Tuesday, July 21, 2009

Do I Have to Embrace Failure If It's Just Our First Date?

There's been so much blogging about how important the experience of failure is in the development of entrepreneurs, that I feel compelled to speak up for the forgotten: entrepreneurs in denial. You see, I think I might be one of them.

Here's the story: A few years ago, I decided I wanted to set up my own bath and body products business. The idea was to develop the products, build a first stage retail base that would generate some cash flow, then hire someone to run fulfillment and manage retail channels until the appeal ran out. I figured, this would be a great hedge against the ebb and flow of legal work, plus it would give me a great network of contacts in e-fulfillment, marketing etc.

The beauty business is fascinating for a number of reasons. First, it's a virtual business; most small brands outsource 99% of their operations. There are multi-million dollar operations that are run by 5-6 people in Canada. Second, it's all about who you know. The best packaging designers, formulators, and contract manufacturers are closely guarded secrets. This means that getting a business off the ground depends on who you know, and whether they like your concept.(Unless, of course, you want to go the "artisanal" route, and mix your own concoctions in your kitchen and sell them at gift shows. This tends not to scale, unless you are an 80-year old Eastern European woman with the face of a 12-year old.)

I was lucky. I knew someone who hooked me up with the right people, and they loved what I was doing. (My favourite start-up lesson: If you ask people stuff, they'll often tell you what you need to know.) We had a list of products that we prepared, and the first three were soft launched through a web site.

I named the business Corner Office Beauty(Success is Beautiful), and bartered with one of the best consumer marketing people in the business to create the copy. He got in touch with his inner female and came up with some great stuff, such as the tag line "With All You Have to Offer, Why Aren't You in The Corner Office?"

My favourite launch product is our hand cream, Ballbuster. It also turned out to be our hero product in the first year, attracting lots of press, buzz and orders:

I am particularly fond of the box, which has a quote from The Art Of War and a definition (Ballbuster(noun): A task that is arduous, demanding and punishing. 2. A demanding woman who destroys men's confidence.). Others loved the illustration on the lid of the jar (It's a nutcracker. What else WOULD it be?)

Here's some of the press:

Valentine's Day became a big time for our soap, "Transition Man". Things generally ramped up nicely.

But then I discovered something: to really scale a start-up, you really have to hate your day job. And I don't. I love being a lawyer, and I love my clients. For the last few years, my day job has been really busy, and I've let Corner Office slowly, slowly recede. I shut down the e-commerce section because having to work on financing documents while packing and fulfilling orders is not a great way to spend a week night. My retail channels are wondering when I will deliver something new, which means I have to roll out the other products we designed and formulated soon.

As I write this, I am also thinking what to do about one celebrity -backed product that we have been almost-launching for a few years now. If any of you get involved in celebrity endorsements, talk to me first and I will share special stories. Dealing with the talent is lots of fun, but you will end up starting a lot of sentences "Oh honey," for several months afterward.

I may have to use the "F" word soon, but the nature of a virtual business is that you can stay in denial for lengthy periods of time. (Not that I'd know anything about that.) In the mean time, I have one last lesson I've learned so far: it's really, really hard to sell lip balm. You have to make it in large production runs, for one thing, and it's harder to get your retail channels to take it unless you also create appropriate point of sale display boxes and collateral for it.

This means that I now have so much top of the line all natural lip balm (called "Whistleblower") lying about, I can't tell you. Come to my office for a closing, and you will get some. Stopping by for a license? Same thing.

So, if there is anyone nearby who would me to donate like some lip balm for a fundraising event, let me know. It is great stuff (flavoured with mint and lemon, to keep your breath free of the stench of corporate corruption)

I might embrace failure at some point, but right now, I'd prefer it if some of you embraced lip balm.

Friday, July 17, 2009

Will Toronto Be The Next Capital of Angel Investing?

According to the "Global Entrepreneurship Monitor", Canada only ranks 9th in the world in angel investment. I have no idea who or what the Global Entrepreneurship Monitor is (I am scraping the data from our own National Angel Organization's website) but I have to believe this ranking is based on incomplete and dated information. There are a number of indicators which would suggest that, in the last two years, Canada in general and Toronto in particular has been racing to the top of the pack.

Now, I'm basing my suggestion in part on the sheer volume of angel deals that have churned through our office over the last two years. I figure, if our firm has only a percentage of the addressable market of angel deals in Ontario, then using fancy math, this would extrapolate to practically exponential growth in this area.

There are a number of key drivers of the growth in angel investment in Ontario, that would support this theory, including the following:

- the giant sucking void of seed and pre-seed capital, matched only by the sucking void in public market returns. For many angels, this makes the opportunity cost of placing money in private companies acceptably low.

- new government pools of capital (the Accelerator Fund, IRAP, the Emerging Technologies Fund, to name a few) that are designed to help fill the funding gap. These help mitigate against the risk that there may not be additional growth money available for angel investees.

- the emergence of an angel community, led by the National Angel Association and various angel investor groups who, through broad based public marketing, have marketed angel investment as an asset class unto itself. This has created a kind of validity about the investments that directs new angels to action.

The result is an emerging set of Ontario angels with unique characteristics:

- The angels writing big checks are not, generally speaking, active participants in the local angel community. They find their deal flow through their own focus and interests, rather than community events. The most active Ontario angels are high net worth individuals with successful track records in high tech or traditional industries who have the resources to provide follow-on funding themselves if required. This can protect an investee that is doing well against any shortage of venture capital.

- Ontario angel investments are often purpose driven. They invest because they want to be a tangible part of solving a particular problem - in detecting or treating disease, for example, or in removing a stumbling block that has stymied their own industries for years. (This leads me to wonder whether the Diabetes or Kidney foundations, to name a few, find themselves losing funds from past donors who favour more personal interventiion through investing.)

- Angels who are purpose driven tend to provide more rigourous oversight of a company's execution of its business plan. (This is not the same as providing operational support - more on that in another post.) They also tend to be more effective evangelists of the business.

- Ontario angels are remarkably patriotic. They believe in contributing to Canada's place as a technology leader.

- While Ontario angels are patriotic, they are not insular. Many have invested outside of the region, andhave leveraged the resulting networks for the benefit of local investees.

This is the kind of skill set that most start-up regions can only dream of. It also suggests we are developing Ontario angels that will be long term participants in seed investing. Stay tuned