Investors aren’t looking for unique business opportunities, says Maria Thompson, venture partner at Arsenal. They want business models that solve problems, preferably big ones.
“You can be unique all day long,” Thompson says. “If you're not solving a real problem, a pain point for a customer, you're not going to get anywhere. You have to solve a real problem that somebody finds painful enough that they're going to spend money to solve that problem.”
Prior to coming to Arsenal, Thompson was president and CEO at T/J Technologies Inc., a nationally recognized Michigan alternative energy company she and her husband, Dr. Levi Thompson, co-founded in 1991. It was acquired by A123 Systems in 2006, a result of Thompson’s skill at developing technology solutions to solve key problems for customers.
“There's a lot of technology out there,” Thompson says. “If you don't understand the specific problem you're solving, why that's valuable and why you have a sustainable competitive advantage, it's going to be tough for a buyer to understand it.”
We spoke with Thompson about her approach to building companies that will capture the attention of potential investors.
Show what you can do
People make the company. You have to have great people and motivate those people and provide a vision to keep people moving in the right direction. We had a stock option plan at T/J Technologies, so when we were acquired, everybody got a piece of it. I always told my employees to think like owners because in a sense, they were. They had a piece of the pie and I think that kept everybody rowing in the same direction and motivated to do what we needed to do.
Early on at T/J, we showed up with a vial of material and said, ‘Isn't this wonderful?’ We talked about what it could do, but it was very difficult to show what these materials could do. We ended up creating a model to demonstrate the power of our technology so we had a visual to go with the words. It made things a lot easier, but it was still a progression. We were creating advanced materials for markets that didn't even exist yet and it's tough to raise money in that environment.
Understand the value proposition. What makes your product different, better and sustainable? What is your sustainable competitive advantage? You really need to understand that and be able to articulate it in a way that business people can understand. Sometimes people fall in love with the technology and it becomes a solution looking for a problem. You don’t want to keep trying to do something that nobody wants. Focus on the problem you're solving and its value on the market.
Build a strong team
A good advisory board is really important so you have an outside perspective. Sometimes you're so close to the problem, you can't see the forest for the trees. You are just too close to it. When you have outside advisers who can tell you this isn't working or this is what else is happening in the market or just sharing general business experience, it can help you get to where you need to go faster. Oftentimes as an entrepreneur, you have your head down and you’re focused on making payroll or on the problems of the day. It can be hard to take the time to look up and get the outside experience and viewpoints that will help you see all sides of an issue.
Entrepreneurs need to delegate faster. If you have a good team, you have to delegate to them and trust them to make good decisions, which is again back to my point about giving everyone a stake in your company’s success. When everybody has a piece of the pot either in shares or stock options or however you decide to do it, it's easier to keep people focused on the end goal and have everybody rowing in the same direction. You’ve got to make sure people's priorities and motivations are aligned with the company's goals.
If there are risks and weaknesses in your company, potential investors are going to find them in due diligence. I trust entrepreneurs who are upfront with me about their weaknesses because it tells me two things. One, it tells me they are honest. Two, it tells me they really understand the business. If you’ve never identified your weaknesses and you’re waiting for me to find them, then either you haven’t done your homework or you haven’t been honest. It’s one of the two.
The Last Word
I’ve heard entrepreneurs who should have known better say, ‘Well, we don’t have any competition.’ Of course you have competition. It may not be this technology, but it’s going to be another technology. There is always competition.