Nurturing Investment Opportunities
Focusing on Profit while Educating the Market : The tough balance of successful entrepreneurship
by Lawrence B. Landman
Two entrepreneurial companies turned themselves into stars—most importantly by proactively developing their markets. One company changed its business model.The other changed its customer focus. Both were sensitive to the market, willing to change, and focused on growth. Both worked hard to educate customers of their new, unique, products. And yet both also strove for profitability.
Many Øresund entrepreneurs must also strike this difficult balance—maintaining profitability while developing a new market--and these two companies may help Øresund entrepreneurs see how this can be done.
Many companies, particularly in the Øresund’s technology sector, do not satisfy all of these criteria. Venture capitalists such as Angel Strategies will work with a select few companies to help them not only meet these criteria, but also develop their business strategies. This article examines two such examples.
The Solana Medspas Case Study
The Company Submission Form Solana Medspas completed showed a company dying. Management was fighting. Franchises were not selling. Legal fees and other costs were killing the company. It seemed the only customers the company could find for its high-tech health and beauty treatments were its investors, whose stress needed treatment.
The venture capitalist incubated the company. It met with the management and, after much soul-searching, one person was asked to leave the team. Instead of selling franchises, the company now operated its own facilities, and was thus able to aggregate its capital. The company cut costs and strove to make money within one year. The new focus worked—the company became profitable.
To help Solana Medspas turn itself around the venture capitalist had received 5% of the company, some of which it used to pay others to help the company. With the company profitable, it then invested $750,000 dollars (for 25% of the company).
Like many new technology-oriented businesses, Solana Medspas had to create an entirely new market. For the first time, in one place, a patient could for example have lasers remove poor skin and arrange for storage of his or her adult stem cells. The company embarked upon an aggressive market development program. The CEO, John Buckingham, who used his Harvard MBA to reach key opinion makers, became an evangelist for the idea that one could proactively use new technologies to preserve not only one’s beauty, but also one’s health.
This evangelism worked. High-tech preventive care is booming. And three major corporations have offered considerable sums to buy Solana Medspas.
The Eat Inc. Case Study
Eat Inc. also presented a challenge: its Company Submission Form reflected a stalled one-man company. Jorges Goldsmit had used his MBA project, done at the University of North Carolina, Chapel Hill, to develop a unique, all-natural, healthy beverage. Major distributors, Costco, Target, and others, were selling his product—but not properly. They hid it in the back, among warm drinks.
This company also needed to change its strategy and, again, proactively develop its market. Its key customers were those who shared its product’s Latin heritage, and Mr. Goldsmit should therefore aggressively work to reach these customers. The company therefore set out to develop the Latin market, which was then an emerging new segment. It focused on the Southern California and Texas market, and, more specifically, on church fairs and other rural areas. The venture capitalist also helped the company find new distributors, ones who reached this new, clearly-defined, target market.
As with Solana Medspas, the venture capitalist had, in return for 5% of the company, helped the company develop its new strategy. It again used some of these shares to pay others to help the company. It then again invested $750.000 dollars for 25% of the company, and again, corporate buyers are offering significant sums for the company.
Find Your Customers and Educate Them
Angel Strategies has invested in many IT companies, including two Swedish IT companies, EON Reality and Avisere. The two case studies in this article teach lessons which apply to these IT companies, and many others. First, new companies must be very aware of who their customers are. They must focus on them--and only them. They must keep costs down and, strive, above all, to earn profits as soon as possible. But innovative companies must also invest in educating customers—if their product is unique, then customers will not know it exists, or will not know how the product will benefit them. Balancing investment in education with the need for profit is not easy.
How to Become Profitable
The key is to become profitable first. While striving for profits the company will learn who its true customers are. Then it can invest in educating these customers—telling them why this new, unique product will give them a new, unique benefit. Then these customers will buy. And then trade-sale buyers will too.
If you think your company may benefit from Angel Strategies’ incubation process please send an email to
lbl@angelstrategies.com.
The article builds on the first article in this series, which described Angel Strategies’ investment criteria.