If you can, find the early customers. Give them a deal, make them important, work with them to optimize their needs; but make a sale.

Even if you do need to go out and find investment–and I speak now as an actual angel investor–there’s almost nothing as convincing as actual sales. People are spending money on your product or service. It makes a new business proposal far more credible.

True, not all businesses can do that. But a lot of them can. And, as we write about business plans and seeking investment and all, we forget the real sweet spot: financing growth by making the sales.

(Note: this is a repost from Planning Startups Stories, where I posted it a few days ago. I can’t remember the last time I reposted from that blog to this one – it has been a while – but I decided to do that today because it seems to be very appropriate here too. It’s been on Twitter a lot already, from the first time I posted it.  Tim. )

Still, back then, when I started, there was a certain stigma to the home business. I fought that stigma by never apologizing for the home base and never trying to hide it. But I felt it.

I’m glad to see how much this has changed. I just read Steve King’s The Home: A Great Place to Start–And Run a Business on the American Express OPEN Forum. He writes:

The home has long been viewed as a great place to start a business.  Lower costs are, of course, the key reason.  Many large enterprises such as Ford, HP and Apple Computer started as home businesses.

He cites a recent SBA study that showed a lot of growth in home-based businesses; both in the number of these businesses in the U.S. (some 15 million) and in their likelihood to survive and prosper. He adds data from Homepreneurs: A Vital Economic Force, a study by Emergent Research, conducted on behalf of Network Solutions. Thirty-five percent of home-office businesses take in more than $125,000 in annual sales and 8 percent do better than $500,000 per year. They’ve existed on average for 10 years.

Don’t discount the home-business option.

I first noticed the so-called home office market back in the middle 1980s, when I did my business from a home office (so perhaps my attention wasn’t entirely by coincidence). I was consulting for a living in those days, doing planning and related research mostly for high-tech companies. I was also writing a monthly column in Business Software magazine. And one of the markets most of my clients wanted to reach was what they called the home office.

The problem, however, was that the people who ran their home office businesses didn’t really make a market. They were out there diffused in the world, without an identity, without much in common with each other and without product identity.

What did a home office need that was different from what small businesses needed? What did a home office buy, different from a general small business? It was hard to tell. In comparison, the mobile travelers needed some predictable items and read predictable magazines. So did the students, the engineers and so on. But not home office businesses. Or so it seemed back then.

Earlier this week Steve King of Emergent Research tipped me off to new research about home-based businesses that adds a new angle on the lure of the pot of gold. In his post “The Rise of the Homepreneur,” he offers real numbers from a new report based on data from the Network Solutions Small Business Success Index. The report is available here. And some of the key findings are:

• Home businesses employ more than 13 million people.
• Nearly 6.6 million home businesses generate at least 50 percent of the owner’s household income
• 35 percent of home businesses generate $125,000-plus in revenue and 8 percent more than $500,000.

So with new data from a new angle, it’s not that home office businesses are necessarily a market; it’s that they are a lot of people doing business, making money and doing (I hope) what suits them. And a reminder, as well, that “home office business” doesn’t mean inconsequential; the millions of businesses in this study are supporting people, employing people and generating real money.

And if you dig into the study, they are being taken seriously by customers and clients. And they offer lower-cost startup alternatives, too.

Now where was that rainbow?

1. Signage, Appearance, Ambience. OK, I admit, if you’re solopreneur doing an expert business only on the web, then yes, worry about your website and your Twitter profile. But that’s all we ever hear on blogs and Twitter, when there are so many businesses worried about that while not doing the basics in the real world. My favorite coffee place in Bend, Ore., had been closed on Sunday. Last weekend it had a sign outside on the lawn, facing the traffic on the street: “Now Open Sundays.” Simple is good, right? I’d been going somewhere else on Sundays automatically; now I won’t. Think about how much you judge a business by its outside appearance. Does the signage fit the promise? Sometimes quirky and rustic is cool (some restaurants, an antique store, jams and jellies maybe) but how is it for German-Japanese auto repair? For years I’ve walked by an old office in a beaten-up office complex with dark windows and old curtains and a very old wooden sign, looking like it was done in a high-school shop class, saying “Business Planning Concepts.” No, I don’t think so. And if your face on the world, your appearance and your ambiance are your website, then, yes, work on your website.
2. Directories and such: being found where people look. What used to be the Yellow Pages is now Google Maps, Yahoo! directories, Bing, MSN, AOL, not to mention the local Chamber of Commerce, directories in local newspapers, specific trade and industry directories, related website directories. Think about where and how people look when they want to find a business like yours. Be there.
3. Be an expert. Don’t ever underestimate the power of being quoted by others in your area of expertise. Sure, there’s a lot to be said for working with related blogs, making comments and so on. But you can start with local events, trade shows, local media. Can you write for the local Chamber of Commerce magazine? Do you know the editor of the local newspaper? Can you be a speaker at the industry show?

Serendipity: you can’t do any of the above without figuring out whom you think your customers are, what they want, where they look for solutions, and so on. You’re already on your way to a marketing plan.

Last week Business Insider published 10 huge business successes born from early failures. In my experience, these aren’t exceptions to the rule, they are the rule.

Oh, and the successes? Have you heard of them? How about AOL, Twitter, Intel, Microsoft . . . and those are just the first four. Microsoft (the example shown here to the right, an early picture of Microsoft, with Bill Gates at lower left) started doing a BASIC compiler for the Altair 8800, a computer that ceased to exist before the company made any money.

The point is that most businesses evolve. Business plans evolve. You don’t blindly follow the plan; you keep reviewing and revising the plan until you figure out something that works.

(Illustration: from the Business Insider post, 10 huge business successes born from early failures.)

Eliminate Paper and Filing with Screen Shots
“I’m finding I can eliminate a lot of paper and filing expenses–not to mention filing and recovery of documents–by taking quick screen shots of web orders and travel documents and such. I save them on my CPU unless they’re travel documents, in which case I save them as JPGs and put them onto my iPhone.”

Use the Amazon Cloud
“We’re saving several thousand dollars a month now by having moved our servers from a server farm somewhere else to the Amazon cloud. We get much better up-time and response time, but for significantly less money.  We’re also using the Amazon cloud for storing files and backup.”

Insist on Price Reviews from Existing Vendors
“When the recession was at its worst we pushed our vendors that provided phones and the office internet bandwidth to redo their pricing. We found that vendors we’d been with a long time were giving new customers much better deals than existing customers, and we insisted on a review.”

Hold Meetings Online Instead of Traveling
“We’re using the web conference for webinars and to host meetings, often one-on-one meetings, to reduce our travel costs. We’ve had success with both WebEx and GoToMeeting. We’re finding the simple meeting online as quick and easy, and a lot more effective, than getting on the plane.”

I’ve included these here because they were mine, which makes them automatically my favorites. But they aren’t the best of the bunch. The entire post is good reading.

Save Money on Technology | Small Business Trends

This man will probably make it. There was nothing dumb or naive about him, and he was old enough to know better. But the underlying assumption he seemed to be making is worth posting about.

He asked me how he would get money to start a new venture related to worms and compost. He seemed surprised, and maybe even discouraged, by my realistic answer.

I said relatively few startups get investment; that most startups make it on their own, from grit, work and getting something they can sell to customers early on.

I told him investment is really only for companies that can grow quickly and sell out soon enough (three to five years) to make it worth the investors’ money. For the investors.

And I told him that investment is particularly hard to find these days. And that he should look at how to get his company up and running on a smaller scale, and start selling.

I was surprised and disappointed that he seemed surprised and disappointed.

And yes, we call that bootstrapping.

(Photo credit: by Chika on Flickr)

This three-minute reminder from Kawasaki is what we baby boomers would call “an oldie but goodie.”  I found it over the weekend on Stanford’s eCorner entrepreneurship video site–which is an excellent resource. It’s a collection of talks, broken conveniently into segments like this one. It’s from 1993 and, despite recession and a lot of changes, it’s holding up just fine to the ravages of time. It’s as valid today as it was then.

I do have that one reservation, however. I hope it’s obvious. If you take this idea too literally, and do what you love without any regard for what other people will pay for, then it doesn’t work. You need empathy and common sense. Love skiing? Teach it, make gear, do a store, build a website, do something related that people will pay for. Does that make sense?

Offhand, even without knowing either of them, I’m sympathetic. After all, if you keep up with this blog, you’ll know it’s a topic I care about. And I’ve posted here about my recent experience as an angel investor (and if you’re wondering, no, I’m all tapped out at the moment), so I’m not surprised by the question.

I looked at Ralph’s website. It’s an interesting business, local to me, with new technology for an otherwise traditional and low technology business. New materials, a new take on old products. And they’re making a product I use.

So I’m interested in the problem.

(And if you wonder why I’m not being more specific, I don’t have anybody’s permission to mention the business, and seeking investment can be sensitive. Besides which, it’s also possibly illegal (depending on interpretations) to mention a business that’s looking for investment on a blog like this; could be taken as soliciting investment improperly. That’s why I’m not giving details.)

But first, some questions:

1. Are you really sure you want to go that way?

Sometimes I think we all (we entrepreneurs, that is) move too quickly to the investment alternative. Having investors is like having a spouse. No, it’s like having a spouse who is also a boss. Your business is not going to be yours ever again.

Oh? What? You want minority investors who give you a lot of money without attaching any strings? Fat chance. You mean you want somebody who has a lot of money (they have to have a lot of money, to make the transaction legal) and is also relatively naive? And really generous? Good luck with that.

Take a good look at your prospects. Do a business plan, not for outsiders, not formal and hard to do, just a business plan with realistic forecasts for sales and expenses. Then ask yourself whether you can get by without the investment. Can you borrow enough to make it work? Can you live with the burden of debt? Have you considered SBA-backed loans (they are moving again), which lessen the debt burden?

Don’t go down the investment path just because everybody says you should. Think about the rewards of making it work without the outside investors, so you own it all yourself. Food for thought: this post on Planning Startups Stories.

2. Do you have a business plan?

The good news is that you don’t have to have a plan you can show to investors tomorrow. You do, however, need to have a plan for yourself, covering strategy, markets, sales, profits, cash flow, all the key points. These factors are all related to each other and you can’t just wing it. You need to have real numbers.

And it’s not about showing the investors your plan. That may or may not come later. It’s about knowing what you need, and why, and what that’s going to produce.

3. Do you need enough money to interest investors?

Angel investors don’t usually want to deal with less than $100,000, and venture capitalists don’t want to deal with less than a couple of million dollars. Sure, there are exceptions, but those are general rules.

And you can’t just say you want it; you have to be able to show you can use that money to grow the business. You have to have a real plan, what you’re going to spend the money on, how it will increase your business.

If all you need is tens of thousands of dollars, then bootstrap. Maybe you have to get friends and family involved, but really, for less than six figures, it’s not worth it to professional investors.

4. Can you grow your business a lot, in a few years?

Investors who put money into small businesses are taking big risks and they deserve big returns. They don’t have to invest in entrepreneurs, they can lose their money just as easily in the stock market, and they can get safe interest with no risk. So you have to give them the hope of a big payoff.

That means big growth. Can you convince them your business can sell five times what it’s now selling in two years? Or ten or 20 times in five years? That’s what they need to make money worth the risk.

5. Do you have a convincing team?

Investors are going to want track records, people on your team who can run the production, marketing, sales, and administration of your business. They want people who have done that kind of thing before, sucessfully. If you don’t have them on your team, then the investors won’t be interested.

If you can answer yes to all of those questions, then you’ll likely be able to get investment (although not from me, but I can point you in the right direction).

It’s about The Funded Founder Institute, a four-month, $450 program to run selected entrepreneurs (including, by the way, wanna-be entrepreneurs) through weekly sessions with mentors and experts, ending with a certification that should smooth the path to investment.

This is just starting, but it looks like a great opportunity. Adeo Ressi, the founder, has a great track record in startups–with VC funding and successful exits–and what he’s after is getting a few people a better chance at a more level playing field. Learn the ropes before you get in too deep.

If you can’t hack the $450, he’s got a number of Microsoft BizSpark scholarships to offer, too.

So if this sounds at all interesting to you, apply now. Applications close May 9. The application costs $50. The window is closing for this first run.

I think this is likely to be a really interesting opportunity.

Adeo promises that selection will be reasonable. He wants a broad group of potential founders. And they won’t necessarily all be headed for venture capital, not even necessarily for angel investment or even any investment. There’s even some language on the main site inviting bootstrapping startups as well.

Also, he says he doesn’t want just sophisticated, experienced startup people. He’s also looking for people without experience who want to learn.