There’s no denying it: we’re in the midst of a very difficult economy. As credit markets seized up and the IPO and M&A markets slowed to a crawl, sources of entrepreneur financing such as SBA lenders, angel investors, and venture capital funds slowed just as dramatically.

Credit is tight – unless you have nearly perfect credit, are willing to personally guarantee payment, and can offer 100% collateral, you can probably forget about getting that loan.

This doesn’t mean that financing has dried up completely.

The good news: equity financing is still available for good opportunities. Equity investors – angels and VCs – make their money upon an exit event such as an IPO or acquisition. These events usually take place five or more years after they make their investments. The fact that we have a difficult market today certainly doesn’t mean that we’ll have a bad market in five years. While many skittish investors are sitting on the sidelines, more rational ones appreciate that the value of their investments will improve with the economy and are on the lookout for good opportunities that are being passed over.

The keys to obtaining financing in today’s environment are the same as they have always been – you just need to execute even better than ever before:

1. Have a compelling opportunity. This means you need to demonstrate all of the traits that investors have always wanted to see: an innovative solution to a painful problem in a large and growing market, with demonstrated demand, with sustainable competitive advantages, great financial potential, backed by a committed management team who’s been there and done that. If all you have is an idea, then forget it – stick with your day job.
2. Tell your story in a clear, compelling way that that stands head-and-shoulders above the crowd. A downturn is generally a good time to start a business, but that means there will be a lot of entrepreneurs competing for a shrinking pool of capital. To succeed, you need to put a lot of time and effort into perfecting your investor communications, including your elevator pitch, presentation, executive summary, business plan, financial forecast, and website.
3. Persevere. Even in the best of times, raising money isn’t easy. A process that once took three to six months might now take as long as a year. For some entrepreneurs, it might make more sense to spend this time seeking customers rather than investors.

We’ve been through tough times before, and there will be others in the future. If you keep a level head and stay abreast of the big picture, chances are, you’ll land on your feet.

I spent nine years running a US subsidiary of a Germany company. Their obsession (at least the group I worked for) with metrics gave me an appreciation for the power of metrics to elevate the performance of individuals and organizations.

The terms “metrics” and “performance indicators” are used synonymously. Most companies use some level of financial metrics for performance reporting to stakeholders. The focus of this article is on using metrics for performance improvement.

The value of written goals has been discussed in hundreds of business and self help books. What is often missing or understated is the critical process of quantitatively tracking the progress towards achievement of the stated goals. Without the appropriate metrics, there is no accountability and little chance of goal achievement.

Metrics create an environment of accountability throughout the organization. An organization that closely tracks performance indicators or metrics creates a culture where goal achievement is the norm and where there is no room for mediocrity.

These performance indicators also provide a way to convey corporate goals to the organization in a tangible form and get buy-in at all levels. It also sets an example that the company management is holding itself accountable for success.

How do you know what performance indicators you should be tracking in your business?

1. Start with your strategic plan and the goals you have set for the organization. List the general topics that relate to the goals i.e. customer service, asset utilization, financial performance, market share, employee retention, etc.
2. List critical success factors for each topic that if achieved, will directly contribute to attaining each goal.
3. Define a specific metric for each critical success factor that will track progress towards its achievement.

Just as the attainment of goals can be chunked down into components that can be delegated in the form of individual objectives, the associated metrics can likewise be used to create accountability for groups or individuals and thus align effort within the organization.

Metrics are important for reporting performance to stakeholders and for making fact-based decisions. The real power of metrics comes from creating the accountability that drives performance improvement. Consider adopting the “metrics obsession” like my friends in Germany. It will do wonders for your business.

“We promise according to our hopes, and perform according to our fears”
– Abraham Lincoln

Jerry S, one of our friends in the medical device market, was recently asked a question that many others out there have also probably had:

I have an idea for a medical appliance that I do not believe is currently on the market. I have no engineering background and have no idea where to start to get this idea evaluated, mocked up, and potentially marketed.

I know there are web sites that promise to promote inventions but I’m squeamish about them. Does anyone have any ideas of where I might go to get the idea looked at and potentially developed? (If it helps any, the idea is in the area of respiratory care.)

Here’s what Jerry had to say in response:

I can give you the perspective of a medical device inventor with almost 40 years in the medical device industry.

First you need to come up with a sufficiently vague description of your invention so that you can talk about it without losing key patent rights here or abroad. For a “ball-park” quick estimate of the viability of this idea, you can follow these steps.

You need to see if the idea is for a “must-have” or “nice-to-have” product. If it’s the former, talk to several potential customers about what the product does, how it would help the patient, why it’s better than existing products, how much the potential customer would be willing to pay for the device, whether there are similar products already cleared for marketing by the FDA, whether the use of those other products in a medical procedure has been assigned a CPT (Common Procedural Terminology) code by the AMA (American Medical Association), how long it will take to perform this procedure, whether insurance companies (called third party payers, and including Medicare) will pay (reimburse) the healthcare provider for performing the procedure and how much the reimbursement is in, say, Manhattan, NY (one of the highest reimbursed regions in the US.) You may have to guess at the manufacturing cost of a device you have not designed yet, but if there is a similar device on the market and it’s not too complex, you could guess that cost as less than 20% of the selling price.

If your idea is for a single-use disposable device, you will need to calculate if its delivered cost is significantly less that the “technical component,” or TC, of the reimbursement amount. Finally you will need to calculate if use of your disposable device is worth the doctor’s time, especially if you are going to try to influence them to use a procedure involving your device instead of another procedure using a competitor’s existing device; you calculate the “return on time” (R.O.T.) by dividing the professional component (PC) of the reimbursement by the time to do the procedure. If you are likely to achieve at least as good a clinical result as existing equipment but with a higher R.O.T. then doctors are more likely to use your invention.

If your idea is for capital equipment that the doctor buys, then you need to calculate how many times a week that equipment will be used, how much the total reimbursements (TC + PC) will be per week, and calculate how many weeks it will take the doctor to break even. Many doctors in private practice are happy to break even in a year. You will still need to calculate the R.O.T. for your device versus the competition (where now you use both components of the reimbursement in the calculation) and show the doctor an advantage.

Again, this is very rough estimate, given that your product idea is not a costed-out design. But if the quick analyses above indicate that you will have an advantage over your competition and that you can generate enough revenue to support a company (or other options), it will be worth taking the next step and consulting a patent agent or attorney to protect your idea, and the folks that can turn the idea into a product.

Of course, Jerry didn’t have much information to base his answer on, but he offers a lot of great insights for entrepreneurs considering the feasibility of a medical device venture.

We were recently asked an interesting question:

I am looking at few strong competing product ideas for our next product. The factors I am already looking into are:
1. Expected short term and long term business potential
2. Competitor products, their market and platform valuations
3. Barrier to entry for new competition
4. Key applications where this platform can be applicable

The IP is probably not defendable but I will anyway check with my lawyers.

I am having a hard time evaluating proper business potential of an idea in Web 2.0 space.

How would you generally compare ad based revenue model with subscription based web service model?

Here’s my initial response to the question:

Your best bet, in my opinion, is to cheaply implement and release free beta versions of all of your product ideas, and let the user community decide which one(s) you want to devote further resources to. Don’t let the revenue model slow you down – you can resolve this once you have a user community. Don’t waste your time on trying to do a lot of quantitative analysis before you launch, since this is at best a guessing game prior to launch. Just focus your resources on creating something of use to users, and get validation of your concept from the market – almost everything else (apart from IP issues, in certain circumstances) – is putting the cart before the horse.

In other words, Just Do It.

There are four basic types of business plans, each serving a different purpose and audience. How you prepare your plan depends in part on the type you are preparing:

• The “Idea” Business Plan: This is basically an extended executive summary, anywhere from 5-10 pages in length, in which you brainstorm and set down the broad outlines of your venture: what problem you are solving; how big the problem is; how your venture solves the problem; why your solution is substantially better than competing solutions; how you will sell it; what resources (people, money, partners, etc.) you require to make it happen; etc. The purpose of the Idea Plan is to help you decide whether or not you have a worthwhile venture. If yes, you can use the Idea Business Plan to recruit co-founders who share your vision and get everybody on the same page. As your founding team develops, this document may go through many changes as new team members make their contributions.
• The “Operating” Business Plan: This is a thick 3-ring binder that develops over time and never stops evolving. As the name suggests, it contains the myriad details and benchmarks documenting exactly how you plan to operate your business. It contains items like the detailed operating budget, detailed market and competitor research and analysis, product design specs, sales prospect lists, partner acquisition strategies, intellectual property strategy, and anything else that guides the growth of the venture.
• The “Equity Funding” Business Plan: This is used to persuade potential angel, venture capital, and corporate investors to take a closer look at your company. It is typically 20-25 pages in length, and expands on and refines the issues covered in the Idea Plan. The objective is to get a potential investor to invite you to meet with them, nothing more. It conveys excitement, opportunity, and competence without using any hype. It is flawless and beautiful to look at. Equity investors swing for the fence, and you need to help them visualize hitting that home run.
• The “Bank Funding” Business Plan: This is used to obtain a bank loan. Bankers are generally very conservative. They want their 10% and get their money back at the end of the loan. Bank funding is usually only available if you either have a solid operating history with positive cash flows or can put up collateral to cover the loan (for a startup, this means your house). The Bank Funding Plan focuses on persuading the banker that you can satisfy these needs through historical financial ratios, assets, etc.

So, as you sit down and start your plan, give some thought to what you are really trying to achieve. Avoid the temptation to prepare a plan that tries to be all things to all people.