Friday, June 10, 2011

Innovation, Small Business, Niches, and Money

The other day I read an article where Eric Lefkofsky, the man who put the first 1 million dollars into Groupon in 2007 and should recoup 4 billion dollars from that investment with the Groupon IPO in 2011!

There are a variety of ways to attempt to grasp the magnitude of the statement above, but right now, as I am attempting to raise $1.5 million dollars for my company my interest is in how do I entice investors to fund my company in light of the fact that the competition for investment dollars is offering returns like Groupon.  Or, one could simply state that I am trying to figure out what investors are looking for in an investment in the midst of another internet bubble.

I came across Eric Lefkofsky's blog and found it interesting.  I have also participated in conversations at Quora, connected with quite a few investors at, and basically read as many blogs by venture capitalists, traded emails with investors, and took part in a variety of investment and or entrepreneurial programs.

Lets not forget that I spent quite a bit of my professional life growing companies, managing start ups, and getting turnarounds back on the right path; in fact I have actually been called by numerous venture capital firms to provide them with insight into the apparel industry and retail.  If my goal was to be a consultant I would be well on my way to a successful career; but I left Vanderbilt University with a master's degree rather than complete my PhD because I wanted "to do" and not just study what others have done.

I cannot help but realize that a huge gap is developing in our economy and our knowledge base:  Every internet start up has a founder who seeks to 'change the world' and every internet start up investor seeks out ideas which are "disruptive" and or "transformational" but when I talk to small businesses most of them have no idea what Groupon is, or Yelp for that matter, in fact they still haven't grasped the benefit of Facebook, YouTube, blogging, or Instagram for that matter!

There are a variety of ways to define a "bubble" and I basically see it as where the change, the disruption, the transformation, reaches a point where it gets too far ahead of the rest of the world.  A generation ago, innovation basically occured within an industry and was not an industry of and by its self.  If you read the numerous blogs of successful venture capitalists and investors, as I do, you realize that a true divide has developed in regards to investing in technology versus investing in manufacturing, or the end users of technology.

For change to occur there must be penetration; locally Groupon has two or three national chains and the balance of the local economy, the other 99.9%, are ignorant of the opportunities that Groupon represents.  Bubbles burst when the change being hyped does not achieve the results promised; we seen that the last time we had an internet bubble.  Change for the sake of change is a bubble.

The reality is companies such as mine have no where to turn for funding; sometimes you have to accept the fact that you are a square peg in a world of round holes.  I would love to ask Eric Lefkofsky, a person who I respect, exactly how technology and change can continue to achieve the returns that he can achieve from Groupon if no one is funding the businesses that could benefit from the technology? 

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