Solving the Innovation Dilemma

Posted on 18 October 2011 by Brian Dorricott

“There is an idea which I want to share with potential customers and others in industry BUT I don’t want to share it because any of these people may steal it or share it with a competitor”. So what to do?

The “Innovation Dilemma” has existed for all time – one of the reasons patents were created was to overcome this problem (the first was in 1331). The bargain was this: If the inventor publishes/releases all details of his invention, the state will give him legal protection against those who copy it. This worked while most people were country based. Since then a sticking plaster was put on it so that people could not trawl through foreign patent journals and patent the same idea locally. However, now the problem is truly global. No one can afford to register and prosecute a patent in every jurisdiction. The only long term solution is a world patent. The likelihood of all countries coming together to agree an international patent system is next to zero.

So how can inventors and innovators move forward? How can they share an idea with as many people as possible to make it better or find its weaknesses? There are two options:

  1. Inventors use their trusted network to test the idea. This highlights how important it is to have an excellent, wide-ranging group of people who will tell you what they really think and be trusted not to tell others.
  2. Inventors become entrepreneurs and resort to the other 95% of what makes a business work rather than depend upon the 5% of invention/innovation. The 95% concentrates on: Keeping current customers; Finding new customers; and Making a profit.

The successful entrepreneur is likely to start with the first and move rapidly into the second phase – creating profit to ensure the businesses future success.

Perhaps this could be summarised: “Don’t sit around talking about it, just do it!”

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Why is P4M a solution for start-ups?

Posted on 11 October 2011 by Brian Dorricott

I have long lamented that by the time many companies reach the “Business Angel Pitch” point they have moved from the “we need help” mode into “we need money to survive”. Money has become the most important thing and skews all discussions and conversations. The principals are desperate to do a deal (so only provide the good news) and the investors find it hard to establish what’s really going on (because they don’t have the full picture) and don’t have time to get to know the personalities involved. The result can be fatal.

So how can investors find good prospects before money becomes the driving influence? How can they get to know the management team and enhance it before the money runs out?

One answer is AngelNews’ Pitching 4 Management (P4M) events which are being held in all the major cities around the UK. At these events company principals stand up and tell the audience why they are a great company to work with. The CEO has a chance to say why they are going to be so successful while being honest about gaps in the management team that will deliver the results.

I attended the Cardiff P4M at the Wales Millennium Centre – an excellent venue. Each company had a ten minute slot followed by some questions from the audience. After the pitches, sandwiches and drinks were provided. This event was sponsored by Lloyds TSB Commercial in association with Intramezzo and UKBI.

Four companies pitched for new staff. Interestingly they were all looking for someone with Marketing and Sales expertise and knowledge. In addition one was looking for a part-time Financial Director as well. The companies were quite different from each other and my feeling was that the overall quality was better than some Angel events that I’ve attended.

P4M provide a good fit my strategy of getting to know the people behind a company before investing any time and/or money. If you haven’t been to one, check out the next one and attend!

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More grants available…

Posted on 4 October 2011 by Brian Dorricott

I think I was pleased (and certainly surprised given the government cutbacks and layoffs) to hear that there are new sources of money appearing for entrepreneurs. I heard about two in the last two weeks so I’ve done a little background research into them:

  • The Angel Co-investment fund. Capital for Enterprise (CfEL) is administrating a fund of £50 million from the UK Government’s Regional Growth Fund (RGF). This fund will invest alongside Syndicates who are making their first investment in a qualifying SME of between £50,000 and £1 million. A Syndicate is defined by the BBAA as a group of three or more investors in an unstructured group (that pays them a registration fee of about £95pa per member). The fund will pay the Syndicate Manager 2.5% on successful investment in return for monitoring information and rights to invest in further rounds.
  • Carbon Trust Entrepreneur Fast Track Programme. As announced on the website: “We provide a customised package of expert commercial advice, networking opportunities and grant funding to small enterprises that are developing low carbon technologies in the UK”. Applications can be made to the Carbon Trust for development grants up to £500,000 and expert commercial advice up to £70,000 from their new £3 million fund.

Sounds great… I’m always pleased to see help provided to entrepreneurs but I’m concerned by the bureaucracy that comes with such money – perhaps this should be a subject of another blog? I continued researching the Carbon Trust’s offering and discovered that all the grants have already gone (except in Wales on a case-by-case basis) and the email was only 2 days old!

One out of two is good news…  so

Businesses: find your syndicates!

Business angels: find some friends!

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The 6 Steps to Successful Promotion

Posted on 27 September 2011 by Brian Dorricott

Yesterday in SETsquared I was talking through how to prepare to promote a proposition to investors. I mentioned what I call the “Promotion Triangle” which is a very simple tool to make sure one has the right pitches to draw people into your idea or proposition in a series of easy steps. Of course, promotion is not limited to investors; I first used the idea when I was selling products.

Promotion Triangle

The Promotion Triangle

Imagine yourself in a pub, wedding reception, networking event, etc.  speaking to someone for the first time. At some point you are likely to be asked “So what do you do?” This is where the Promotion Triangle comes into play. Each level is designed to draw the listener to ask about the next, lower level with more detail. If they stop asking, you stop talking and ask about them (if you haven’t already)! So working down through each level in turn…

  • 3 words. This is an introduction to what you do. At a networking event this may already be on your name badge. For example: “I am the Founder of a Software Company called Gordano.”
  • Sentence. A sentence (or two) gives more idea of what you do (perhaps tailored if you know what their interests are). For example: “We sell software that manages and sends email for companies like IBM, TieRack, Oxfam, and Barclays.”
  • Paragraph. This is almost a “sales pitch” designed to find out how interested the other party is as well as introduce the benefits of your product, service or investing in your company. Typically this will result in an exchange of business cards and an informal agreement to meet over coffee/tea sometime for the…
  • Executive Summary. By now you will have a good insight into your interlocker’s reasons for want to find out more. In a Business Plan the Executive Summary is generally a page long. It is the same here but tailored to pick out the salient points for the person listening. If you are selling a service you will talk about the benefits to this particular customer.
  • Business Plan (or Sales Material). A document (or set of documents) that will provide your customer so that they have something to read and get a better understanding of what you do. This will include a “call to action” – an order form or details of where to buy shares. At this point your job is done.
  • Supporting Material. For larger sales (of service, product or shares) you will need to provide some additional evidence to support the sales process. These could be spread sheets of financials, copies of patents, contracts, marketing reports, agreements, independent reviews of the market/product/service, etc.
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How to find informal investment…

Posted on 20 September 2011 by Brian Dorricott

I started my first business in 1996 with just £12,000. My Father got his 50% back a year later as a dividend and still owned the shares. He remarked that it was the best investment he’d ever made. My Father was not a business man but he was interested in me and my career. When I first promoted the idea he was the toughest questioner I had and I know he invested because he believed in me rather than the idea. Just as well because a year later I was running a completely different business than the one in the business plan!

I thought this story was unusual… until I came across some very interesting data in Scott Shane’s excellent book “Fool’s Gold”. For this pie chart I have combined data from the report “New firm Creation in the US: A PSED I Overview”, 2007 and Reynolds 2004 “Entrepreneurship in the United States Assessment”, Florida International University all of which was reprinted in Scott Shane’s excellent book “Fool’s Gold” . The report provides an estimate for the total capital market of $310 billion invested in young companies annually in the USA.

Sources of Investment, 2004 USA

As you can see, 25% of companies received their investment from close family members. In fact, 49% of entrepreneurs receive money from people they have known personally for a long time. Just 4% of money came from Angel Investors; nearly half that from VCs and Small Business Investment Companies (SBICs).

While you should never take figures at their face value we can conclude that in the USA in 2004, just $12 billion of funds were invested by Business Angels rather than the Entrepreneur, Friends and Family who invested $276 billion. There are two messages we can take from this:

  • If you are a company… spend twelve times  as much of your time seeking investment from friends and family rather than Business Angels (49% of start up funding comes from friends and family and only 4% from Business Angels).
  • If you are a Business Angel… increase the number of your friends (increasing family is a longer term strategy!) since you are more likely to find investment opportunity through that route than being a formal “Business Angel”.

In both cases it is your support network that is important…

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