive, so the old adage on location holds true. If you are in a less desirable area, you’ll have to spend more money on advertising to drive traffic. If you already have a brand, then I’d say you could sacrifice location, but as a new restaurant you could end up with cheap rent and a lot of leftover pizza.