5 Steps To Creating Your Profitable Tech Start-Up

In our August cover story, Marcia Wade Talbert, our Multimedia Content Producer who covers the tech beat, flew to Silicon Valley and found true innovators like those involved in the nine-week NewMe (New Media Entrepreneurship) Accelerator program. The article featured such dynamos as Angela Benton, co-developer of NewMe and CEO of Black Web Media L.L.C., which produces the popular tech blog Black Web 2.o and creator of mobile location-based app Cubed; Chuck Baker, CEO of Fileblaze Inc., a cloud-based system for media professionals to securely transfer and preview large uncompressed files at maximum speeds; Johann Schleier-Smith, co-founder of Tagged, a social discovery site that has connected 100 million people with shared interest world-wide and produced $32.5 million in gross revenues in 2010. (CNN will prominently feature the NewMe Accelerator participants when Black in America 4 with host Soledad O’Brien airs on Nov. 13.)

Although Marcia found great success stories, she also discovered that when it comes to financing, the spigot is dry for most black-owned ventures. For example, less than 1% of African American founders of Internet start-ups gained venture capital backing in the first and second quarter of 2010, according to a survey conducted by CB Insights, which tracks business financing sources.

Without such capital, black firms will never have a shot at being the next Facebook, Zynga or LinkedIn. So while some analysts forecast that Tech Bubble 2.0 will burst any day now—remember the dot-com bombs that exploded 11 years ago — few minority companies have achieved stratospheric valuations.

Black entrepreneurs must be creative, however, to advance to the next stage in the Innovation Economy. Here’s five ways you can launch your venture or position your company to become a future industry leader:

Use incubators to sharpen your concept. Accelerators like NewMe in Silicon Valley or those developed by Philadelphia-based DreamIt Ventures help minority entrepreneurs refine business models and identify funding sources after several rigorous weeks. But the selection process can be tough. Michelle Ferrier, associate professor of communications at  Elon University in North Carolina, has developed a four-day program — Journalism That Matters: Create or Die — that enables participants to showcase projects, create development teams,  flesh out ideas and pitch concepts before a group of venture capital, foundation and entrepreneur mentors that help them identify next steps. Although prizes top out at $1,000, winning teams can earn up to a year of free consultation and shared office space from entrepreneurial development centers.

Participate in business competition to hone skills and earn dollars. True innovators tend to be strong competitors. Beyond that, entrepreneurs who participate in business competitions can walk away with capital during the critical start-up stage. For example, BLACK ENTERPRISE teamed up with TheCASHFLOW, an organization that provides business financing and consultation, to give 10 entrepreneurs a chance to win $10,000 and free business consultation during the Elevator Pitch Competition at our Entrepreneurs Conference.  Another program, New U: News Entrepreneurs Working Through UNITY is designed for journalists of color who want to become business owners.  In addition to nurturing ideas through a national “start-up camp,”  participants also compete for start-up funding.

Look for industries viable for investment. Throughout the life span of most  companies, they will need to go through multiple rounds of equity and debt financing. Investors will be attracted to companies in sectors that offer the greatest potential for significant returns. For example, Tim Reese, co-founder of Minority Angel Investor Network, says his outfit is drawn to “hot spots like social media, life sciences and information technology.”

Find advisers to guide your business. Reese says most entrepreneurs hunt for capital but should identify more valuable human resources. He asserts: “Don’t seek out VCs for capital. Look for thought leadership,” experts who know your industry and can provide strategic advice. William Crowder, a managing director with DreamIt Ventures, which offers capital and coaching to start-ups, agrees. He believes entrepreneurs should develop a board of outside advisers that, among other things, help refine business models and build valuable networks.

Use failure to your advantage. “Failure is valuable,” asserts Hezekiah Griggs III, managing partner of H360 Capital, an early-stage venture firm. In fact, Griggs has made that statement one of his firm’s core tenets. He maintains entrepreneurs can’t anticipate every variable but will face a series of financial and management setbacks along the way. However, major blunders can transform CEOs into master contingency planners. “You can’t control what may go wrong,” says Griggs, “but you should always be prepared if something goes wrong.”

Read and react. Our 2010 Corporate Executive of the Year Michael Todman, president of Whirlpool International and that company’s innovation leader, offers advice applicable to executives and entrepreneurs alike. He maintains that events happen so quickly in today’s environment that business people must not spend too much time in evaluation mode. Analysis paralysis may mean your competition will eat your lunch. In growing your company,  research areas of challenge and opportunity and then move with all due speed. Another important tip: Put out small fires before they spread and consume your enterprise.  The key to running a nimble operation as well as the ability to spot and develop viable business opportunities, Reese says, is  having a leader that knows every nook and cranny of the industry, market and business. He maintains: “Knowledge is not power. Applied knowledge is power.”