Money Not Always the Answer
October 25, 2002
After exhausting their own money, tapping out their credit cards and squeezing their friends and family for all they can get, entrepreneurs often go off in search of outside investors for a new lease on life. But outside funding isn't the only answer - and often isn't the correct answer - to their financial woes.
Take, for example, SpeakSpace, a Westlake provider of teleconferencing services that has secured a foothold in its market, but wants to expand its customer base.
SpeakSpace is at the point in its two-year life that it needs a marketing campaign to attract more clients to its data, voice and web conferencing services. But SpeakSpace co-founders, Thomas Behan and Christine Conner, fall short on marketing know-how and money to launch a costly marketing campaign.
Mr. Behan and Ms. Conner have used experience gained from working at a larger telecommunications company to build their business. In the mid 1990s both worked with Minnetonka, Minn.-based Norstan Communications Inc. when it built a global audio and video conferencing service for BP.
Two years ago, the duo secured a $150,000 small business loan to start the business. They used the money to purchase SpeakSpace's web conferencing equipment and software, to hire five operators and to establish a 25-member reseller. They also have invested some of their own cash into the startup, though they wouldn't disclose how much.
"We have everything. Everything's in place. We just need to sell it," said Mr. Behan, who is president and chief executive officer of SpeakSpace. "If we had outside funding, it'd just be getting to where we want to go faster."
But outside funding typically isn't what companies should strive for, said Andy Birol, founder of Birol Growth Consulting of Solon.
"Since companies ultimately need customers and customers can fund the growth of any company where heavy R&D is not required, it's OK not to have a lot of money," Mr. Birol said. "It just forces successful management to go out and earn customers' investment in their products."
Mr. Birol admits that his plan isn't popular.
"Nobody wants to hear this. Unforutnately it takes longer to raise money this way, but it's more likely to get raised if the company is meeting the needs of its customers," he said. "The trouble is 10% growth, which is usually all a company can grow its customer base by, is not sexy enough for people who want a fortune overnight."
Other companies, like 2-year-old Mizar Technologies LLC of Aurora, have learned the hard lesson that Mr. Birol often preaches: Every minute you spend pursuing investors is a minute you can't spend pursuing customers.
After about six months of seeking outside investment, Mizar founder Brian Davis finally switched gears and began looking for a strategic partner that would help fund research and development of the company's flagship product, a global positioning system that can be used to track airplanes, trucks and boats. Mizar partnered with Kent Status University and plans to put its tracking device in all 24 planes that the university uses to train student pilots.
A strategic partnership like the one Mizar established with Kent STate is just the way to go, said Rob Felber, president of Traymore Marketing in Twinsburg. Mr. Felber also recommends that cash-strapped entrepreneurs co-brand with a non-competitive, but complimentary company.
SpeakSpace recently latched onto the co-branding approach. It formed a partnership with Taconic, an independent telephone company near Albany, N.Y. As part of the agreement, Taconic will sell SpeakSpace's teleconferencing services to its customers, but brand the services as Taconic.
SpeakSpace plans to form similar relationships with other local telephone companies, Ms. Conner said.
Mr. Birol warns that there are potholes in co-branding; namely that your company's brand could be diluted by your partner's brand. However, he does agree with Mr. Felber's assessment that entrepreneurs should tell everyone they know about their company.
That tactic may seem strikingly obvious, but some entrepreneurs who are not comfortable networking often avoid it all together, Mr. Birol said.
"Tell everybody and anybody what you are doing," Mr. Felber said. "You don't know who your son's soccer coach's wife is."
Article from Crain's Cleveland
Reprinted with permission of Crain Communications Inc.