Funding Help for entrepreneurs

Once you have a business model that is scalable, then it is time to find funders.Venture funds and angel funders typically help an entrepreneur in providing funds at this stage. This method of funding is very prevalent in western countries, and has come into vogue with the popularity of internet. However today, venture funds are also popular in more established sectors like Manufacturing and agriculture.

Unlike bankers, they do not require any security of land and assets, but they do a thorough review of proposal and promoters before funding. Bankers are useful when you have a good asset base, but these funders are useful when your asset base is not as strong, such as  in service companies. And more importantly, these funders also act as Mentors and give you access to their network and knowledge.

Why do they fund small units? They share the risk with you and therefore ask for a equity share in your company. They get their return when your unit becomes large and its market value has increased. Either they sell their equity stake to another investor, or wait for public issue to monetise their investment. Because they ask for equity stake, earlier you ask for funds, higher is the stake they ask. Conversely, later you ask, lower is the stake they will ask.

You will find two types of funders.One is a Fund Manager who has collected the money from the investors, and another are the investor members whom you have to approach directly.

1. Getting funds from Investor members directly

In this model, you have to give your proposal to a committee of one of these member networks. This committee short lists the proposal and then informs the members. Each member then takes an individual call on whether he or she wants to invest. Individual investment is about 50 lakhs, while total investment could be in the range of 2-3 crores. Because the cost of managing an investment is high, they will like to invest at least 2-3 crores. You will find it very difficult to interest them if your money requirement is lower than that. Three large networks of members are

• Indian Angel Network ( about 200 members) 
• Mumbai Angels ( about 150 members) 
• Harvard Angels , the India Chapater of Harvard Business School Alumni Angels ( 25 members) 

3. Getting funds from Fund managers

In this model, corpus is created by getting money for high network individuals. Many such funds are available. As each fund is created for funding specific type of companies, such as in agriculture or in internet, it is important to find if the fund you are talking to has the mandate to fund your type of products.

For instance, Nexus Venture Partners funds, funds technology and internet companies, while Matrix Partners India has been funding internet and mobile sectors.  Seedfund funds, the oldest fund, provides funds to different type of companies, with as low as 50 Lakh to an entrepreneur.Today, numerous funds are available for funding in education, health sector, and agriculture. So if your unit belongs to one of these sectors, you will have many options to search money. Google for the sector, and you will get a list. After that, talk with someone who has used that fund, and you will get real information.

On the other hand, if you need help, write to me on my gmail id. I shall be able to guide you to the right consultants who work in this field.

Managing customer acquisition requires different type of thinking

In the last blog, we say how the dynamic interaction of two loops - customer acquisition and customer servicing - affects the survival and growth of a new unit. Here we will understand the uniquely different challenges of one loop, that of customer acquisition, and how we unknowingly create our own difficulties by using same 'type' of thinking that is useful in dealing with other loop of Customer servicing.

Two chains in customer acquisition loop

Many entrepreneurs overlook the fact that customer acquisition loop consists of two chains: Marketing (which converts suspects into prospects so that they come to the doorstep) and Sales ( which converts the prospects at the doorstep into a customer). Some entrepreneurs see these two conversions as one, and therefore take wrong actions.

Marketing chain

If Tata Motors is targeting families above incomes above 12 lakhs pa in the population, Tata motors will give  advertisements in the newspaper, sponsor programs for families, or put banner on the roads to convert these suspects ( the families of incomes above 12 Lpa) into prospects who want to buy Tata Manza. These 'marketing' activities allows an entrepreneur to convert their targeted suspects into a possible prospect. However, this marketing system has many holes. Because of these holes, unexpected events can suddenly happen and can break the cause>effect relationship. For instance, if the families of 12 Lpa do not happen to read the advertisement in newspaper for some reason,Tata Motors will not be able to get enough prospects after giving the advertisement.

Sales chain

Sales on the other hand has a relatively less transparent ( less holes) boundary. Because of this, an entrepreneur can predict the relationship between cause and effect with more assurance. Tata Motors, for instance, can hope to convert the prospect (  family of 12 lakhs per annum) into a customer with more assurance, because they can provide all the necessary information and assurance to the family once it comes in the showroom. The sales chain therefore is more 'predictable' than marketing chain.

New type of thinking required by entrepreneur

On the other hand, Customer servicing ( be it production, quality, and delivery) is even more predictable and controllable, because it is within the close confines of a factory or building. In customer servicing, for instance, an entrepreneur can take an action, see the reaction, and change the action  in next iteration. This environments are called short-feedback environments. They enable one to learn from the feedback and constantly improve. Short feedback environments are quick learning environments. Learning to play tennis and cook is easier because it is a short-feedback environment.

In contrast to customer servicing, the feedback time in sales environment is extended. One is therefore not sure 'which action has caused what consequence'. For instance, one is not sure why a prospect refused to buy Tata Manza, despite having enough money? Learning in such delayed-feedback environments is difficult because one needs a different type of cause>effect thinking.

In marketing environment, this feedback is even more confusing because 'more interactive variables' enter in the crucible. When less than expected prospects come to the showroom after the advertisement, one is not sure of the reason. Because such environments are delayed+ interactive variables-feedback environments. (In technical language, these are called messy situations.) One is not sure if 12 lpa families read the advertisement and disliked the features of Tata Manza? Or did they not read the advertisement at all? or did they get more attracted by a discount scheme of a competitor of Hyundai which was launched at the same time? Or was it a effect of a big accident of Tata Manza that happened a week before the advertisement? The interactiveness of various variable create a confusing picture and one is not sure of what is causing which consequence. This requires a different type of cause-effect thinking?

What does an entrepreneur need?

This different type of cause>effect thinking is called as Systems thinking. Systems thinking enables an entrepreneur to deal with marketing and sales environments that have indeterminate cause>effect correlations. Systems thinking is very useful to deal with such messy situations. It teaches them to carefully arrive at conclusions without oversimplifying. In influencing transparent system like marketing, it teaches them to coordinate many actions together to produce a output and not just hope that a banner will influence the customer. It helps them take decisions that are more 'accurate'. It helps them identify the risks they are taking so that they can take those risks consciously.

Without Systems thinking, an entrepreneur cannot decipher marketing environment and sales environment. One way to reduce the complexity is by relying on industrial products alone. If an entrepreneur sells  industrial products to few customers, which are limited in number, he can considerably reduce the complexity of marketing environment on the one hand, and manage the resultant minimised complexity of sales environment.

However, without using systems thinking, entrepreneurs often make mistakes in managing even this minimised complexity. For instance, they will increase the capacity to meet peak load of two customers ( who contribute 80% of the output), without worrying about the high cost of low capacity utilisation that will result when output reduces to normal or below normal levels of output. Or they will depend on one customer without getting any 'premium' for 'sacrificing' the flexibility. Or they will invest on the promises of the customers which will never come through.

Summary

Although marketing and sales environments requires an entrepreneur to learn 'systems thinking', an entrepreneur also needs to learn 'systems thinking' even to manage 'large scale' environment of customer servicing. Once the factory becomes large, the relation between cause> effect become thin and tenuous. They become messy situations. For instance, increasing the salary does not result in increased motivation? Or hiring professionals does not reduce the turf wars between production department and quality department? Or training employees do not lead to increased accountability? Or team performance is not proportional to individual competency?

In other words, once factories and operations become large, an entrepreneur needs systems thinking even to manage these internal environments !

As an entrepreneur what challenges are you facing? Have you learn the right type of thinking to deal with messy situations ?