Arnold Kling

Founder of Home Fair.

blog http://econlog.econlib.org/authorakling.html

old blog http://www.corante.com/bottomline/

http://www.arnoldkling.com/


Author of Under The Radar (Starting Your Net Business without Venture Capital)

"NetStrapping" (BootStrapping) companies are in the category of "promising businesses", defined by Amar Bhide as those with low capital requirements and high ambiguity. By aiming for a relatively small Market Segment, you avoid competition from Venture Capital-funded businesses, since VCs only want potential home runs (which Kling defines as market cap over $1 billion).

He discusses the use of Angel Investing as a funding source, noting

  • the goals of the angel investor matter

  • market your company as an asset (your concept by itself is not a significant asset)

  • do not take a salary

  • angel investing is a contact sport (i.e. do lots of networking, esp in communities you are already a member of, like your industry or profession)

  • do not send your executive summary

  • create urgency for the investor

  • markets determine value

  • it's the people, not the terms

Instead of first writing a Business Plan, Kling recommends the following launch steps

  • choose your initial team (this seems a bit weird, since you don't know the requirements of the business, but I suppose picking people with generally complementary skillsets might work, subject to the other points he raises)

  • conduct a "no baggage exercise"

  • identify trends

  • Brain Storm ideas (then analyze, pick one)

  • diagram your business (fundamental model/metaphor of the business helps identify CriticalSuccessFactors)

  • create an organization chart (roles/responsibilities of Founding Team, gaps to fill)

  • identify critical operating ratios (customer acquisition cost, revenue per pageview, average sale

  • test-market your offering (goal: assess the significance of the problems in the eyes of the potential customer)

  • identify operational milestones (no, t-shirts don't count) (and estimated company value at each one)

  • develop a budget (revenue and expenses)

  • develop your funding strategy (tied to both budget and milestones)

  • find a coach (who will introduce you to investors, will take at most a tiny slice of equity - 0.5%, who will not want cash); write a Business Plan only if they tell you to!


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