Northland Angel Investor Network Director David Palmstein recently announced that the organization has provided over $1 million in funding to five area businesses. Equally important, the group provides mentoring and other support that dramatically increases the businesses’ odds of success.
NAIN Director David Palmstein recently addressed nearly 50 people at the Northland Coffee Connect held at iWerx in North Kansas City. Palmstein, an experienced business developer, told the audience of small business owners and entrepreneurs that most small businesses often fail because of predictable mistakes. He said many overlook the basics of business development, which involves both creating and proving a business plan.
“I see 70 percent who haven’t done that,” he said. “They see the market and have a great idea, but how do they know they can sell it? You have to prove the plan.”
The easiest way to do that is go out and talk to people, even create a pilot program to test ideas with a customer who receives the product or service at a discount or for free. “Get someone who agrees to buy it and try it,” he suggested. “Entrepreneurs constantly ask me what I think of their ideas. It doesn’t matter what I think. It matters what a customer thinks.”
Another pitfall involves underestimating the resources needed to actually deliver product or services. “Many times, companies will talk about ‘ramping up sales,’ but they don’t have the resources to do what they need to do. They’ll have two people in the sales department, but they need 10.”
He also recommended focusing very clearly on a single product. “It’s much better to go narrow and deep rather than broad and shallow,” he said.
Palmstein recommended that entrepreneurs prepare for investors by creating a one-page summary of their business, but good business owners are even more focused. “Really, if you can’t explain your business proposal in one sentence, you probably aren’t going to succeed,” he said. “And remember your due diligence. How it will make money is missing from a lot of plans.”
The Northland Angel Investor Network will often spend 120 hours going through its due diligence, he noted. “To pass that, you really need to know you understand your business.”
Small businesses that see success will still face challenges. “To go from $0 to a $50-million company, you will need to morph management three times,” he said. “From hands on to managing to strategic direction, top level staff must be flexible or be replaced. It’s important to find people willing to change, to move from the tactical to the strategic. These are hard conversations.”
Palmstein noted the Northland Angel Investor Network requires a high level of business qualification, followed by mentoring and direction. “That’s why they (angel investors) bring three times the success rate and 30 percent more return for their investors,” he noted. “They’re looking at ways to help you. It’s a longer process, but it works.”
NAIN is an affiliate of the Clay County Economic Development Council, designed to help meet the EDC’s strategic plan goal of creating new companies and increasing area employment. For further information, visit the NAIN website at northlandinvestors.com or call (816) 468-4989.