We meet a lot of entrepreneurs and startups through Innovation Breakfast and Mass Innovation Nights.  (If we don’t know you already, come introduce yourself!)  Once we get past the introductions and initial explanation of what a company concept is, the next question is “How are you going to make money?”  This is especially true of Web-based startups and other tech-based ventures.  These companies have been caught up in the swirl around the freemium business model.  I would submit that most go beyond freemium and are squarely in the free camp.

What is freestrapping?  Start with the definition of bootstrapping.  Bootstrapping your startup means you are not accepting outside help — no friends and family funds, no angel funding, and no venture capital.  Bootstrapping generally means you are able to fund your business by internal means.  In the strictest sense, a bootstrapped company should be a lean enterprise that supports operations from an early (often small) revenue stream, selling enough product or services to keep the door open.  Often workers are ill-paid and excess revenues get put back into growing the organization.

But many startups today have crossed over the line into freestrapping.  Pay isn’t “low”, it’s “no”.  Operations aren’t lean, they are free. Revenues aren’t small, they don’t exist.  That’s right — no revenue and no overhead that can be strictly assigned to the business.  Workers work virtually so there’s no office.  Or maybe they spend hours at the local coffee shop mooching Internet access.  They work for free, sustaining themselves some other way.  Maybe they work part-time, have a working spouse, still collect unemployment or have “walk-away” money from their last gig.  There are no materials in the strictest sense since they are creating a web-based or mobile application.  Even their tools are free.  Can you say open source?  Or maybe they are using a “free 30 day trial” of a development tool.  (Ah, so that’s why the agile development scrums are so short!)  They are creating something from nothing.  (And, yes, guilty as charged.  That’s how we did it.  There were a few out-of-pocket expenses but so far nothing that seriously cut into my coffee habit.)

If you are an experienced bootstrapper, this all sounds familiar, right?  You are used to making nothing or next to nothing.  The difference, and the trouble lies in the lack of revenue or prospects for revenue and the use of free raw materials and tools.  The expectation of free has become so pervasive that we are harming our economy’s ability to grow.  How can we make a living if we give everything away for free?  And why should we expect anyone to pay for what we produce when we don’t pay for the tools we use?

Shades of the dot.com bubble.  Are you living in a freemium world?  Are you freestrapping?  Do you have a business plan that relies on building up a base of non-paying customers?   And not just a sample or a trial, are you giving away the whole product?

In other, less free-oriented times, entrepreneurial communities supported each other.  One small business buys products from another and a network starts to form.  The companies start to form their own economy.  In a freemium-oriented world, this doesn’t happen.  Are we creating a non-economy?

Last week Innovation Breakfast and Mass Innovation Nights supported an event sponsored by IBM and Accounting Management Solutions, under the auspices of Boston Region Entrepreneurship Week (BREW).  More than 150 entrepreneurs and startups RSVPed for the free, all day event which featured presentations by a number of area VC and Angel VIPs,  entrepreneurs, and business plan experts, as well as an awesome panel on bootstrapping but we know the big draw was the promise of “speed dating” with potential investors.  At just five minutes, these sessions offered the chance to shake hands with a potential investor, give the elevator pitch and see if there was any connection at all.  It was left up to the angels and VCs to extend an invitation to a further discussion. 

After talking with hundreds of entrepreneurs, we know access to VCs and angels is top of their list.  And while many investors do an excellent job of making themselves available (can you say “office hours”?) it can be intimidating to march up to a potential investor and spit out “The Pitch”.  At Connecting Companies & Capital, we provided lots of networking opportunities beforehand and then, at the appointed hour revved everyone up and shoved them in a room.  Pitch or die.  Yes, it was mayhem and yes, it would have been nice to have 6 or 7 minutes or more but if I had a dime for every VC or angel who has told me they “know” a potential investment within seconds of speaking to someone, I wouldn’t need investors for my startup!

So, if you had five minutes with a potential investor, would you know what to do?  Five minutes isn’t very long but it can be plenty of time if you plan ahead.  Mass Innovation Nights provides featured entrepreneurs with 5 minutes to tell their story in front of the audience and we encourage people to:

• Focus on the important stuff.  What makes what  you are doing unique and different?  Why are you going to win in the marketplace?  What problem are you solving?
• Focus on a specific message.  What do you want your audience to do?
• Sound like you have thought about your message previously and it isn’t the first time you are telling this story.  You want your audience to have confidence in you.
• This is not the time to pull out your Powerpoint presentation and start to run through slides or a complex demonstration.
• Be personable and warm.  Use your sunny personality and smile!
• If you have a strong accent or a speech  impediment or speak softly or too quickly, find someone who can communicate clearly for you.

If you are speaking to an investor, add these tips:

• Why are you looking for an investor?  Tell them.
• What are you looking for?  (Yes, we know “funding” but if you can say, “I am looking for $x to fund x,y & z because it will bring me to market before anyone else so I can sew up this particular opportunity,” this is good.)

(Full disclosure:  Bobbie works part-time for Accounting Management Solutions and IBM has hosted Innovation Nights several times.  We consider Joe Perry and the rest of the crew at the IBM Innovation Center in Waltham to be “special friends of MIN”.)

This is a continuing report from the weekly Innovation Breakfast.  Once again, conversations ended up touching on funding (among other things.)  One of the reasons we started the Funding Friday (#ff$) conversations on Twitter…

This morning’s conversation at Innovation Breakfast touched on information sources:  where do you get your information?  In today’s world, there is a wealth — an overwhelming wealth — of information.  There is so much information it is hard to know where to look first.

The question was asked, “Where do you find information on companies who have just gotten funding?”  (These are the companies who might be hiring.  Who are looking for services.  Who might be on the path to success.)  PE Hub was mentioned.  Someone else mentioned VentureFizz.  Also local news sources, Mass High Tech, Boston Business Journal and Scott Kirsner’s blog and Twitter-stream, report on some of the larger or noteworthy VC deals.

But it isn’t just VC money.  There are a lot of sources for funding dollars — when you don’t need millions of dollars you might be talking with angels, friends and family, or banks (loans.)  There are also state grants, federal grants — often very specific to an industry.  These fundings aren’t well publicized — often no one knows about it unless they are directly involved.

But knowledge of how others get funding is important in terms of lessons learned for those seeking funding.  Also, seeing another competing company getting funding may either discourage companies from getting into a space, or encourage them. (”They may have just gotten funded but we already have a product in the market!”)

Where do you find out who is on that critical path?