After founding four successful startup companies, Jack Crawford launched Velocity Venture Capital in 2005. The aim is to provide seed capital for early-stage information-technology entrepreneurs in the Northern California area. Velocity's current portfolio includes anyCOMM Corp., whose software will control separate digital consumer devices from a PC or HDTV, and S Machines, whose semiconductor architecture aims to significantly increase processor performance. Recently, Crawford spoke to business writer Sharon Kahn about what differentiates a good idea from a great one, and the skills small business owners need to succeed.
SK: Can you address the differences between a "good" and a "great" business idea?
JC: The best ideas come from knowledge: understanding of areas where the entrepreneur has a lot of experience and great interest that allows insight into something others don't see. Most ideas start with solving a problem. A great idea takes a quantum leap over established ways of doing business. Facebook created a new way to communicate, a new way to advertise. But pioneers that come up with the transformative ideas aren't always the long-term winners. Fast-followers with really good ideas can often accomplish more. Google, for example, did not invent the search engine, but it is the most powerful company in that space today.
JC: I'm a seed- and early-stage venture capitalist, which means sometimes I invest in companies, but often it’s no more than a guy, a girl, a dog, and a great idea. The intent is to help move these ideas to a product, then a company, revenues, profits, and eventually exit, which means an IPO or purchase by a large company. As we do our due diligence, we look to see if the concept meets four criteria. One is a sizeable market. For a venture capital investment, that means that the product or service will generate $1 billion in annual revenues if every potential customer buys. Two is a sustainable advantage. If the technology is easy to copy, the competitive landscape could soon include 100 or 1,000 competitors, so the idea breaks down. Three is a financial model that makes sense. If the product is too capital intensive, or takes too long to get to profitability, it may not be worthwhile. Fourth is a great team. I will take a good idea and a great team every time. The idea is just the starting point. If it has merit, you still need the management ability to execute it. Rarely will the original idea make it through to the execution stage.
SK: What are some key steps for turning a great idea into a business?
JC: First, let me say you won't make it unless you're passionate. Success is based less on that initial idea than having three factors: maintaining extraordinary passion, keeping a laser focus, and lucky timing. From there, flexibility—or what I like to think of as intellectual agility—is required at so many steps. You need sales skills and confidence to attract capital, talent, and customers.
One shortcut is to go to a trade show, which allows you to talk to a lot of potential customers in a non-sales environment. When I had the idea for a business to help transform college newspapers into online portals, I showed up at a trade show with a poster board that asked if printed newspapers wanted to move online. I talked to a lot of people, and got some great input about how to round out the business, such as adding a calendar function and web-based email. And I got a sign-up sheet with contacts of people interested in buying the service. I went on to found CampusEngine.com, which was later acquired by a larger company.
SK: But don't you run the risk of someone stealing your idea if you talk with so many people?
JC: In my experience, entrepreneurs hinder their growth by overweighting the value of their idea. You can protect an idea in several ways, and one way is not to talk to anybody about it. The likelihood of success is then very low. To get input, you need to decide how much to reveal. Your experience in the industry you've targeted is probably your initial protection. The next level of defense might be a patent. Other safeguards might involve lining up a unique distribution partner or customer. Or, if you move quickly and confidently, you might establish a lead-time advantage. If someone tried to start a competitive Facebook today, it would be difficult because the audience has already chosen Facebook. The same would be true for Ebay and Amazon.
SK: Aren't great ideas risky?
JC: Great ideas are extremely risky. But the greatest risk often brings the greatest economic returns. To act on a great idea, you have to be comfortable with taking calculated risks with just 50 percent to 60 percent of the information required. You've got to be comfortable with failure and have the ability to adjust. Think of aiming at a target. You miss a little to the left, so you compensate by dialing in closer. You miss again, and adjust again. Then finally you hit the target. Then you hit it again.
SK: Is funding available for great ideas?
JC: At Velocity, we see around 600 opportunities a year. Some of those are just MBAs testing concepts, and others are up-and-running companies looking for a venture round of financing. We probably fund one percent to two percent. But a growing amount of funding is available. The number of angel investors, who supply $25,000 to $250,000 for early-stage ideas, is increasing both in the number of investors and the amount they are spending. New categories of “super angels” or very wealthy individuals who will invest $250,000 to $500,000 are creating funds. Corporate investors are another source. Samsung recently established a $30-million fund that will focus on seed-stage companies. Nobody says it's easy, but great ideas backed by great teams will always get funded.
This interview has been condensed and edited.
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