One of the greatest challenges of any investor or entrepreneur is deciding what to invest in.

Business ideas (and investment opportunities) are like the bus – there’s always another one coming.  So we’re all stuck in a constant state of evaluation, left to our own devices trying to decide which ones will succeed and why.

Of course, most businesses change their course more than once in their lifespan.

Men I enjoy reading like Nassim Taleb might have you even believe that we can’t predict anything in life, so why bother trying so with businesses.  This philosophy aside, how do you know where to put your money and your time?

At Growth Partner, we’re working on a guide right now that outlines how we evaluate a potential deal or new business.  One thing I believe investors and businessmen seem to have a conflicting opinion over is the level of competition in a given niche they’re looking into.

Are competitors bad?  Does that mean there’s less chance of your investment succeeding?

I’ve heard people say as much.  I’ve also heard that competition (on the SERPs or on the street corner) is no more than a validation of the business.

That is, if you’ve got an idea, and someone is already doing it and surviving, all the better.  That means you’ve got a good idea.  Invest with gusto!

Let’s look at it more closely.

Breaking Down Both Sides
1. Competitors are Bad News Bears.

Too much competition means you’ll be fighting for pennies on the dollar.  Established companies are hard to unseat.  They have everything in place and we have nothing.

To draw from my own thought process, note that I’m purely an online guy.  I invest in web-based businesses.

Say we’ve got an offer to work with AutoInsurance.com (we talked to them a few months ago, so this is legit).

To evaluate this opportunity, I go off to Google and start doing keyword research.  I search on some of those terms like “auto insurance quote”.  All the big brands are there, in the organic rankings and the paid.  A bunch of lead aggregaters are there too.

So, should we work with this guy or is he going to be over his head?

It’s interesting and complicated.  First off, brands have been getting more love in Google lately.  So even with a killer exact match domain like www.autoinsurance.com, you’re fighting the brand-love.

Also, if we want to go in and compete for paid traffic, those keywords are some of the most expensive online.  We’ll need to really kill it on conversions and on backend monetization to do well.

Fighting for pennies on the dollar?  Maybe.

Let’s do another example.  What about something easier, like “San Antonio lawn care”?

If I’m going to start a lawn care biz in San Antonio, I’m pretty sure there are a lot of competitors.  It goes without saying.  High school kids that work their neighborhoods, all the way up to corporate-type providers with businesses all over town.

Searching that set of keywords brings back a different type of competition (cause again I’m looking online).  You’ve got the OneBox local results to fight with, and it looks like most of the top-ranking sites are directories and aggregaters.

Good business to jump into, with these cited competitor types?  I think so.  I’d go try to buy http://sanantoniolawncare.com, get in those local results, and push ahead of the directory sites.  They are spread thin, and San Antonio can be your market, when they are dealing in 250 others.

Granted, I chose two fairly conventional business types, but they do represent various types of competition both online and off.  The thought process is similar no matter what niche or business you’re looking at.

Competition from big brands can be a problem, as can a crowded marketplace for lawn care providers in your area.  But it can also be a sign that somewhere, someone is running a similar business and making money . . .

2. Competitors Mean this Business Will Work.

The presence of a few established competitors shows that this business can work.  We can capitalize on mistakes they’ve made, or market segments they’ve ignored.  Their track record can mix right into our blueprint to success.

In short, competitors show you a business idea is not some pie in the sky idea.

Existing search traffic can show you people are looking for a particular service, but it’s really the guys you see in the top 10 organic results and the top few paid results that give it this validation.

(Note of caution: Just because a company is bidding on a keyword, it doesn’t mean they’re doing it on purpose, or they’re doing it profitably.  But that’s another discussion.)

Consider this example, one of which I think is interesting and common amongst all “big thinkers.”

Tell me if you’ve done this – you have an “ah ha!” moment in the shower, on the plane, or on a lazy afternoon.  Some genius idea just came to you.  You’ve never seen anything like it, and you know it’s money.

After a few hours searching online, you put together a one-pager on the idea.  You pick out a domain name.  You’re all ready to go.

The next day, you bring it up to your buddies and one says, “Oh you mean like ABC Company?”

Shit.  Someone else already created this?  And marketed, and sold it?  You’re ingenious concept is now a lot less sexy than it was the day before.  Now there’s competition.  Bad thing?

I don’t think so.  I think that’s a great thing.  Too many entrepreneurs get bent out of shape over an existing competitor.  They should appeal to concept #2 here, that existing competition validates the idea and the business.

Sadly, at this stage, some might abandon the idea.  You’re forgetting that you don’t need a revolutionary idea to have a successful business.  You might need an interesting angle, or “in”, or marketing strategy.  But as far as original ideas go – There aren’t any! There are only iterations.

It’s a Constant Battle, but Keep Your Head Right
Like I said, starting a business or choosing which ones to invest in will always come with a dose of uncertainty.  You are obligated to research the competition and the “competitive landscape” before making any decisions one way or the other.

While some will shy away from crowded fields, count me as one that sees competitors as a positive. Especially when you are marketing online.  I sleep much better when I have some active competition in the SERPs.

Without it, you’re more susceptible to two things that kill any business – being too content, and being caught by surprise.

Image: Eric Wolfe

A few days back, Brandon and I met with a couple of scary-successful entrepreneurs.  Inc 500’s, Fortune 500’s, and IPO’s litter their 40+ year careers.

As they were telling us their story, one mentioned:
“At the time, I was working 130 hours a week and she was working 100 hours a week. (pause)  That’s what you have to do.”

Hopefully not!

I mean, that’s why we all love the internet so much.  It’s the great equalizer for launching any business, it’s the land of opportunity, it’s the best way to generate passive income.

17 hour days are for the corporate birds in their Famous Barr suits and briefcases.  Grinding it for the man.

But it’s also hard to argue with someone who’s built a 9 figure business through sweat.

How many hours do you need to work a week to kill it online? To build a good business?  Of course it all depends.

Recently, a group of well-known ‘net people answered this very question.  All successful people, all work a good number of hours.  (Not 130, but some are getting up there.)

I’ve met most of those people and it’s clear they enjoy what they do.  That definitely helps.  But you can see that the amount of time they work varies.  And who knows what constitutes ‘work’ for them, or for you even?

What looks like work in 2010 probably looked like vacation in 1980 when our successful friends were building their business.  Checking email, responding to customers on Twitter, drinking Ginger Boys in Del Mar.  That’s work for me.

By that definition, I guess I work like 80 hours a week.  But it doesn’t feel like it, thankfully.  Here’s what it seems to boil down to:

1. Wake up every morning ready to get at it.
2. Have a long-term outlook.
3. Never stop learning.

That’s enough.  Keep getting better every day and don’t let up.  Working 100 hours a week isn’t going to guarantee success, and hopefully the way business works online you can either put in less than that, or feel like it isn’t ‘work’.

Image: HeadovMetal

It’s not what you know, it’s who you know.

Not only is life itself very much about personal relationships, business can be a different world when you have the right connections.

How do you get them?
Hustle.

People are people, and it’s easier than ever to find everyone using the ‘net.  It’s also easy to stay in touch with contacts across the globe with email, Facebook, Twitter, Skype and the like.

What I mean by ‘people are people’ is we’re all the same. Just because someone is your idol because they wrote a book or started a successful company doesn’t mean they won’t talk to you, or find interest in you.

The ‘hustle’ part comes from you actively reaching out to the people you want to connect with.  Research them, research the groups that would be good to join, and send out an intro email.  Make a call or send a letter.  Be persistent with this.

What will you say?
Here’s the rub, and the title of my post.  You need a story. You may be wondering how that is possible if you have no business, just got out of school, or spent the past 5 years desk-jockeying it up at Edward Jones.

It is possible.  I think you have to focus it more on what you want to become, your ideas and passions, and how it relates to the person you’re trying to connect with.  But it’s possible.

Like: “I’m 26 years old, and a big follower of the internet space.  I’ve been obsessed with financial software since I was a kid.  I would spend hours at night working with Quicken.  Now I’m starting a simple finance platform for old people to help them track their medical expenses.   I’ve connected with some local groups like ____ and ___ but am looking to meet other people who can offer advice.  I’ve seen your company/product  _____ and . . .   Let’s have coffee.”

Of course this can be hit and miss.  There’s no telling if your story will resonate with the intended party, or which part will.  You need a story to even get in the game though.

With Growth Partner, it’s nice to talk to people about the involvements with 3 Inc 500 winners or the companies that sold.  The current investments and interests and online marketing skills.

Then again, we’ve had people say, “What really stood out to me was that Monopoly was your favorite game as a kid.” Or “I remembered your name from youth hockey.”

I’m still waiting for the “you guys brought personal assistants to Pubcon didn’t you?”.

The point is, get a story together and hustle.  Connections will come.

Image: Retrofuturs

Let me sum this up in one sentence:
As a startup or new business, the amount of time you spend writing up a sexy business plan to pitch investors would be better spent running a $500 PPC campaign testing your idea.

The pain point for me comes from both sides.  I have new business ideas all the time, much like other entrepreneurial people.  I also do the investor/angel thing, mostly with my boys here on GrowthPartner.com.

You can save everyone a lot of time and trouble with a simple PPC campaign.  Doesn’t matter what side of the coin you’re on.  Let’s look at the how and why . . .

The Business Idea Side
The ‘market potential’ for your product means nothing without testing.  Back in the day, you had to rely on market surveys and other empirical data to determine if your business idea had any mettle.

That was expensive.  The intention, though, should remain with the entrepreneur of 2010.

You are lucky enough to live in a world with Google Adwords.  This is a good thing.  The costs of launching a new business online are hastily reducing to zero.  Testing a business idea or even a half-baked, half-assed business-sorta idea, is easy.  So do it.

Stop thinking about writing a business plan (that you mostly copy of some web template – be honest), and start here:

1. Register a domain name.  Doesn’t have to be good.  Starting a bird feeder biz?  Get birdfeederdepot1.com.
2. Get hosting, install the CMS of your choice.
3. Make 3-4 landing pages.  Ask questions.  Find out some key answers to the market you are hoping to serve with your genius new idea.  Offer to sell your service right now.
4. Setup an Adwords campaign and spend $500.
5. Read the answers you get.  Scour the analytics, the keywords and clicks.  Any sale or response is good.  Email your new ‘customers’ and find out more about them.

Now it’s time to reflect.

That was easy wasn’t it?  And informative? You bet.  Guarantee you have a different perspective of your starter business after a little Adwords campaign and ‘customer’ interaction.  Guarantee you saved yourself from future, more expensive mistakes.

The point is, this is so easy and cheap to do, you should do it.  There’s no risk in doing so, and the upside is possibly priceless.

It could save you from wasting 9 months of your life chasing a bad idea.  It could teach you what people really want, not what you think they want.  It makes you get serious.

The Investor Side
As an investor, I want more of the aspiring to take the time to use Adwords for research.  Putting your idea, or at least a shell of your idea, in front of the right audience is very ‘real world’.

Business plans don’t equal funding. A business plan lives somewhere else than the real world.  Unfortunately, success will only come outside those .doc walls.  Maybe you feel safer with just a ‘plan’?

A quick test PPC campaign toughens you up.  That’s what I like.

Also – How immune to BS business plans do you think a seasoned angel or VC is?  I am 27, and if I read one more sentence about the ‘market potential’ of an idea with 0 customers and 0 test customer interactions, I am going to flip.

If you’ve tried some things online, you’ll ask better questions of your investors.  You’ve saved us all a bunch of time.  You don’t need me or any other crusty angel to help you right now.  Go do, and come back later.

Potential investments that have a passionate leader, a verified business model/service, and existing revenue are so much more inviting than a fluff plan about market potential.  While you may not make it that far in your Adwords test, you’ll be a lot closer than otherwise.

Takeaways
Don’t write a business plan and try to pitch investors without running online campaigns that force you to interact with your desired customers.  You don’t know what people want. Use the easy and cheap tools the internet provides to make yourself more refined, and wiser, ahead of seeking investment.

Image: vbsuresh

For all the factors that can affect the final price of a domain purchase or sale, it still comes down to a unique agreement between two parties.

Your domain may have all the traffic in the world, high conversion rates and a big fat upward trend surrounding it.  It may be the best ExactMatch.com in the big money niche.  Still –

A domain is worth what someone will pay for it.

Investment bankers and the big companies that gobble domains (Demand Media, Internet Brands, Bankrate, QuinStreet, medical conglomerates) will regale you with their ‘process’ of valuation.

Key factors?
- Organic traffic
- Trend in that traffic
- Over/under monetization
- Domain strength (i.e. Exact match? .com?)
- Clean SEO
- Competing sites

That’s important stuff to consider and to know, yes.  But there’s so much more that affects how much one party will pay another for a domain.  Largely, these are factors that are out of your control.

Things like:
- Is your niche hot?
- Have competing sites been bought already/recently?  By who?
- Is VC money flowing in to your niche?
- Is someone trying to go public, so they’re buying up domains like hotcakes?

This list could go on forever.  The point is, with so much that’s decidedly out of your control, can you ever sit there and place a dollar value on your site?  Can you reasonably expect to sell it any time you get the urge?

No and no.  A domain is only worth what someone will pay for it, at a specific time, if you’re lucky.  It’s got so much more to do with the unpredictable factors than the ones you can control.

Talking from Experience
On the selling side, we’ve sold 2 “companies” that were akin to selling “domains”.  Both were sold to buyers who were looking to add assets (read: traffic, properties) with an eye on going public or getting acquired themselves.

The price we were paid was more about them managing their budget and expectations of a future payout on their end, rather than anything we created consciously with our business.

The acquiring companies got bought and went public, respectively, and now our old properties are on the sale block. Our achievement was simply a means to an end for someone else’s purpose.

Buying
We buy domains all the time.  You know how we price them?  Might as well be a dart board.  Seriously.

I think $25,000 is a sweet number to ballpark a great domain that is currently doing nothing and could become a real business.  So that’s where we start.  No idea where this came from.  It’s just what I’ll pay for a domain.

Other buyers on the market are just as likely to have obscure, unscientific reasoning behind what they offer you.  We were offered $1 million for a domain a few weeks ago, and it had nothing to do with some multiple of revenue or a trending market.  The offer had more to do with the buyer’s desire to accumulate assets, and leverage other related properties in the mortgage and lead-gen space.

See?  Right there, the offer doesn’t have anything to do with the investment banker checklist.  We couldn’t chase it intentionally.  We wouldn’t get the same offer from anyone else, competitor or otherwise.

The domain is worth what someone – some 1 – will pay for it.

It’s Dangerous out There
This makes for a proverbial field of landmines for most domain owners.

So many questions arise about how to price a domain you’re buying, how to trust the other party, how to gauge the potential, etc.  When selling, there’s questions of seeking professional counsel and the buy vs. hold arguments that go through your head.  It’s rough.

The best advice I can give you is to talk to people who’ve done it before. You can pickup some lessons learned the hard way, and try to apply it to the situation at hand.

Every single domain sale in history is a different situation, though.  What Johns Wu did isn’t what Shane Pike did, it isn’t what we did, it’s not what you’ll do.

Takeaway
In buying and selling domains, there’s no blueprint.  It’s a freaking blank canvas, so proceed accordingly.  Go off your instincts.  Don’t bank on building a site only to sell it.  Too much is out of your control.

Images: Hibb08 and Leona Shanana

I read an article from the 37signals blog entitled “There’s No Room for the Idea Guy (in a Startup)” today, that stated:

The truth is that most everyone has plenty of ideas that could work out to be great businesses.

The title threw me off a little (and I won’t debate it here), but I couldn’t agree more with the idea that almost everyone is full of viable business ideas.

I also think most of those people are waiting around for someone to show them how to execute their idea.

Where’s the roadmap?

So You’ve Got Ideas . . .
Every group of people I’ve been around since childhood has discussed grand plans for business.  From candy in the lunchroom to the internet era notions of blogs or UGC (and we’ll wrap ads around it!) . . . the ideas are plentiful.

Easy to come up with ideas.  Hard to decide which ones to give attention to.  Even harder to give them an honest try.

Why is that?  Why is it so rare that a person or a small team can take a novel idea and make a run at it?

Besides the typical fear and anxiety, it’s a reliance on being shown what to do.

Trained to say “Show-Me”
In Seth Godin’s Linchpin, he talks about how our education-to-job system is broken.  We train people from a young age to take in information, spit it out on a test, and move on.  We train them to sit in their chairs and do what the teacher says.  It creates worker bees ready for instructions.

Worker bees are necessary for many things, but starting a new business is going to take a level of execution that creeps into the unknown.

Embrace it!  Have confidence in yourself to make smart moves.  The intimidation factor is high for many people in taking an idea and putting it to work in the real world.  The distance seems much greater than it really is.

You should remember that every other entrepreneur who put his balls on the line for an idea knew just as little as you do right now about what the future may hold.  You’ll make mistakes, but at least you’ll make something.  And no one’s going to show you the way to success.  YOU have to DO IT.

Cue up a little DIFN.

Otherwise your ideas will be nothing more than a rush of adrenaline, followed by decades of cubicle jockeying.  And do the rest of us a favor – return to your distractions.  The grown ups have business to do.

Takeaway
If you want to start a real business, there is no roadmap to follow.  None.  Make your own.

Images: Jasperdo and 5348 Franco

An age-old adage from investors and entrepreneurs is they’ll always take an “A-quality person with a B-quality idea”, and not the other way around.

This means I’ll happily invest in a person or team I believe can produce a successful business.  The business idea itself?  Less important.

Because whether you realize it or not, business is all about things like execution and the ability to adapt to change.  Not a phantasm that solves the world’s problems like a lightning bolt.

Bad Investments
Ask most angels about their mistakes and the answer is usually people-centric.   They lament investing in the wrong person, not the wrong idea.

Look at these key characteristics of a successful business relationship.  Each is tantamount to a profitable and enjoyable experience, long before any dollar is made or lost.

Trust.  Communication.  Leadership.  Determination. These plus the aforementioned Execution and Ability to Change are what make a business successful over time.

As an investor, you want the opposite of the guy who’s chasing a lifestyle business.  You want the most determined business leader you can find to lead your investment to the promised land of a 10x exit.

Why Does the Idea take a Backseat?
Because most businesses start off doing one thing, only later to figure out what really works.

It’s more about talent, determination, and adaptability to change than the million-dollar idea.  Everyone knows this by now.

Personal Investment Contracts
One cool concept that exemplifies this point in the extreme is a ‘Personal Investment Contract”.  Compliments of Rafe Furst and EmergentFool, a PIC is when an investor offers a cash payment to a promising individual in return for a % return on their individual income in subsequent years.

In English (and in Rafe’s example), they gave $300,000 to a promising young mind in a lump sum payment.  In return, this budding star has to forfeit 3% of their income each year so long as the contract remains in place.  Read more about it here.

What’s crazy is I almost like this concept better than a traditional angel deal or investment.  It doesn’t have a single pesky business idea getting in the way.

Our Success has Come from People
When I look back on the past 8 years of businesses I’ve been a part of, here’s what I see:

-Innumerable Ideas.
-Many failures.
-A few successes.
-1 team.

The very reason that we’ve been able to do “growth partnerships” and other investments is because we have a team of people that exemplify the traits I listed above in bold.  (It’s also why you should team up with us!)

Takeaway
As an investor, look past the idea, and see only the people behind it.  That’s what you’re after.

(pic from Cybernet)

Ma-Ma-Monah-Ma, Fund Me, Oh La La.

Don’t Be Boring
Startups and other entrepreneurs in search of funding have a tall task in convincing investors to take a chance on their ideas.  Your ability to be a good salesman in your pitch is very important, so don’t be boring.

Lulling well-fed money men to sleep with a boring PowerPoint and meek personality will kill your dream.

Proof you want?  I got me some proof.

Geodelic Wins Twiistup
Last week I was in Los Angeles for Twiistup, a tech investor and startup event.  (Fun times by the way.)

On Thursday morning, 10 or so companies took the stage and pitched their startup to the panel and audience.  While all the presentations featured generally well-spoken and passionate folks, one company took it to the max.

That company was Geodelic, a location service that lets you locate eateries, drinkeries, and other “around you” things.  They also have a sweet deal with airports watching departure times and showing terminal amenities.  View the demo here.

When it was their turn to take the stage, the CEO, who is Indian, took the stage with a ukulele.  He queued up some gaudy pink slides and started talking in corporate speak using a heavy Indian accent.  The collective thought was “This has to be a joke”.

It was.  He had 2 other Geodelic team members placed in the crowd, and they shouted out some taunts- “We can’t understand what you’re saying!”.

On point, he quickly pulled out the ukelele and began singing.  Then a girl danced to “Everybody dance now”.

The Geodelic slides simultaneously flipped from the gaudy pink stuff to a video demo of their technology in action – very fast-paced and demonstrative (something befitting of the attention span of people in 2010).

And surprise, surprise – They won the event.

The Takeaway
Geodelic got people on the edge of their seats, played to our senses, and put on a show.  

While they have a great product, everyone at the event admitted it was the way they nailed the presentation that pushed them to victory at Twiistup.

While I haven’t been an angel investor long, I suggest putting some serious thought and creativity into how you pitch investors.  If nothing else, a good “preso” makes it harder to dismiss your idea.

You can save time if you hire Gaga.  Oh La La.

Count me among the angel investors who’d like to see a better return.

Where did all the real businesses go?

You want to know a surefire way to make money online? Take a traditional business, one that already works. It has customers and provides a needed service.

Now, take that business online. Use the internet as a means of communication and/or commerce to connect to a greater number of customers with greater efficiency.

Zippy startup and FNaw.sm need not apply.

The more ‘boring’ the better

I’m tired of reading all the crap hype that comes out of Silicon Valley, LA, and Seattle about lean tech startups with a new web idea.

You can integrate all my social network profiles into one place? So can the last 8 presenters. Shouldn’t you guys have called each other first?

You need to get more boring. Seriously. Everyone that runs in these circles spends all their time online, in real-time, following every tweet and TechCrunch article like it’s going to unveil the next great thing.

STOP. Go read some obscure industry publication that only comes in (gasp!) print. I know I am.

Hot? Hot?
The businesses that intrigue me have a real product, like Yurbuds. Maybe they manufacture their own skin care products, like SkinCareRX.

Annuities. Snowblowers. Or how about one that takes old oil drums and repackages them for resale. I’m seeing dollar signs all day.

Two Reasons Why

1. It’s a much safer bet to take something traditional like that and make the magic of online marketing work for you, than to chase the trends.

I have a lot of ‘internet friends’ who’ve made millions online, with blogs or affiliate marketing or lead gen. Also, everyone knows the stories of Google, YouTube, Twitter, et al. They’ve all emerged as revolutionary web properties, and some have made money ☺.

It seems the dime-a-dozen web startups are chasing that same dream.

Do you know how much money banks make? Insurance companies? Bed spring manufacturers?

It’s insane. But here’s the real treat – you can be the 121st largest insurance company in the U.S., but if you have a niche online that fuels your biz, you’ll make millions online. Wouldn’t that just bore you to death?

You never hear the stories of the millions of bloggers who make $.02/month, or the ho-hums of startups gone bad. Which reminds me . . .

2. 90 percent of internet startups fail within 4 months.

Takeaway
I’m ready to invest. I just want it to be boring.