If you have a great business idea, one of the first things you should do is test it out on people. You’d be surprised how paranoid entrepreneurs can become about having an idea stolen. Many end up keeping it to themselves for longer than necessary or making everyone they tell sign non-disclosure agreements. But an idea alone is not very valuable – you need to be able to make people believe you have the right skills to make it succeed.
Don’t be put off if you get a negative reaction – the craziest ideas are often the best. Airbnb was famously turned down by some of the smartest investors in Silicon Valley. The best businesses are often the most controversial because you see a future that others can’t.
Work on your credibility
To get smart people to join you, write a credible business plan. In my case, when I first had the idea for Lastminute.com I was working as a business consultant. I sketched out my plan but decided the market wasn’t ready and that I didn’t have enough experience, so I shelved it. I then went to work in the internet sector for a year. At that time, in 1997, it meant I was at least credible in terms of my knowledge.
I also made sure one of our first hires was a technologist who could help us with the tech side of the business plan, as neither Martha (Lane Fox, co-founder) nor I were serious programmers. We also interviewed lots of people about the market, and checked our plan with blue-chip companies and suppliers to see if they would work with us.
Before you pitch for funding, know how you’re going to spend it
You should ideally raise enough cash to keep your business going for 18 months and you need to know what you are going to improve about the business to make it more valuable within that time-frame. Make your investors look smart for taking a chance on you.
Whether you go direct to venture capitalists (VCs) or try crowdfunding, the route you take to secure funding depends on your level of experience and how brave you are. If you’ve got enough credibility, or have proved you can raise large sums in the past, you should aim for VC investment. If you don’t, then options like the government-backed Start Up Loans scheme, the Prince’s Trust, or startup accelerators could be good options. If you go to family and friends for a loan, you have to decide if you can live with yourself if you lose their money. That route can put huge pressure on friendships and relationships. But friends or siblings who want to invest in you should check out the benefits of the government’s Seed Enterprise Investment Scheme (SEIS).
Raise money when you don’t need it
The biggest issue for early-stage businesses is running out of cash. Entrepreneurs may love the idea for their business, but not understand the nuts and bolts of how to run it and deal with finances and cashflow. That can result in having to raise money at the worst possible moment, when the business is losing momentum or you’re having to lay off good employees. To avoid this, always raise more than you need and raise it when you don’t need it – that’s when you’ll get the best deal.
Give up the day job
Budding entrepreneurs I encounter are sometimes not committed enough and are still in another job. By the time you ask for someone else’s money, you really should have given up your day job. Passion is the other factor. If you are in love with your business, your enthusiasm is infectious. If you’re just there to make money, it tends to be apparent and it is far less likely you’ll succeed. You need to be on a mission to make other people as excited as you are and to want to work with you.
Brent Hoberman is the co-founder of Lastminute.com, Made.com, and startup accelerator and incubator Founders Factory