Monthly Archive for April, 2016

Investor search mistakes to avoid, part 1

Small business capital comes from three primary sources:

1. Profits left in the business;
2. Debt, like a bank loan;
3. Equity investment.

For most small businesses the third source is, and has been the founder’s investment.

In recent years, this option has become more robust and multi-faceted in the form of outside investors, whether venture capital, angel investors, and even with crowdfunding. The challenge is developing a capitalization strategy that matches the right sources with the short and long-term goals of the founder.

It must be said that while many elements of finding and acquiring investor capital are similar to getting a bank loan, the former takes longer and is more complex. In his book Raising Capital, Andrew Sherman addresses this issue with a list of common mistakes entrepreneurs make searching for investor capital. This is the first of two articles where I’ll identify Sherman’s “mistakes” and follow each one with my thoughts.

Mistake: Using an investor search that’s too broad.
Each investor has an interest and related strategy. An investor that likes medical ventures won’t be a prospect for your retail idea. Qualify each investor prospect before making contact.

Mistake: Misjudging the time involved.
Part of Murphy’s Law states that everything will take longer than you think. Alas, Mr. Murphy is alive and well in the investment marketplace. It usually takes months, not weeks, to find, approach, and get an answer from investors. Even crowdfunding will take more time than you think. And remember, like prayers, sometimes the answer is “no.”

Mistake: Falling in love with your business plan.
Every mother’s baby is beautiful. But your plan is not your investor prospect’s baby. Expect that your business plan will have to be adjusted before you get funded. So be prepared to accept that changes will come with the capital.

Mistake: Taking financial projections too seriously.
First let’s establish the prime financial rule: All projections are wrong! Of course, you can show projections you believe are achievable. But also include a conservative set that shows your break-even point if things don’t go as planned.

Mistake: Confusing product development with sales.
Investors love real customers and real sales. Even sales projections based on history will be highly scrutinized. But projections based on projected sales will be highly doubted.

Mistake: Minimizing the management team.
A good management team can fix a bad plan, but a bad team can ruin a good one. Unless you’re asking investors to contribute management expertise, don’t seek investor capital without a qualified management team.

Next week, more investor search mistakes.

Write this on a rock …
Make your own mistakes, not these.

Are you looking for answers in the wrong places?

This is a story about three small business owners who had one thing in common: a wise man named Luther. Oh, by the way, Luther is their janitor.

On Mondays, Luther cleans the offices at National Supply Co., Inc. Sometimes he talks with the founder, Mr. Gilbert.

One Monday afternoon Mr. Gilbert said, “Luther, I don’t know how long I can survive.”

“What’s wrong, Mr. G?” Luther asked.

“It’s those big-box competitors,” Mr. Gilbert said. “I’ve looked under every rock for ways to lower our prices and increase advertising, but I just can’t compete with those guys.”

“Maybe you’re looking in the wrong place,” Luther offered.

“What do you mean?” Mr. Gilbert asked.

“Those big competitors will always be with us,” Luther reminded him. “Why don’t you emphasize the value of the human connection and customized service that only a small business like yours can deliver? Those two things alone are worth more than anything the Big Boxes offer.”

On Wednesdays, when Luther cleans the offices at Central Data Corp., he often visits with the owner, Sarah.

“Luther, I always assumed my kids would take over my business, but now it doesn’t look like that’s going to happen,” Sarah lamented one day.

“Why aren’t they interested in the business?” Luther asked.

“I’m stumped, she said. “I’ve shown them the opportunity and how profitable the business can be. What else can I do?”

“Maybe you’re asking them to look in the wrong place,” Luther suggested.

“What do you mean?” Sarah asked.

“Sarah, I’ve noticed how much you love what you do,” said Luther, “even when times were tougher and things weren’t so rosy. From what I’ve seen, being an entrepreneur is as much about nourishing the spirit as growing the bank account. Help them think about that.”

On Fridays, Luther cleans the offices at Westco Dynamics, Inc. Mr. West usually talks with Luther for a few minutes, but he seemed pensive today.

“Luther, my family was so poor that we struggled just to survive,” Mr. West said. “When I left home, I vowed to never be that unhappy again.”

“Mr. West, it sounds like you’ve got something stuck in your craw,” Luther observed.

“Aw, it’s nothing,” Mr. West fibbed. “It’s just that, with all my money and stuff, I still can’t stop looking for ways to make sure I’ll never be poor again.”

“Maybe you’re looking in the wrong place,” said Luther.

“What do you mean?” Mr. West asked.

Then Luther said, “You’ve been motivated by the fear of being poor instead of the joy of creating something from nothing. Try finding happiness in knowing that you provide valuable products and services for your customers, and jobs and income for your employees and their families. Remember, money and stuff only give you options, not happiness.”

Write this on a rock … When you’re looking for answers, make sure you look in the right places.

Four marketplace truths about your customers

Spend time in the marketplace and you’ll have many close encounters of the third kind with the most interesting species in all of nature: the human being. And as we have learned, the nature of humans isn’t much different from other animals: All need to breathe, eat, drink, procreate and survive.

But there is something that clearly sets humans apart from other fauna: sentience. And one of the manifestations of being self-aware is that beyond what humans need, they also want.

Every human who owns an automobile will need to buy new tires. But what they want is to keep the family safe while not spending a Saturday buying tires. So if you’re in the tire business, should you advertise tires, which are commodities that the Big Boxes can sell cheaper than your cost? Or should you develop and market a customer loyalty program that combines peace of mind for your family with pick-up and delivery? How about this tag line:

Let us worry about when you need new tires and get your Saturday back.

Basically the hairless weenies of the family animalia, human beings need shelter, but we want a home. So if you’re a realtor, should you focus on the obligatory list of residential features, or how the physical setting and interior space fit what you’ve learned is your customer’s sense of a home? Try this on:

Mrs. Johnson, countertops can be replaced. What I want to know is how much will you love seeing the sun rising over that ridge as you enjoy your first cup of coffee every morning?

Humans, like thousands of other warm-blooded species, need to eat every day, whether they get to or not. But unlike other animals, only humans want to dine. If you own a fine dining restaurant, do you emphasize the food, or the potential for a lasting memory? Check it out:

Long after you’ve forgotten how wonderful our food is, you’ll still remember that table for two in the corner or the booth next to the fireplace.

Small business success requires understanding these marketplace truths:

1. What customers need are commodities driven by price.

2. The price war is over, and small business lost.

3. What customers want is anywhere from a little bit more to everything.

4. Customers will pay more for what they want – charge them for delivering it.

As a small business success strategy, delivering what customers want or selling commodities they need, is as Mark Twain said, “like the difference between lightning and a lightning bug.”

Write this on a rock … Find out what humans want, deliver it, and charge for it.

You say your business plan every day

Do you have a business plan? What? In your head? How’s that working for you?

Don’t know how to get one started? Well consider this conversation that happens many times, every day, between business owners just like you and the people they meet.

Friend: “Hi Joe. Heard you started a business. What’re you doing?”

Owner: “Oh, hi, Sue. Yeah, John and I are selling square widgets to round widget distributors.”

Friend: “What? How’re you going to do that?”

Owner: “We discovered that no one has thought to offer square widgets to these guys. Our research found that round widget companies not only need square widgets sometimes, but they’ll pay a premium for them.”

Friend: “I thought you couldn’t get new square widgets anymore?”

Owner: “Well, we discovered that round widget companies don’t need new square widgets, so we’re buying seconds, cleaning them up, repackaging and delivering them to those customers.”

Friend: “Sounds like you’ve found a niche. How many can you sell in a year?”

Owner: “We’ve identified the need for 15,000 this year, and with the trend in the market, we think we can double that within three years. Gotta go. See ya later.”

Let’s look at what just happened. Without realizing it, Joe essentially said his business plan to Sue. In two minutes Joe identified the business, management team, industry, market opportunity, customer profile, vendor profile, pricing strategy, market research results and, finally, growth plans. All that’s left is to add a few other elements, write the narrative and project the numbers.

Since you’re probably having similar conversations that means you’re saying your business plan, probably without realizing it, every day. But is that a useful form?

There are a bazillion reasons to put your plan on paper, but we only have room for the three most likely:

  • To get a bank loan
  • To attract investors
  • Because it’s an essential management tool

So now that I’ve convinced you how important this management tool is, when you do yours, don’t make these mistakes:

  • Don’t wait until you need a business plan to start one.
  • Don’t wait until you have time.
  • Don’t make it harder than it has to be.

The words of a conversation like the one above are the seeds from which you can grow your business plan. So just start writing what you already know, like Joe said.

A written business plan will help you achieve new levels of management professionalism and success. Here’s a good place to see something less than a bazillion sample plans without any commercials: www.bplans.com.

Write this on a rock … You already say your business plan every day. Now write it down.

Four things salespeople can learn from Sir Laurence Olivier

The great English actor, Sir Laurence Olivier, once admitted after a lifetime on stage and screen that he had always suffered from stage fright.

Think about that. One of the 20th century’s most revered actors, who appeared in over 120 stage roles, 60 movies, more than 15 television productions and countless performances, actually battled the fear of rejection and failure. But when you look at his numbers, it’s obvious that Sir Laurence’s “condition” didn’t cost him success.

So, what about you? What do your “numbers” look like? Your sales numbers, I mean.

Sadly, too often, well-trained and motivated people allow something to prevent them from achieving their numbers. That “something” is to the marketplace what stage fright is to acting: call reluctance, brought on by the fear of rejection and fear of failure.

The good news about call reluctance is that you can overcome it the way Sir Laurence overcame stage fright. Indeed, his success, and the fact that he was willing to talk about his condition, provides us with at least four clues about his professional courage and spirit.

1. He recognized a personal performance challenge.
2. He accepted it as something that must be dealt with.
3. He took steps to minimize negative effects.
4. He refused to let it get in the way of his goals and success.

How can you tell if you or someone in your organization has debilitating call reluctance? You’ll find it in the numbers: insufficient call reports; a missed selling step such as proposal delivery; a poor close ratio; and of course, failure to meet sales budgets.

Those afflicted with call reluctance will often:

  • Call on customers they like instead of new prospects.
  • Spend time on safe activities, like paperwork, instead of face-to-face prospecting.
  • Make excuses when asked about why they aren’t getting in front of customers.
  • If you aren’t making your sales numbers, the problem might be call reluctance. See if you recognize any of the behavior in the list above. If so, consider Sir Laurence’s list again. There’s a good chance that you’ll need help with the first point, recognition, because most of us aren’t good at seeing our own shortcomings. And the third one, taking steps to minimize the challenge, will likely require help from a professional trainer.

    But dealing with two and four, acceptance and refusing to give in, will require calling on inner strengths. You’ll have to ask yourself if you’re allowing fear to control and direct your life. Or are you more like Sir Laurence Olivier – prepared to recognize, deal with and minimize the effects of your challenges? And in the face of these challenges, can you draw on your spirit to accomplish your goals.

    Write this on a rock … Don’t let call reluctance prevent you from having the maximum opportunity to be successful.




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