What is innovation to your business?  Is it the how you provide the absolute best in customer service in your industry?  Is it the way you perform business operations efficiently to save money and get the most out of your production dollars?  Are your products your core innovations, with new releases each year?  There are countless ways you can incorporate innovation into your company – and this originality should continue to grow along with your business. 

Entrepreneurs face the challenge of creating and growing businesses that must constantly change as they meet consumer demands.  What worked five years ago may not work this year.  While your business idea may have fit a market niche last year, consumers ask for something different today.

Innovation is not simply just a new spin on an idea.  It is the constant process by which your business meets demands by creating solutions.  But with all the demands put upon you as the entrepreneur and founder of your company, how do you find ideas to continue innovation?

Employee Suggestion

Your employees are one of the greatest assets of your business.  Many entrepreneurs treat employees as a necessary expense, and by doing so, receive the bare minimum of effort from their workers.   However, if you empower your employees with ownership of their tasks and duties, and by giving them the freedom to suggest options for better efficiency and customer service, you have found a potentially bottomless source of business innovation.

Salespeople who work face-to-face with customers daily can offer great suggestions for better packaging or other improvements that meet customer needs.  Who would know better than the salespeople who ask the customer directly how to serve their needs? 

Be choosy when you hire your administrative staff.  The most creative ones can offer ways to save overhead expenses by developing more efficient procedures and inventing new time-saving processes.

Customer Feedback

Listen to your customers.  Solicit their feedback.  Ask them for advice on how you can serve their needs better.  Customers love to tell businesses how to do it better.  While their feedback may not always arrive in the nicest way, by analyzing what your customers say in their complaints and solicited comments, you can continue your innovative process to grow your business.

Follow an Example

Some adages say it’s better to lead than to follow.  However, there is no harm in matching, or even surpassing, your competition by imitating their processes.  Keep a constant finger on the pulse of your industry.  Read trade magazines.  Attend conferences.  Find out what everyone else is doing and what is working.  You can take those ideas and incorporate them into your own business processes to become more efficient and improve product ideas. 

Innovation requires constant creativity, work, and evaluation.  However, in order for your business to succeed for years to come, you must find ways to keep your product and business fresh for your customers.

With the list of US venture capitalists growing year by year, it can seem like an impossible task to find the right ones that are a potential match for your business.  Acquiring venture capital requires a tremendous volume of patience, research, and effort before you finally arrive with money in the bank from a granting VC firm. 

How do you narrow the prospective list of venture capital firms so that you can focus your business idea presentation most effectively?  There are many ways to narrow criteria to find a viable VC list.  Here are the most commonly used focus techniques:

1. Match Criteria

Each VC firm will publish investment criteria that exposes the firm’s desire for certain types of business, tolerance for risk, and average amounts of investment in each business they choose.  If you are looking for $1 or $2 million for growth and expansion, don’t approach a VC firm that only disburses $5 million or more to already established businesses.

By looking at a venture capital firm’s criteria, you can narrow your potential list from hundreds to perhaps a couple of dozen choices.  Read these criteria carefully, and you will have a viable list of potential VC firms.

2. Sector Preference

Many venture capital firms prefer to invest in certain industries, such as software or consumer electronics technology.  Know your potential VC’s preference for their portfolio investments.  Don’t waste your and their valuable time by submitting a business plan for your fashion design business to VC preferring software companies.

3. Stage Preference

Is your business a startup?   Are you an established business now looking to grow nationally?  Many VC firms will state what stage of business they prefer to invest in, whether it is startup, seed capital, or expansion.  Match your stage of business with a potential VC’s preference.

4. Avoid Conflicts

When you have a good and narrow list of potential VC firms, look at each carefully and check for potential conflicts with other companies that the VC has in their investment portfolio.  A VC firm will most likely not want to invest in your company if you are a competitor to one of their portfolio holdings. 

5. Narrow a Location

Most VC firms like to invest in companies that are local to them.  Locally could mean the same metropolitan area, state, or region.  Find out where your potential VC firm prefers to invest its funds and approach the ones in your “local” area.

6. Ask

There is no harm in asking a firm that has declined your business for other venture capital firm suggestions.  VC firms are very familiar with the venture capital community and may know other firms that may be a better match.  Always ask politely and be genuine with your request.  There is usually no reason that members of a VC firm would not want to help your business if you are truly passionate about succeeding.

If you have an existing business and are on your way to acquiring growth funding and support from a venture capitalist, be sure to highlight any customer channels your business has through the use of social networking, or what is known as Web 2.0.  The buzz from online social networking can be a big boost to your business in the form of word-of-mouth recommendations and position your business for big growth potential – something that a potential VC likes to see.

Web 2.0 is the general term associated with the way users of the internet communicate with each other and connect online.  With tens of millions of web users actively posting content every day, Web 2.0 has a huge potential for the success of any business.  If you haven’t already, jump into the metaphorical ocean of social media and get your business noticed.

Blogs / YouTube

Does your small business have a website?  It should.  A website can have much more use that just a static web presence with your business products and location.  A website that is updated frequently has a much better chance of getting noticed by search engines.  You could easily start a blog that you update on a daily basis, or at least 2 or 3 times a week, with the happenings of your business, company highlights, and special promotions. 

Along with blogs are the sensations of viral videos seen on the popular YouTube.  If you have the gumption, the creativity, and the equipment, you could make short, clever videos of your company and post them on YouTube.  It could be as easy as making a “how-to” demonstration videos of a product. 

Facebook / MySpace

Social online sites like Facebook and MySpace are the latest and most hip ways for people from around the world to stay connected to their current friends and family, as well as long-lost classmates.  The power of MySpace among teens and those in their twenties was enough to singlehandedly power many companies offering MySpace related widgets, designs, and tools.  Of course, other businesses jumped on the bandwagon, creating a profile and collecting “friends” to whom they could promote. 

Facebook has gained much popularity with users of all ages and offers a similar way to keep your business name branded by forming “groups” and keeping your contacts posted with events and updates.

Opinion Sites

There are many online sites that allow members to post their opinions and recommendations about other websites.  A mention from some of the most popular sites could get your business noticed by millions of customers at once. 

Check out sites like Yelp, Twitter, Reddit, Digg, StumbleUpon, and Del.icio.us, and get your business name on there.

The popularity of Web 2.0 has helped thrust many businesses and online sites into a frenzy of customers.  You could have a tremendous advantage with VC groups if you can show them that your little business already has big numbers of potential customers. 

Do you know what stage your business is in right now?  Are you just starting with a great idea that you think will revolutionize the world?  Are you operating a current small business at optimal levels and ready to jump into a national expansion market?  Or are you ready to take on an acquisition and merge technologies and resources to form a giant in your industry?

Your business stage plays a large part in how much money you can secure from venture capitalists, and from whom.  Many VC firms are very strict about providing only seed money to potentially big businesses.  Others are only in the market to fund companies preparing to go public with an IPO. 

Take a close look at your business stage.  Then compare your positioning with those VC firms you have narrowed down to be potential funding sources.  Find out which ones invest in companies in your stage of development.  Here are the most common:

Early Stage

An early stage company is one that is not yet ready to position its product or service on the market.  A company in this stage may need seed capital or start-up capital in amounts ranging from $25,000 to $250,000.

• Seed Capital – If your business is still in the idea stage and you have yet to perform feasibility studies, market research, and product development, you probably are in need of seed money in order to continue getting your business idea into fruition.

• Start-up Capital – A business that has performed studies and research into their chosen market and is ready to take their product into the public is prepared to receive start-up capital from venture capitalists.  Start-up money can help with the initial marketing push, helping to distribute your product in the market.

Expansion

Expansion capital is for businesses already in or ready to start production today.  The amounts that venture capitalists usually invest in expansion companies range from $500,000 to $5 million.  There are usually four stages to expansion capital:

• 1^st Stage – 1^st stage funding is used towards full-scale production of a product.

• 2^nd Stage – Usually for companies in production and generating revenue, but not yet making a profit, second stage capital helps to grow receivables, inventory, etc.

• 3^rd Stage – Third stage, or “mezzanine” financing, helps businesses perform major expansion and perhaps even develop and introduce new products.

• 4^th Stage – Also known as “Bridge Financing,” companies in this stage are in need of capital to help smooth the way to a potential IPO within about six to twelve months.

Acquisition/Buyout

A company in this stage has advanced operations and is prepared to acquire another competing company as a subsidiary, or expand into new markets and products with the purchase of an existing company.  Monies for this type of capital can range from $3 million up to $20 million.

Be prepared to show your potential VC that you understand which stage your business is in and how you propose to penetrate or expand into new markets and reach the next stage.  Find a VC that funds that stage.  Then solidify your business plan so that you can convince your potential venture capital firm that they should invest in you.

Your small business or start up company is ready to make the leap into national or international exposure.   However, you need the support of a good venture capital firm in order to get the funding necessary for such a momentous effort.   Not only do you need a spotless and polished business plan, but you need a business model that shows your potential funding source just how your company produces and sells your product.

A business model is the framework or method by which your business will sustain itself in producing and selling a product or service.  While production requires infrastructure issues that are too numerous to overview in this article, there are seven important product-related issues that you should have in place when you go before a VC group with a request for financing.

1. Target Customers

How will you find your customers?  How will your customers find you?  These are important questions to know about reaching your target consumer.  You need to know your target consumers demographic and how best to reach them, whether it is internet, television, radio, magazine or newspaper ads.

2. Product Differentiation

The basic question here is: what make your product so special?   Every other company in the industry is touting the latest widget that looks just like yours.  What innovation and added value does your product have that sets it apart from the competition?  Note and highlight this in your business model.

3. Pricing Based Upon Economic Models

What methods did you use in determining a price for your product or service?  Pricing is a careful balance of the economic equation of supply and demand.  If you price too low or too high, customers may not demand your product.  You need to determine a price that is not too low so that you make a profit, and not too high that turns customers away.

4. Innovative Marketing

Selling your product requires innovation itself.   Will you depend on advertising to sell your product?  Or will you have a sales team that sells face-to-face with your customers?  You need to determine how best to sell your product and use the right marketing mix and techniques.

5. Distribution Strategy

Your distribution is how you get your product in the hands of your consumers.  Will you run your own retail store?  Do you plan to distribute to other retailers through distribution houses?  Will you sell business-to-business?

6. Customer Support and Service

Your business needs a way for your customers to contact you with questions and help with your product or service.  Can they reach you by phone?  Via internet website support?  Have a system in place that is ready to take on customers’ needs after you’ve sold your product to them.

7. Customer Satisfaction

And finally, how will you transform target consumers into loyal customers?  One of the best business marketing techniques is word-of-mouth.  Gather a loyal following of customers who come back again and again and tell their friends, and your business can grow exponentially in contrast to regular marketing.  Offer satisfaction guarantees. Do what it takes to get a loyal following and your business will grow and thrive.

As an entrepreneur, you know that “cash is king.”   A proper working cash flow is a vital key element for any business owner.  If you are an entrepreneur operating or starting a business, you will need to effectively manage your cash flow operations, especially if you are seeking venture capital growth funding.

All businesses, large or small, must have an adequate supply of on-hand cash to pay for supplies, payroll, lease, utilities, and any other regular operating costs.  If you fail to pay your employees or cannot pay a creditor for products already delivered, you face serious business issues that could lead to bankruptcy. 

How do you keep adequate cash on hand?

Be liquid

Although cash is the most liquid when paying debts, you could also have capital invested in other liquid forms, such as money market accounts or CDs.  The key with these types of investments is to make a little interest on your liquidity.  If you have a good supply of cash, consider keeping a portion in these types of small investments to generate a small return.  Make sure the accounts will still allow you to easily and quickly access the cash when needed.

Have adequate funding sources

Where can you get access to cash when you need it?  Having an adequate line of credit through a bank can be a business life saver.  A line of credit is an open credit source where your business can access cash only when needed and pay back over time.  The line of credit is reusable and does not close after borrowing. 

Use purchase order and invoicing

If you purchase goods for resale or further processing, try to open an invoicing system with your vendors.  Through this system, you order supplies with a purchase order from your company.  The supplies are delivered and invoiced for payment later from the vendor.  An invoice generally will have a “net 30” term where the full balance is due 30 days from the date of invoice.  That gives you about a month where you can keep cash for liquidity purposes and increase your cash flow from sales you make during the month. 

Borrow for capital improvements when necessary

Sometimes your business needs capital improvements in order to function better and more efficiently.  An efficient operation is a cash saving operation.  Whether it is for a new computer, new equipment, or a new building, you may need to borrow capital to pay for the improvements.  Be sure your company will be able to repay the loan with interest and borrow only enough to acquire the improvement(s) and stay liquid during business operations.

Stay on top of your business cash flow.  If your business manages cash effectively, you will also be well suited for potential venture capital investing in the future.

Congratulations!  You’ve submitted a pinpoint precise business plan.  Your presentation to the VC firm was outstanding, well-rehearsed, and provided all the right answers to questions.  And the venture capital firm says they want your business as part of their portfolio.  What happens next?

Before your business sees a dime of VC funding, you will be required to allow the VC group to perform due diligence.  If you’ve made it to this stage, your chances of final approval are vastly improved.  However, all information must be in order and accurate as you have promised – or else you may see your VC dream unfulfilled.

Financial books

Venture capitalists will want to see all recent financial statements from the last few years.  If you have a CPA who prepared the statements, then their certification of accuracy is a big plus in the eyes of the VC firm.  If you have kept all books yourself or hired a non-certified accountant to do the bookkeeping, the VC firm may request to review your ledgers for the last few years.  Be prepared and cooperative in all requests for your finances.

Meetings with your current investors

A VC firm may want to speak with any current investors you may have.  If your business is a corporation, a poll may be sent to shareholders.  If you have loans with other private investors or banks, they may want to speak to them about your payment history and how you manage cash flow.  Again, be cooperative with providing contact information as requested.

References

Up to 10 or 15 professional references may be requested by a VC firm.  These could be customers, business partners, personal references, or anyone who can provide the VC firm with insight to your business approaches and the market.

Additional market research

If your business is in an arena that is unfamiliar to the VC firm, they may want additional market research to help them understand the market niche and where your business fits in it. 

Additional meetings

Most likely, the VC firm will have plenty of additional questions for you and your management team.  Expect to be called for extra meetings to answer questions in-depth. 

You may also be confronted with probing questions that deal with negative aspects of your business they have discovered.  Remember to always keep your calm and be professional.  If confronted, answer all questions as best you can.  You may not have a solution to give them immediately, but always agree to tackle any concerns that the venture capital may have.

Observe you, the entrepreneur

Believe it or not, a VC firm may perform extensive probing to fully understand how you manage business situations.  They want to know how you will react to market pressure and uncomfortable business situations.   Your reaction to probes and concerns tells venture capital firm about your ability to manage a company in tough times.

Obtaining venture capital funding is not easy.  To ensure their investment will be entering into capable hands, a VC firm will want to perform due diligence with all groups they fund.  Be prepared to cooperate and manage with any potential situation with professionalism and genuine enthusiasm. 

When starting a business, your endeavors do not always go according to plan.  Although an entrepreneur who is a good planner has a better chance at making his business succeed, if he cannot change plans according to market trends or business needs, the business will certainly fail.  A flexible entrepreneur who can switch gears and “go with the flow” has an even greater success rate.

What are some situations where an entrepreneur may be flexible?  Here are just a few that entrepreneurs typically experience. 

Don’t do it all yourself

An entrepreneur who thinks he can do it all himself is set up for failure.  A good entrepreneur must learn to delegate and let others take control of parts of his business.  Surround yourself with people you feel comfortable working with.  Hire competent help.  And don’t forget to reward your team when the company experiences success!

Be flexible with price

You can’t win them all, even on prices for your goods or services.  Especially in a tough economy where consumers are tightening their wallets, you may need to be flexible in the price of your goods or services.  Be firm on getting what you need for your business services, and don’t get less than you can afford.  However, be willing to offer discounts to clients or customers who order large volumes, and even lower prices in reaction to market demand. 

Be flexible with negotiations

Flexibility with business negotiations is an art form.  In your dealings with business partners or vendors, be professional and not pushy or obstinate.  If you are willing to bend on some issues but ask for their concessions as well, you gain respect as a negotiator and as a business person.

Keep your product options open

Sometimes a great business idea is just that – a great idea.  It may not work in real life application.  Always be willing to be flexible with your product or service development to match market conditions and consumer demands.

Leave your personal life at home

Be flexible with focusing on your business and leaving your personal issues and problems at home.  Personal issues can affect your effectiveness in operating a business.

Train yourself

Be willing to admit that you do not know everything.  An entrepreneur has much to manage when running a business.  Take classes or seminars on business processes.  Even a community college accounting course can help you understand the bookkeeping process.

Admit mistakes

And finally, be willing and flexible to admit mistakes and take responsibility.  Your business is important, and making decisions and standing behind them is the way to keep your business operating.  However, some decisions may not be the best ones.  At times, you may need to change your business direction or offer an apology to your associates or business partners for mistakes you made. 

As an entrepreneur and business owner, you bear the full success and failure of your endeavors.  Ultimately, your business is your responsibility.  Take responsibility and be flexible – and you will find that your business will flourish as well. 

If you have previous experience and success as an entrepreneur, then venture capitalists may be looking for you.  Whether you started a local lawn care business or developed a strategic new software application, your savvy entrepreneurial business experience is a plus in the minds of VC firms and could result in securing funding for your next business venture.

Venture capital firms are very particular when it comes to lending money to new businesses.  They expect their money back with exceptional returns, and therefore, only companies that have the potential for great success are at the forefront.  When approaching VC groups, be sure to highlight your previous success.  It could result in getting the funds you need to get your new business flying.

Why do previous entrepreneurs have a better chance with VC firms?  Here’s how you can spotlight your experience:

Innovation

Did you create an innovative new product or develop a new business process?  Your technological creativity can be a key in the success of your new business.  According to the great management expert, Peter F. Drucker, innovation is:

“The specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.”

Show the venture capital firm how you have revolutionized a business process or exploited change as opportunity.  If you’ve done it before, you likely can do it again.

Management

Drucker also states that, “management is the new technology that is making the American economy into an entrepreneurial economy.”  Previous management experience, particularly in conjunction with a previous entrepreneurial venture, lets venture capitalists know that you can lead successfully.  Give a full account of the success of your previous management, such as how you hired and retained good employees, or saved money by reducing the cost of production. 

Marketing

If you were a previously successful entrepreneur, then you must have found a market somehow.  Note the creative and focused marketing techniques you used to gain new and returning customers.  With your knowledge of marketing techniques that work, venture capital firms can see that you know how to fill a niche and attract the right customers. 

Growth

Particularly if your previous entrepreneurial venture was successful, demonstrate to venture capitalists just how much growth you experienced.  Quantify your financial results using charts and graphs.  Show how your business entered new markets through your own growth plans and through any joint ventures in which you engaged.  Remember, VC firms want to know that the companies they invest in will grow and prosper.  Prove to them that you are perfect for the job. 

Entrepreneurs are people with big ideas and big dreams.  Likely, if you are reading this, you have some kind of entrepreneurial dream that you are pursuing.  In your process of growing a new business and obtaining funding from venture capitalists, make a strong note of how you can bring success to your company with your history of entrepreneurship.

Though you may have a stellar business plan and gained the interest of a venture capital firm, you need to prepare for your presentation.  Many entrepreneurs vying for VC funds are turned down at the pitch stage.  Why?  They were unprepared and did not deliver convincing answers to questions.  You can avoid this pitfall by preparing adequately for your pitch with these following strategies. 

1. Rehearse, rehearse, rehearse

Stage performers don’t confront a paying audience after one or two dress rehearsals.  They plan every move, every emotion, and practice each scene time and again until it flows freely and naturally.  Do the same with your presentation.  Practice it until you know the information you want to deliver intimately and can present it comfortably.

2. It’s in the eyes

Nothing is worse for a venture capitalist firm than to watch an entrepreneur who fails at public speaking.  In order to grab the attention and excite your venture capitalists, you need to show excitement and enthusiasm yourself.  When you practice your pitch, also practice your emotional delivery.  You don’t need to speak loudly, but do speak in a good audible tone.  Show your excitement in your face, particularly the eyes.  They will be watching you.  Your enthusiasm can spread to your VC audience.

3. Share the stage

Don’t do it alone.  Try to get everyone on your leadership team to make a part of the presentation.  Different segments of your plan could be divided, such as the financial section or the marketing strategy.  The more your VC audience sees all members participate, the better they will understand everyone’s enthusiasm for your endeavor.

4. Prepare for Q & A

Rarely does a practiced presentation go from point A to point Z as rehearsed.  Expect your VCs to throw questions at you and your team members as you proceed with your pitch.  Oftentimes, a question will arise that will be answered in an upcoming portion of your presentation.  You could give a teaser of an answer, but you may simply and politely inform the questioner that his or her question will be answered in detail in an upcoming point. 

After a presentation, there will usually be plenty of questions from your potential VC group.  You will best be prepared to deliver answers by knowing your facts and figures as best you can.  However, don’t stumble if a question is raised for which you cannot provide an answer.  Simply be honest and inform that you do not have an answer at the time, but will follow up after the meeting.  However, don’t forget to follow up.  Be sure to deliver an answer by email or phone call to the individual or group. 

Getting ready to deliver a presentation should take plenty of preparation time.  You’ve spent the time focusing your business plan, but a live presentation is where you will deliver the emotion and enthusiasm of your entrepreneurial venture.  So be excited, get them excited, and invite them along for the ride.