Venture Capital For Dummies
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“Building a better mousetrap” is a popular idiom that refers to coming up with a product that is an improvement on all other currently available technology. Many venture companies have better mousetrap products and succeed in part because of their products.

Therefore, as you position your company to attract the attention of venture capitalists, you want to highlight your product while at the same time remembering that the product cannot stand alone and support the company. Even as you make your product shine, you need to keep the focus on the company.

Investors like to see a strategy that results in the biggest and fastest growth. To achieve rapid growth, you may have to be creative in how you work with your product. You may choose to manufacture and sell your product directly, but you may not. Following are some strategies that companies use; some larger companies use more than one of these strategies at the same time:

  • Business to customer (B2C): The company sells its unique service or product directly to the end user who is an individual. Ben & Jerry’s Ice cream makes a product with unique qualities — a more flavorful ice cream — and sells it directly to customers through its flagship store and other stores all over the world.

    In many cases, building up a company around a product doesn't make sense. The cost to set up manufacturing and distribution systems in addition to all the other overhead may make your product less competitive in the market.

    Also, a company with just one product may have limited growth potential unless the market for the product is huge. Before you go this route, make sure that you have a plan for a pipeline of products or that your product is uniquely positioned to be highly desirable for acquisition by a competitor.

  • Business to business (B2B): The company sells its product or service to other businesses for use in business. SalesForce and Aloha are both software systems designed to enable businesses to manage large teams of customer-facing employees and to compete and track sales transactions.

  • Reseller: These companies purchase products from other companies that they may modify (or not) and then repackage and sell to customers or other businesses. Republic Wireless is a cell phone company that resells minutes on the Sprint telephone system, for example. It profits by modifying its phones to use wi-fi when possible to make calls, thereby using less of Sprint’s airtime.

  • Platform: The business may have technology or a system that allows it to make or modify a variety of products. Google and Apple can be considered platform companies because they sell many products that relate to a common technology. Some companies begin as single-product companies and develop into platform companies.

  • Brand: The company doesn’t have a unique product but instead adds branding to basic products and then sells them at a premium. Ed Hardy, for example, places 1920s stylized tattoo designs on ordinary products to create branded clothing, perfume, and kitchenware.

About This Article

This article is from the book:

About the book authors:

Nicole Gravagna, PhD, Director of Operations, and Peter K. Adams, MBA, Executive Director for the Rockies Venture Club, connect entrepreneurs with angel investors, venture capitalists, service professionals, and other business and funding resources.

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