In her role as a volunteer with the 1M/1M project, Irina Patterson has counseled dozens of would-be entrepreneurs and talked to angel investors around the country. The Miami-based technology communications consultant says her goal is to keep nascent entrepreneurs from giving up on their business ventures. But she says entrepreneurs who fail to validate their ideas in the marketplace and investors who don't take them seriously are common obstacles to that goal. Patterson spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.
Karen E. Klein: What is 1M/1M?
Irina Patterson: One Million by One Million is a Silicon Valley-based global initiative that aims to help 1 million entrepreneurs globally reach their first $1 million in revenue. It was created by blogger and author Sramana Mitra. She asked for volunteers, so I raised my hand, virtually, and became one of the first ambassadors.
I have a day job, but entrepreneurship is something I really love, so I devote my [free] time to this. We're focused on reaching out to entrepreneur-developing organizations, such as small business incubators and angel networks, that provide seed financing for entrepreneurs. What we found is that 95 percent of entrepreneurs who go to angels are not ready for funding. The angels are not able to help them very much because they are busy guys and they're focused on the companies that can be funded. We think we can effectively help those remaining 95 percent who need mentoring and guidance.
But can everyone realistically succeed at business ownership?
Entrepreneurship is not for everybody. It's for very special people. Many people who get into entrepreneurship underestimate what it takes. Those who succeed put in an enormous amount of time and effort. And they look for feedback, support, and mentors who can tell them how they can improve their ideas. People who think they're going to do something entrepreneurial and do it quickly and make a big score? Those people will not succeed.
What mistakes do you see prospective entrepreneurs making?
A good 25 percent of the entrepreneurs I talk to don't bother validating their ideas. They build products without talking to prospective customers in their target market. If you engage seriously with your customers, there's no way a business can fail. And if the business idea is not right, you would realize very early that you should give up.
How can they miss such a major piece of the puzzle?
Some of them just don't know, because nobody told them, to go and ask 100 or 200 potential customers if they want this product and if they're going to pay for it. Others are infatuated with their own brilliance. They're really enamored of their own ideas, and they can't imagine someone wouldn't want it. Unfortunately, the market thinks otherwise.
What hope is there for those people?
Some of them, with a little feedback and guidance, will listen. We actually have some people who figure out how to listen and do it right.
What other common missteps do you come across?
Another quarter of the people I talk to are immediately interested in raising outside money. They go from one group of investors to another, and they keep getting turned down, which is terrible for the self-esteem. They exhaust their enthusiasm and get beaten down. They don't realize they're making a big mistake, because for most of them, at this very early stage of their business, they're not going to raise the capital. It's against the laws of nature, or at least of business.
What are investors looking for that they are not getting from startup entrepreneurs?
A lot of people who approach angels are not serious enough about how much work they need to put in to start a company. On our website, we have a 100-question survey for people interested in starting a business. If you sit down and go through this material online, there's no way you can steer in the wrong direction. But I gave these questions to some people, and they just couldn't handle it. Not everybody can do this type of granular research. If that is too difficult or time-consuming for them, that means they're not going to give a business the attention it deserves. I wouldn't want to be a partner with those people.
What do angel investors tell you they are looking for before they invest in a young business?
They want individuals to create a product or service that the market needs, then talk to potential customers and get them to buy the product. Validating your product in the real market is the key. If you've got product and revenue, you are going to get respect from everybody, including angel investors.
The key today is revenue, not how fancy your product is. Get some revenue, and then you'll attract investment to expand your company. Some angel investors I interviewed told me they invested in a screwdriver company. It was not sexy, it was not high-tech, but it makes a great product, and it's doing well—and that's what matters to them.