Early-stage entrepreneurs who are willing to put it all on the line to build a business are held in high regard by investors — even if they ultimately fail, says Ed Buchholz.
“The nature of startups is the vast majority fail, usually pretty quickly,” says Buchholz, founder and managing director of StartInCLE. “When those founders do fall down and have a company go under, they are usually embraced. They are given a job. Their skillset is considered to be extremely valuable because they have led teams and built things from the ground up. Investors in the region are willing to make second, third or fifth bets on them because of the willingness they have to take a risk and put their lives and psychologies on the line to make something great.”
Investors are often willing to accept the risk that comes with early-stage businesses in hopes of achieving even greater rewards.
Emerging economies
When you look around the world, high-growth small businesses and early-stage startups are what drive a lot of emerging economies, Buchholz says.
“If you look at Detroit, they had huge industries that led the way for decades,” Buchholz says. “Now, a lot of the thought and messaging in Detroit is how can we empower that next generation? That starts for the most part with startups. I’ve been fortunate to spend a ton of time in the Bay Area and in Boulder and Denver. I lived in Chicago for a while. The common thread across many of these startup communities I’ve taken part in is that there is an understanding that what those people are doing is extremely hard. There are many parties who are willing to make an effort and give to empower these people to help them get their projects off the ground.”
Buchholz himself has founded three venture-backed software companies. He speaks to hundreds of entrepreneurs each year and has dedicated his life to mentoring and supporting them in their quest to realize their dreams through his work at StartInCLE.
“The world’s biggest companies were the startups of 10, 15 and 20 years ago,” Buchholz says. “While threading that needle and whittling the 10,000 companies started down to the Amazons and Googles, etc., is extremely difficult to do and nearly impossible to pick a winner, the fact those companies exist is proof there were supportive environments, investors and employees willing to take a risk and join a new thing.”
Expand your horizons
As valuable as support systems can be, however, the burden to achieve success ultimately rests with an entrepreneur willing to adapt and roll with the punches that will surely come his or her way.
“It’s a long and tedious process to make incremental changes to all those variables to identify how you can make them fit together,” Buchholz says. “Amazon started out just selling books online. Look where they have gotten. We can name successful companies all day that are drastically different from where the founder started out.
“Pretty much anything that happens to a startup is directly tied to the psychology of the founder. If you have a great idea and you’re too rigid about it to understand that the market is telling you that’s not the right product, but you’re too stubborn to recognize that, you’re going to fail. Best-case scenario, you’re not going to succeed to the level at which you could.”
Being flexible means more than just adjusting your business model or your vision for the company. You need to be creative in how you pursue funding.
“People fight about this topic all the time in our region,” Buchholz says. “There is this huge discussion about whether there is enough capital in our region to support startups that are here. My last company, we raised just under $2.5 million, and all but $600,000 of that came from outside of our region entirely. That’s the mindset I’m alluding to. It’s this point of view that some founders locally have that they can’t raise money outside of our region. The only investors we can have are wealthy individuals in our area — JumpStart, North Coast Angel Fund — whatever the case might be. “
In reality, opportunities abound to find money from capital sources both inside and outside the region.
“There are plenty of opportunities to raise money from capital sources outside of our region,” Buchholz says. “It’s fine to do so and in fact, sometimes it’s better to do so.”
Buchholz recalled a conversation with a founder earlier this year who was planning to shut down his company because he was unable to identify funding.
“Is that because he is only looking locally?” Buchholz says. “Is it because his business isn’t fundable, because it doesn’t have enough traction or enough of a product fit to drive market investment? Is it because he wasn’t willing to get on a plane to fly somewhere else and have meetings with potential investors? It’s probably a combination of all of the above. This comes back to limitations the founder is putting on what they are doing.”
Boost the volume
Buchholz is hopeful that Northeast Ohio will continue to gain strength as an incubator for emerging businesses, creating a more supportive environment and encouraging entrepreneurs to go after their dreams.
“If you look at a region that I would deem to be extremely successful, like the Boulder/Denver area, they literally have 150 different types of programs and events happening throughout the year,” he says. “That’s probably 10 times what we have.
“We’re not going to get there overnight. But it’s extremely important we do more things and have more programs that are targeting specific diverse niches of people and types of companies in order to reach more of them.
“If we have five or six funds that are economically development driven, that’s fine. Every region has those. But many of the more successful regions have those, plus another 100 angel and microcap venture capital firms where they are making investments on top of that.”
Related story: Ed Buchholz helps founders build great companies. But keeping those companies in Cleveland isn’t easy.
