Randall ReadeWashington DC ArchAngels Founder

Founder, The Washington DC ArchAngels, which has met monthly since 2011. Reviewed over 3500 companies and have presented over 450. On Quora.com, I have answered over 1800 questions on early stage companies, angel investing, funding, and entrepreneurship, and have been certified as a Most Viewed Writer in those categories.

Recent Answers

No entrepreneur wants to hear this, but one of the biggest reasons companies fail is because of the entrepreneur. There is a term, "founder's disease" that investors like to use, and it refers to an entrepreneur who already knows everything, thinks he's got it all figured out, and has a business plan that he thinks will work. However, there are real problems -- and he won't listen to anyone because he already knows everything and has it all figured out.

These types are uncoachable and won't take advice from anyone. They have a plan and they are going to stick to it no matter what. Also, they tend not to want to share in success because they are so sure their idea is going to make them millions, perhaps even billions.

How can you spot one of these people? They don't like hard questions about their company, they get defensive when you ask them such questions, they dismiss competition and don't treat it seriously, and they can't understand why you won't put money into their company right now.

When I deal with entrepreneurs, I like to push them a bit or be a little rude because I want to see if they give me attitude. If so, that's pretty much a clear indication that they have founders disease. Investors will never put money into such a company because they almost always fail.

How many simple household kitchen products under $5 currently exist?

I could go down the aisles of Walmart and count thousands. Amazon probably sells thousands more. Those are only the mass marketed products. There are thousands more that are sold only online, or only through certain types of stores.

Put that altogether, and there are hundreds of thousands of products similar to yours. Now ask yourself: how are you going to stand out from all of those, educate the consumer on what you are selling, and get them to part money and spend it on your product, and not the thousands of other things competing for that same $5.

Then you have to convince that consumer to keep buying your product even as more come on the market trying to shove you aside.

As you can see, it ain't easy. The only person you should be talking to is a person who has already done exactly what you are trying to do -- sell inexpensive household products.

Those people are not easy to find. They don't need you or your business, and they don't hang around bars where other entrepreneurs hang out. When you find that person, he or she must get excited enough about it that they see the possibility of a making a lot of money in it.

You can't pay these people enough of a salary. What they want instead is a piece of equity in your company. They will want at least one-third or more of the company. that's fine! Give it to them because that is your best chance of selling it.

After you have a couple of years of strong sales, then you want to sell the company to a large conglomerate. This person will already have those contacts in the industry and will position your product so that it fits in the lines of a Proctor and Gamble.

This is the only type of person you should deal with. Consultants will take your money and if they don't deliver, they still get your money.

So where do you find the right people? You have to cultivate ties in the household product industry. Go to conventions, ask questions of everyone, learn as much as you can. Visit trade shows, find people who used to work at the big conglomerates but are now retired, or left to start their own business.

It isn't easy, but then you haven't chosen an easy industry to break into.

There are lot of questions here. First, you got good feedback -- from whom? If from your friends and family, that's worthless. If from a professor or consultant of any sort, that worse than worthless.

The only feedback that is worth anything of course is the market itself. IF the product sells, it's good; if it doesn't, it's no good. Since that makes its chicken and egg issue, the next best feedback is from someone who has sold something similar in the market and has been successful at it. Everyone else is just guessing, at best.

Unless you can say that the feedback you got is from someone else who holds a patent in the same field and has worked for or started company that because very successful selling that. For instance, if I want to sell a new type of soft drink, I would want feedback from someone who has sold new soft drinks successfully in the past few years.

Assuming you have that feedback, and it is positive, then you must consider why a indiegogo campaign? The fact is that most campaigns fail to raise any money at all, much less their targeted goal. To do a successful indiegogo campaigns requires several months of planning and quite a bit of time, effort and money to get the word out. Do you have a marketing plan that will drive at least 10,000 people to your indigogo video?

These are questions I would address before doing either action.

You are right to be suspicious. This industry is filled with vultures and consultants who, for a fee, are willing to tell you whatever you want to hear. If their advice turns out to be wrong or otherwise worthless, they don't really care -- they already got your money. I've seen many companies ruined this way.

Instead, you should find an experienced person in the field and ask him or her to be a part of your company. Offer them a healthy equity slice in exchange for their contacts and know how. This way, he or she has skin in the game and incentive to have you grow as quickly as possible. By making them a part of the team and given a large equity slice, they are unlikely to steal the idea, as they would only be stealing from themselves.
The really good ones are hard to find. They don't need you. They certainly do not come out to tech meet ups, or seminars or what ever watering hole entrepreneurs like to hang out at. You have to do your research, find them, and convince them that they can make a lot of money by joining your company. IF they like you and the idea, they will do so. If not, ask them why not, and make whatever adjustments they desire.

If I got a cold call from someone who asked me what my pain point is, I would hang up on him. That's because I am too busy to take time out from my day to sit and think about all the things that bug me, slow me down, cost me money, or hamper my ability to make money. There are probably a dozen things I can thing of, and if I thought about it probably 100 things. But I am not going to waste my time thinking about all this just so you can take my ideas, start a company and make a ton of money by reselling my own ideas back to me and not offer me a dime in compensation.

And that's probably how a lot of business owners would think. So the problem with your approach is that you are missing the one critical element for success in any field -- you must have good relationships first before you call anyone up.

Let me say that another way: Success in business is almost entirely based on personal relationships! If you don't have personal relationships with people you want to do business, you simply will not get anywhere.

So before you do this, you should either develop personal relationships within the niche you are contemplating, or decide your niche will be within the personal relationships you already have. Which is easier? Obviously, the latter.

So start with the business people you currently know. It could be the person who cuts your own and owns his own hair salon. It could be the immigrants who run the dry cleaner that you always take your clothes to each week. It could be your neighbor who is a lawyer. You catch the drift.

Once you have a relationship, they are much more willing to help you out, and you can continue the conversation over time. They likely won't be able to think of anything immediately, so just encourage them to write down anything that comes to their mind as they go about doing their job.

It will also help if you take them out for coffee, and be sure to pick up the costs. they are going YOU a favor, so you should at least return the favor.

1. Make a list of all your business ideas.
2. Eliminate the ideas that you cannot execute on within six months in your current status. It doesn't matter why not -- whether you have enough money, time, or talent to do it. Contrary to popular belief, starting a company does not start with the product -- it starts with what YOU can do. You may have the best product in the world, but if you are incapable of selling it or finding people who can, your company will go nowhere.
3. Of those that remain, you must do your research. By that I mean, you first must google the hell out of it. Most likely, someone else is already doing something similar, or it was already tried and a company failed at it. Find out why it failed. If another company is doing it, dig deeper to find out how they are doing, and what markets they are currently. Also, research the bios of all their team members and compare them against your own team. If you are falling short on expertise compared with them, it's probably not a good idea to directly challenge them.
4. Do more research. Talk to a CFO who is in the industry and ask him or her what the likely profits are for each.
5. Choose the idea that will generate the quickest amount of profits in the shortest period of time.

Notice I said nothing about passion. That is because passion is way overrated. I've seen companies run right into the ground because the founders were so passionate about it they refused to alter critical elements.

Some of the best companies I have seen the founder had very little passion for. Rather, they were in an industry, and they saw an opportunity to make money where no one else did, so they jumped on it and made it into a fast growing company.

It is NOT about passion -- rather it is about finding a product that the market needs and you can sell and scale quickly. If you can't do that, all the passion the world isn't going to save you.

After two and a half years, it is a bit of stretch to bring someone in and call them a co-founder! You already have a successful business, so you may claim full credit for that.

What you are really asking is how much should you build out your management team. On that score, you must. If you are pretty much the sole person running the show, then the first thing an investor will ask is: What will happen to my investment if you get run over by a truck? Crap happens, and if you are no longer running the show, who will take over?

If you don't have a person, no one will want to invest. So you should develop a management team that will be able to seamlessly take over should you not be able to continue. It doesn't matter what title you give these people, just make sure you have them.

The second aspect you need to address is growth and scalability. Sure you are doing fine now, but what will it take to increase revenues by 5X or 10X? If you don't have a team in place that can achieve that, then you need to get them.

No one wants to invest in a company unless it is scalable. That is how they achieve a high ROI within a few years. You need a plan to show that you can scale, and that you have the team in place that can do it. Again, it doesn't matter if they are advisors, or VPs, or whatever. The point is that you have to have these people committed to working to achieve that scalability.

If you can't afford to bring them on now, then that's a good reason to raise funds. But at least have those people identified and ready to join.

You, the CEO should do all the talking. Period. At this point, no one cares about the CTO.

You may certainly introduce your CTO and explain that he is here should any investor have any questions, but they likely will not. At the initial pitch, the investors assume the product works as you describe it, and if they have any serious questions about the product, they will save that for later discussion.

Right now, the only thing the VC is interested in is whether your company will make money. The actual product is only one issue, and usually not the most important one. The management team is.

Every investor I have ever spoken with has stressed that they would rather invest in "A" class management team with a "B" class product than the other way around. That's because a mediocre management team won't be able to sell or market even a top notch product.

So this isn't about the product, it is about you and your management team.

You should only spend about 20% of your time talking about the product. The rest of your time must discuss your experience and your management teams network and experience in selling and marketing products of a similar nature. You must talk about who the customer is and what your plan is to reach them directly. You must talk about how much money you will make, when you will be profitable, what the money you ask for will be used and so on.

Remember: the investor is investing in your company, not your product. There is a big difference.

You are in a good position to have revenue. That makes a lot of things easier, including raising money should you need it.

Your real question right now is how can you increase your sales. I have no idea what your app does, so I can't say what your industry standard should be, but if you are able to get $150K in six months, you should be able to double that within a year. And you should think seriously about that because within two years the market will have changed so much your app might be of much lesser value to users. The key is to maximize revenue now as quickly as possible.

So what will it take? What do you need to spend money on to raise your revenues? Again, I have no idea whether you need to increase your ad budget, bring on a well networked person as part of your management team, or whatever. That you need to figure out. If you cannot pay for that out of your revenues, then you need to raise funds from angel investors.

How much? Again, I don't know, but you shouldn't be looking for millions at this point. Based on what I have seen with previous companies in your situation, I would guess that somewhere around $1M should be enough to increase sales by 3X to 5X. That would raise your company's valuation to probably between $8M to $10M, and so after about two years, you sell the company. That would be an attractive return for most angel investors.

Bottomline: You have to think strategically -- how little money do you need to achieve the greatest bump up in revenue. Then how will that affect the valuation of the company and put it in a position to sell fairly soon at an ROI that will be high enough and soon enough to attract angel investors.

You do not need to incorporate, and you may use the other company for now. Of course, it is always better to incorporate so that you have a legal entity by which you operate, collect fees, pay taxes, and so on.

If you choose not to incorporate at this point, then you should at least have a written agreement with your partner. It should say that you both intend to start a company and are using the other corporation only temporarily and only for the purposes of the merchant account, and that as soon as you have enough money, you will incorporate properly.

Your agreement should also spell out the different roles you both will play, and who owns what. I would assume you stipulate that you each own 50% of the new company, and therefore each of you are entitled to 50% of any profits after all expenses and taxes are paid, and you are both equally responsible for any debts that are incurred
You should also stipulate that for the terms of the agreement, all decisions must be unanimous, but that either of you may withdraw from this agreement at any time and end the relationship.
If you need help drafting the agreement I can help. I'm an attorney as well.

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