„long tail“ financing? 2/2

second, if tackling the tail from the right end seems to take too long (either because the business opportunity is gone by then or by lack of patience), a 2 phase approach is possible

having a long tail business in mind, start with the sweet spot core business. after gaining grip there, reach out to the tail. amazon did start to sell books with the differentiators of free delivery, consumer reviews and easy search in the beginning. those provided an outstanding new shopping experience. successful growth in the core business brought in investors, closing the first phase. only after that, in phase two, the long tail got explored. (an similar approach can be expected with their web services.)

this requires a business, where competitive advantages already exist in the classical core business – and not only in the long tail. in that case, write your business plan, build your working prototype, bring along customers and core team. then approach venture capital (preferably through introductions).

„long tail“ financing? 1/2

starting a „long tail“ business means challenging financing conditions. micro financing and/or a 2 phase approach could work.

chris andersons´s book “the long tail” points out that sustainable business can be build on large amounts of low turnover items. but how to finance such a business, where investors will see a return only in the long run? two proposed approaches seem applicable.

first, micro finance it. avoid costs (using free open source software for development, a business which hardly requires any own stocks or heavy capital investments, evangelise and build your – working for free and enjoying it - core team, use guerrilla marketing). prepare to keep the day job and drive the idea for as long as it takes to generate cash flows.

institutional investors will, at least in central europe, not be interested to finance this stage. how to still get them aboard, read the second part of the “long tail financing”.

selected business angels or incubators which see further ahead then most of their colleagues could be interested. bringing along limited but sufficient financial resources, like €20.000 per investment, they focus on developing and driving the business model. the downside for founders is, they can be expecting up to 50 percent of the company. therefore real business value has to be found within their business networks (marketing, sales, finance, people).

if giving away shares is not the preferred way, but small initial cash requirements can not be covered buy the founder, convertible loan agreements can be interesting. handing out tranches not lower then €10.000 per investor and putting them all under one trustee agreement keeps administration at a minimum. this micro finance allows to attack the long tail from it´s tail.