by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

Most advanced entrepreneurs don’t have the time to devote to obtaining an MBA while managing a rapidly growing company. What if you could take courses specifically focused on advanced entrepreneurship and receive a Master’s degree in entrepreneurship?

Starting in September 2013, the Crummer Graduate School of Business at Rollins College, in addition to its MBA program, will offer a new degree, a Master of Science in Entrepreneurship (MSE). For advanced entrepreneurs, the MSE will focus on those subject matters that are most useful for managing growth, raising capital and developing and executing an entrepreneurial strategy.

The program will consist of thirty credit hours with courses such as Entrepreneurship, Entrepreneurial Finance, Marketing for Entrepreneurs, Negotiation, Management for Entrepreneurs, International Business and Managing Technology. Evening and Saturday classes will be offered. Some of the courses will use a blend of distance learning and face-to-face classes to allow students to learn and collaborate utilizing the many resources available through the Internet, yet have the intense classroom experience created by the interaction between the students and the professor.

The Rollins MSE will give advanced entrepreneurs access to the outstanding faculty for which Rollins is known. With 30 credit hours required for the MSE, a student will be able to complete the MSE in less time and at a lower cost than required for an MBA.

I will be teaching Entrepreneurial Finance (raising capital for growth) and Negotiation for the MSE program and assist faculty members in other courses. I’m excited about the MSE because it will give advanced entrepreneurs the opportunity to take courses specifically designed for meeting the challenges faced by entrepreneurial companies without the need to take additional courses for the MBA program (although very important in the long term for students). With just-in-time learning available through distance and blended programs, advanced entrepreneurs can take important courses offered in MBA programs as needed in the future.

Rollins will begin accepting applications for the MSE in March or April 2013.

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

Whenever I hear a company CEO say, “We have great technology and we’re looking for new applications for the technology,” I know this company is heading for trouble.  When I hear a CEO say, “We know this market and we’re looking for new technology to solve problems that exist with users in this market,” I’m interested.  So are investors!

It is so tempting for those who have developed a technology to think that there must be a market that can use this technology, that the technology developers lose objectivity and try to start a company to find the market that can use the technology.  This company is about 90% of the time doomed to failure. So, why don’t the owners/developers get it?  Businesses succeed because there is demand (a market) for their products and services not because they have great technology.  OK, the most successful companies have great technology AND demand for their products or services.

But, you say, what about a market that will develop in the future and the entrepreneur who has a vision that the market will develop in the future?  Well, you’ve heard that timing is everything.  Most entrepreneurs who have a vision of a future market can’t imagine how long it takes for a market to develop and exhaust their resources before there is a viable market.  Those that enter this nascent market just at the inflection point when a viable market is developing succeed while those who enter too soon fail. This is particularly true for companies that have a new technology.

Don’t get caught in the trap of having an interesting technology and believing you can start a company to find a market for the technology.  Knowledgeable investors know this is a formula for failure.

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

I often tell my students to be very careful when considering a new business opportunity if you are on the outside looking in with a solution to a problem you perceive to exist.  An example would be for someone with software development experience in, say, customer service software who decides to develop software to automate some aspect of medical records in doctor’s offices.  He or she talks to a few office managers for doctor’s offices and develops a set of features for this software based on this very limited information.

Our entrepreneur then induces a doctor’s office to be a beta site for the software and, with a great deal of hand holding, decides that the beta site was a success.  This is a disaster about to happen.  Usually, the doctor’s office in the beta test has not paid money to use the software and, therefore, didn’t have to consider the value versus the cost of the software product.

Inevitably, the software needs many bells and whistles to handle all the variations “required” by different doctor’s offices making it impossible to charge a price that the doctor’s offices are willing to pay that will cover the actual cost of delivering the product.  The entrepreneur deceives him or herself into believing the “value-added” by using the product exceeds the price the entrepreneur must charge and the entrepreneur runs out of cash chasing a “vapor” opportunity.

Compare this to a person with some knowledge of software who works as an administrator  in a large doctors’ office who sees the need for a similar product, but with a simplified set of features that will meet the need.  He or she sees that the product can be developed, from the beginning, to have flexibility to handle additional features, if a doctors’ office is willing to pay for them.  This person decides to team with a software developer and designs the software to meet the real needs of a doctor’s office that have subtle, but very important, differences from the needs perceived by our first entrepreneur.  The bells and whistles (that often cost more to develop than the basic product and often cause more problems for the customer) are offered only as add-ons.  This entrepreneur has a real chance of succeeding.

What I’ve described above happens very often.  The first entrepreneur conducted a superficial analysis of the problem he or she perceived to exist and developed a product without knowing the subtle aspects of the customer’s problem that will be the difference between success and failure of the product.  This often happens because of an arrogance on the part of the first type of entrepreneur who thinks he or she can understand the customer’s need and thinks he or she knows the decision making process the potential customer will use in deciding whether or not to pay money for the product.

In reviewing a business plan, I always look for a section that walks the reader through the thinking process of a potential customer in deciding to purchase the product.  I very seldom find this analysis and, when I ask the entrepreneur to verbally tell me, the entrepreneur can only give me generalities that are useless.  Yet, when I ask someone like the second entrepreneur described above who has had personal experience in dealing with the problem, he or she can usually give a very good explanation of the customer’s decision making process.  Which of these entrepreneurs is likely to raise capital from investors?

The lesson – team up with a person with real experience at dealing with the problem you think you can solve with your product; not by simply interviewing the person, but  by making the person a part of your team!

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

All entrepreneurs need to be good negotiators.  Few are.  Why? Because they usually have little experience at negotiating major matters and have no training in negotiation.  Negotiation skill is not intuitive, it is learned.  I teach Negotiation in the Rollins MBA program and hammer into my students that the key to successful negotiation is preparation.  Although there are many aspects to preparation, the one that is most important, yet usually missing, is to develop a good alternative to whatever you are about to negotiate.  That is, if you are preparing to raise capital from angel investors, know what angel investors want and the terms to expect.  But, more importantly, court more than one angel or angel group at a time so you can turn down an unacceptable deal .  The strongest way to negotiate is to let it be known that you have an alternative deal that may be better than the deal the other side is trying to negotiate with you.  Otherwise, you are negotiating from weakness and the other side will spot that weakness immediately.  OK.  Why doesn’t everyone do this?  Because it is very difficult to develop the relationships necessary to have an angel or angel group take an interest in making an investment into your company.  If you follow my advice, you have to develop at least two of these relationships in parallel and manage the process so that you have at least two potential investors or groups of investors with whom you will negotiate at the same time.  But, you say, don’t all investors or investor groups ask who else is considering an investment in your company and insist that you tell them their names?  Yes, this is a common practice by investors, but you have to have the courage to say you won’t disclose this information.  An investor who walks away solely because you won’t tell the investor the name of the investor’s competition is an investor who will probably demand unacceptable terms anyway.

So, the best preparation for a heavy duty negotiation is to lay the groundwork to have an acceptable alternative to the deal you are about to negotiate.  This takes planning and time.

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

Over the years, I have counseled clients who set out to raise capital from angel investors that they need to focus on angels with whom they have relationships, directly or indirectly. The probability of raising capital from angels with whom the entrepreneur has no relationship is extremely low. Therefore, logically, the entrepreneur must start developing or pursuing relationships with potential angel investors from the get-go since these relationships are difficult and time consuming to develop.

I’ve decided to call angels with whom an entrepreneur has relationships Non-Strangers. This seems like an odd name, but it is descriptive of the angels who actually invest in most companies. Yet, most entrepreneurs don’t get it. They think that they can simply find wealthy people, present a business plan and some of them will invest. This is usually a waste of time for both the entrepreneur and the wealthy person.

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

When an entrepreneur comes to me for advice on raising capital from angel investors, I ask him or her “Do you know why angels make investments in early stage companies?” Inevitably, the answer reflects superficial thinking and deserves an “F.” Most entrepreneurs do not have the foggiest idea about what it takes to raise capital from angel investors and make little effort to find out. They seem to think that if they have a good business plan and enthusiasm, angel investors will invest.

Any entrepreneur who decides to raise capital from angel investors should conduct as much research on why angels invest as they do on why customers buy their products or services. Few entrepreneurs even read a book on how to raise capital from angels when there are many books on the subject through Amazon. It’s no wonder that most entrepreneurs who set out to raise capital from angels fail miserably.

Every angel investor is different, just like every customer is different. But, there are some characteristics that are common to most angel investors. If an entrepreneur would come to me for advice on raising capital and demonstrated the same degree of ignorance about his or her customers as the entrepreneur usually demonstrates about angel investors,I would tell the entrepreneur to find another occupation.

Why is it that entrepreneurs make little effort to find out the same type of information about angel investors, yet will work really hard to find out about the characteristics of potential customers? I attribute this to an underlying sense in most entrepreneurs that an angel investor is not a “buyer or customer” but is a “seller or supplier.” An erroneous view is that an angel investor is “selling capital” to the entrepreneur and the price to be paid is an equity interest in the entrepreneur’s company. Not true. The seller in this case is the company, selling an equity interest to the angel investor who is buying, not selling. If an entrepreneur would only take this view of angel investors, the entrepreneur would do extensive research into the characteristics of the angel investor market. How many angel investors will the entrepreneur have access to, what is the decision making process for an angel investor, who influences the angel investor to make the investment, what is the competition for the angel investor’s funds, what will it take to get an angel investor to seriously consider the entrepreneur’s opportunity, etc. These are the types of questions the entrepreneur would seek answers to for his or her customers; why not seek this information about angel investors?

Finding out the characteristics of the angel investor market is difficult, but not impossible. It is inexcusable for entrepreneurial companies who set out to raise capital from angel investors not to know as much about the angel investor market as they know about their potential customers.

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

As a corporate and securities lawyer for 35 years, now as a professor of entrepreneurship and negotiation, I’ve worked with many young, technology companies in their efforts to raise capital from angel investors. Almost all of these companies initially thought they could simply present a good business plan to several potential angel investor who they’ve never met before and get a commitment from each of them to invest several hundred thousand dollars. Those that ultimately raised capital learned the hard way that they had to establish a relationship with potential angel investors before they would invest.

A few of my clients followed my advice and the advice of others and started a year in advance to establish relationships with potential angel investors before attempting to raise capital from them. This took planning and perseverance since most young companies can’t wait for a year to raise capital unless they can bootstrap for that period of time.

But, think about it, doesn’t common sense tell you that angel investors are not stupid and won’t invest unless they have direct or indirect relationships with the companies they will invest in? Every angel investor has many, many investment opportunities. The smart angel investor invests in companies the angel investor knows more about than he or she learns from a business plan. Or, he or she has a friend (usually another angel investor) who has a relationship with the company and intends to make an investment. This is what I mean by a direct or an indirect relationship.

I can’t remember a client who raised capital from angel investors who were total strangers. Usually, one of the angel investors had a relationship with the company for a period of time. This investor acted as a lead investor and brought in friends to the deal. The friends trusted the lead investor’s judgment because of the relationship he or she had with the company.

So, the key to raising capital from angel investors is to establish a relationship with one or more angel investors so the angel investor can become a champion with other angel investors he or she knows. I know this is easy for me to say and very hard to do when a young company is trying to survive for up to a year while establishing these relationships. But, those who are able to do this, who have dynamite business opportunities, management with experience and business plans that are believable can raise capital from angel investors.

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

Many state and local governments are promoting “economic gardening” as a means of stimulating growth in their economies and employment. This is a good thing. But, a key ingredient is missing – access to capital for growing entrepreneurial companies. Capital is in short supply by definition. Only those businesses that can convince investors and lenders that they can produce increased value for investors or meet their debt obligations for lenders deserve to obtain capital. The programs for economic gardening seem to focus on helping the growth stage companies deal with growth issues in order to make them more attractive to investors and lenders. This is a good thing also, but needs to have an added dimension.

So, what can be done? Can angel investors be induced to make more investments in these companies? Probably not. Can growth companies be educated on how to raise capital from angel investors, resulting in more capital being invested in these companies? Perhaps. Can founding entrepreneurs of growth companies be convinced they need to make changes in order to be much more attractive to angel investors? This is the biggest impediment to attracting capital from angel investors. Yet, most entrepreneurs running growth companies cannot accept the realities of valuations of their companies, management changes needed, giving the investors some degree of control (through veto powers, not the power to force the company to take certain actions) and having boards of directors that are not rubber stamps for the entrepreneurs.

by Bill Grimm
Professor of Practice in Entrepreneurship and Negotiation at the Crummer Business School at Rollins College

In order to succeed, a young business (from startup to high growth mode) must go through many hoops. Why? Should our government (federal, state or local) eliminate some of these hoops? My view is – No. A market driven economy has an “invisible hand” that allocates success among the many young businesses at each stage of their existence. As with any scarce resource, success is hard to come by. Can government pick winners and losers? Hardly.

The “invisible hand” customizes the hoops that each young business has to go through. If the business makes it through these hoops, then more hoops are presented. It’s the way our market driven economy disciplines businesses. Each set of hoops is different, but most of the types of hoops can be predicted such as finding a product or service for which demand exists (not just a perceived need), finding a good (although not perfect) mix of people to run the business, obtaining capital (directly or indirectly), staying focused (but on the right things), etc. When a business makes it through the hoops, it deserves to grow and, possibly, thrive. If it doesn’t make it through the hoops, it deserves to fail or become part of the living dead.

So, one of the jobs of an entrepreneur is to know the hoops that he or she will have to go through and, then, to acquire the skills and resources to go through the hoops. But, entrepreneurs “don’t know what they don’t know.” So, how can they possibly anticipate the hoops let alone be able to get through the hoops?

Frankly, most entrepreneurs who make it through a set of hoops are lucky. But most of them don’t make it through the hoops because they are blindsided by the hoops and, when a hoop that wasn’t anticipated is presented, it’s too late to change direction or gather more resources to avoid the hoop or overcome the hoop. This is why smart investors want to invest in serial entrepreneurs – they have been through the process and are smart enough to know most of the hoops or to get “just in time” advice,to tackle or avoid a major hoop.

The hoops are the best filters our system has to pick the winners and losers. Government should stay out of the way and not try to eliminate the hoops. Our economic system is much better at determining the necessary hoops than bureaucrats who are just like entrepreneurs. They usually “don’t know what they don’t know.”

The best way entrepreneurs can find out what they don’t know is to ask others who have been there. Yet, one of the weaknesses of most entrepreneurs is an unwillingness to seek advice (or listen to advice). The hoops will take care of entrepreneurs who fail to seek advice.