This is a wonderful concept to understand in raising money for your business. There are two predominant daemons that investors answer to internally to justify any investment that they make. Getting a handle of these concepts helped me organize my businesses, justify my investments, and optimize my time with investors who appear random in their decision making.

Investment Daemon #1: The Banker
The Banker invests in assets that make money at this time. The amount of money available for investment is what the business can service with the cash flow the business generates. The minimum return they would expect is in the order of what is offered by corporate debt bonds. The Banker keeps the investment secured by the amount of money that can recovered by liquidation of the business or of assets of the owner of the business.

Investment Daemon #2: The Hedge Fund Manager
The Hedge Fund Manager invests in assets that have the potential to make money in the near future. The amount of money available is the amount the business can pay back eventually. The minimum return they expect is a payback of their investment in the shortest amount of time and after that a steady stream of income from the business. The Hedge Fund Manager keeps the investment secured by interfering in the business and being a part of everyday decision making.

The job of entrepreneur is now simpler. He or She needs to present his business so that it can answer to the two daemons. A purely speculative, early stage company would typically not be able to satisfy The Banker and hence would need to compensate for that to the The Hedge Fund Manager. In a future blog I want to address why investors would invest their hard earned money when they can live off of it for their lifetime.

Samir Shaikh
SlabTile Networks
Your home improvement, simplified!

www.slabtile.com

I get asked this question about pricing strategy by many friends who are trying to start-up their own companies. In my observation a successful pricing strategy needs to follow three simple non-negotiable rules.

Rule #1: It Allows You To Remain In Business

You must let the pricing allow you to remain in business, period. If you are looking at selling a product you need to price your products so that it pays for what it takes to bring the product or service to the market. There are three main components that any pricing strategy should address.

.) The recurring Fixed Cost of running your business.
.) The recurring Variable Cost of producing the product or service.
.) The payback towards your one-time costs.

It’s normal to have a company with zero Fixed Costs in the short term. This is a major factor in giving you an advantage over large companies. See my other blog on the level playing field for entrepreneurs.

Rule #2: It Doesn’t Lose You Customers To Competition

This is a very important rule especially because it’s sometimes difficult to convince yourself that markets are really smart. If you price above the market you’ll lose business, period. There are two simple components to ensuring this rule is met:

.) Keep your costs at the Minimum. Carefully identifying all possible Process, Source, and Resource optimization.
.) Keep your Markups at the Maximum the market will allow. The market includes both your customers and your competitors.

It is normal to have some trial and error in getting these right however, the key in this is be reactive in your approach and don’t miss hints from customers.

Rule #3: It Reflects The Value To Customers

This is by far the most interesting fact of the pricing strategy. No matter the size of the company, the quality of people, or what it takes to provide it, if you price the product above the value it creates for your customers you will loose business, period. There are three very simple components of value:

.) Why are they getting it?
.) What are they getting?
.) Who is providing it?

The most encouraging aspect of this is that all three of these questions have very fluid answers as the industry changes. Everyday your competition is changing, and everyday customer behavior is changing, you need to pick up the delta in each change and maximize it for your company. I always question stealth mode for companies and will address that in another blog in the future.

Go entrepreneurs!

Samir Shaikh
SlabTile Networks
Your home improvement, simplified!
http://www.slabtile.com

I sense confusion over this topic in entrepreneurs who are often times consumed with the idea that fits within the domain of a large company. The thought of competing with large companies is sometimes intimidating.

So, I’ll try to address this using some hypothetical questions.

Q1: My product idea is big and would challenge some of the largest companies in that space. I’m concerned that during my execution the larger competition will throw loads of money into this and drive me out.

Lets try to get straight to the point from the first one. For a small company it is only good to challenge large companies in their space. However, do question if it is a wishful thought. Is this something big companies have ruled out? Is the market opportunity too small for them? Would they rather not risk investing in this area? Are they waiting for the market? Are they working on it already? The answers to these question might well lead you to still accept this as the business you want to build due to several personal reasons such as; capability, family, experience etc.

Big companies operate very much like a collection of small companies. They will not spend even a dime more then what is necessary to provide the solution into the market — just like your startup. So if you are looking at a small market your dollars are at least as effective as the machine pressed ones from the large companies. If you are able to stretch your dollar more then they can, you’re actually at an advantage over them.

Try this interesting exercise. Look around you at work and question if everything is providing optimum value. Processes, people, strategy, direction. If you see several areas of improvement, note them and help your employer overcome them. If you are not heard, start a company in which you implement your ideas. Who knows, where that can lead you..and this approach can only help your career.

Q2: My product idea needs upfront investment to execute successfully. Once I have everything built the customers will come.

It is likely that your idea is an aggregation of incremental thoughts and not really an innovation. Key recent innovations pass the following criteria:

.) The product is cute and simple i.e. can be presented in a short 1 line sentence.
.) The product applies a fundamentally different approach to solving a problem that the competition does not.
.) The methods applied in preparing the solution is not immediately obvious by looking at or observing the product.
.) The business uncovers either a current hidden market, or a small growing market. While these companies sell into this space, they help grow the market as well.

Now, if your business idea fails any of these tests, keep working on it, eventually your thoughts will lead you somewhere.

Q3: No one wants to talk to me. I’m not from Cisco, IBM, HP, MIT, Harvard, or Stanford. Why?

Everyone, I mean everyone be it Venture Capitalists, Angel Investors, Entrepreneurs, CEOs, or Senior Executives look at all the emails that fall in their mailbox and spend a minimum of 7 seconds on each. They cannot possibly miss any hint from the world that can help them in running their businesses. Now, not being branded actually could help you as most of these guys like to tell stories about their unique connections in the industry, and in their unique methods that attract them to something. Try to give someone you’re talking to just that. Successful communication passes the following criteria:

.) The communication is concise and complete. An email with 4 sentences and 3 words per sentence will receive a response. Cold (or warm) calling with 6 paragraphs of perfectly drafted story will go no where except either in the Trash or put off for reading later.
.) Build up the conversation with who you’re talking to at their pace not yours. Yes, this is sometimes painfully slow for the eager ones in us.
.) Be respectful. Being respectful is a reflection of who you are and where you can go. Remember relationship is always between people. If you can inspire someone’s trust, you’ve won whatever is on offer.

—

Samir Shaikh

SlabTile Networks
Your Home improvement, simplified!
http://www.slabtile.com