If you want to raise capital,
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"The TRUTH About
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The Internet has created great
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"Barking orders" and other forms of
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Written by Jay Turo on Monday, April 23, 2012
The very high profile sale of Instagram to Facebook for $1 billion after just 13 short months in business (and no revenue) of course has entrepreneurs and investors scrambling to divine lessons and wisdoms for where and how to be and find the next “big thing.”
While Instagram’s meteoric rise and quick exit has great excitement and story-telling value, I would posit that we need to use a wider lens to find the real “actionable” intelligence and where Instagram fits into the larger ecosystem of companies with high growth and exit potential.
The catch-all term I like best for these kinds of companies is emerging.
It does not suffer from "commentary fatigue" nor opaqueness as terms like “middle market” or “venture-backed” or “SaaS” or “startup” or “small and medium-sized” do.
And it effectively carves out the large mass of startups and small businesses destined forever to stay small.
Webster defines "emerging" as follows:
1. To rise from an obscure or inferior position or condition
2. To rise from or to come out into view
3. To become manifest
4. To come into being through evolution
1. To Rise From an Obscure or Inferior Position or Condition. Emerging companies, in their most common and interesting form, are small and obscure.
Instagram was - at least for a very little while - just a couple of programmers with a dream.
2. To Rise From or To Come Into View. Far more common than Instagram’s straight up success, emerging companies are often ones that have fallen on hard times and are seeking to "rise from" their current distress via turning around and restructuring their businesses.
The real estate sector remains a treasure trove of these kinds of opportunities, as are industries like publishing and music. As adversity intensifies, so does emerging opportunity.
3. To Become Manifest: Here we need Webster's help again - to become manifest, or to be "readily perceived," or to be "easily understood or recognized."
Emerging companies are usually SIMPLE businesses.
They make things or provide services, and sell them for more than they cost to make or deliver.
And every quarter and every year, they just "chop more wood" and "carry more water."
It often isn't fancy nor often even terribly interesting.
Just reading the above it should be obvious that emerging companies are usually NOT venture capital - backed. They are able to pay for their growth through operating cash flow and thus do not need outside capital to finance their businesses.
4. To Come Into Being Through Evolution. This is perhaps my favorite because it references the essence of any business - the talent of its people and the quality of its corporate culture.
The best emerging companies are always run by a group of hard-working, thoughtful, creative, persistent, and fantastically committed owner-operators who devote their lives to their businesses for multiple, non-contradictory motives.
They want to offer true value to the marketplace with their product and service offerings.
They want to leave a legacy via building an enterprise of lasting value and character.
And they want to make a lot of money.
While popular business culture is fascinated with "golden boy entrepreneur" stories like Instagram, these are way more the exceptions than the rule.
Far more common are stories like Amazon, Kinkos, The Body Shop, Outback Steakhouse, or even Wal-Mart and Hewlett-Packard - companies that had long gestation periods, and many slow or no growth periods, before evolving to successful forms.
Look for the above qualities in companies worth backing.
Look for them quantitatively with the key metric of operating cash flow growth.
And look for them qualitatively in the mindset of management and in the tenor of the corporate culture.
It will take longer than 13 months, but if both the numbers and the business tone align and you can get in before the whole world knows about it, then you have yourself a winner.
Or, another way of saying it, an emerging company.
Written by Dave Lavinsky on Sunday, April 22, 2012
As a business owner, I encourage you to think about your business a little differently. That is, I want you to think about your business as a product. And specifically a product that one day you might sell to an acquirer (for a lot of money of course).
By thinking about your business this way, you will be more likely to build a company that an acquirer would want to buy. As opposed to the vast number of un-sellable businesses most entrepreneurs unfortunately create.
Importantly, even if your intention is never to sell your business, I want you to adapt this way of thinking. Because the same attributes that will make your business attractive to buyers will also make it perform better for you. Remember, your business should work for you, not the opposite.
Looking at your business as a product, the first question to ask (and the first question an acquirer will ask) is:
Does the company you built stand out from the others?
In assessing a product, we typically consider its unique attributes or unique selling proposition. For your business, what about it will get the buyers' attention? Will it be your cash flow, recurring revenues, or potential for significant future growth?
A second question a product buyer might ask is '"how easy is it to use the product?" Similarly, an acquirer will ask:
How easy will it be to run this business after acquisition?
Clearly, the acquirer will want the smoothest transition possible when taking over. The acquirer does NOT want to deal with:
- Employees not knowing what to do or how to do it without you being there
- Clients and customers leaving along with you/the old owner
- Hit-or-miss revenues and unpredictable cash flow
- Being outdated by competition, trends, government regulations and/or new technologies
Likewise an acquirer would NOT want to purchase a company in which a small handful of clients represented the majority of revenues. In such a case, even just one or two clients leaving could materially hurt revenues and possibly bankrupt the company. Yes, even thriving businesses have been bankrupted by one or two trophy customers leaving because they failed to diversify their customer base.
Another question a product buyer typically asks is "what are the key features of the product that allow it to perform?" In relation to your business, these features include the Financial Metrics you've achieved and Business Assets you've built.
How has your business performed financially?
Obviously a buyer will want a business that makes money (or could make it money), and the more predictable and turn-key it is, the more you can make from the sale.
Doing your homework on what similar businesses sell for will help you plan your exit in this regard. Find out what yearly revenues and earnings is the "sweet spot" for businesses or individuals on your target acquirer list, and make this your revenue goal to shoot for before selling.
This is harder to do in the "survival" stage of your business, obviously. But over time as you discover what works and what doesn't and double up on what's effective, a higher percentage of your efforts will succeed and that adds to its predictability and stability.
What business assets has your company built?
A big part of your business' value is the time and effort you put into building the business assets that allow your company to profitably and efficiently run.
These business assets, which will strengthen your business and increase its value, include:
- Subscribers & Customers - Your customer base is one of your biggest assets, and represents the chance to market repeatedly to the same people. Your databases of those who subscribe to be contacted by you via email, Facebook, text messages, etc, are also assets to spend time and energy increasing.
- Systems - Who does what in your business? What are the recurring tasks that someone will need to perform over and over and over again? What is the correct process for each of these, and the steps involved? Your business' acquirer does not want to come on board with all of this information in your head. Ideally, these processes and checklists will have been mapped out in advance and followed as "the way we do things here" all along.
- Solid team - It takes time, trial, and error to find the right team, and much more time after that to coach and develop them to be able to run the business without you. This is also part of the work involved with preparing a company for sale. Between documenting systems and this, having exceptional people is much more important, because the right people will be willing and able figure out how to get results without having it all spelled out.
- Hard assets and technology - These business assets include real estate, machinery, inventory, web properties, software, etc. which help you run the business more effectively.
A final question you might consider when purchasing a product, and particularly an investment product, is its future growth potential. When considering purchasing a company, a similar question the acquirer will ask is:
What are the odds of sustainable future growth?
Few buyers are going to pay you a significant multiple of your annual revenues or profits unless they believe they can increase those revenues/profits even more. Otherwise, how are they going to get a return on their investment?
The ideal time to sell is after you have demonstrated profits and growth, and right as you're positioned to grow even more, and that means:
- Growth - Having a solid business model and proven lead generation strategies in place that can be expanded by increasing ad spend, or reaching new segments, or moving into entirely new markets altogether. Get your company in a position to do these things, to pave the way for the new owner. Buyers also want a sales process and team that can handle several times more sales without a lot more training and development.
- Risk - What risks exist now or in the near future that might keep the new buyer from getting what they want? You'll want to consider ways to mitigate legal, financial, competitive, governmental, and technological changes and threats.
- Unique Competitive Advantage - Being a "me-too" company puts you on shaky footing, whether managing or selling such a business. Creating and cementing your unique competitive advantage is a critical factor in creating a quality business.
By looking at your business as a product, you can build a thriving enterprise that satisfies your needs and the needs of a big-pocketed acquirer. Specifically, you want to build your business so that it's unique, can run easily upon acquisition, has strong financial performance, includes valuable business assets, and is positioned for future growth.
Do this and then enjoy the success that comes with it!
Suggested Resource: If you want to build a sellable business, join me on a free webinar where I explain exactly what to do. It's called "Million Dollar Exits: How to Build a Business You Can Sell For Millions of Dollars." Reserve your seat for the webinar by clicking here.
Written by Dave Lavinsky on Thursday, April 19, 2012
If you are ever in a position to sell your company, you'll learn that there are two general types of buyers.
There's an individual buyer, or a person who wants to buy your business so they can run it themselves.
And there's a corporate buyer, or a company who wants to buy your business and integrate it into their own.
For the most part, there's a financial cut-off between the groups. That is, if you are selling a business for less than $2 million, generally you are selling it to an individual buyer. And for businesses above $2 million, you are generally selling to a corporate buyer.
Now, when selling a sub $2 million business, you often use a business broker (versus using an investment banker to sell a larger business). And most business brokers among other things, will list your business for sale on several websites.
One of the largest of these websites, in terms of number of visitors, is BizBuySell.com.
Occasionally, I visit BizBuySell.com myself for educational purposes. I like to see the types of businesses that are for sale, how they are positioning themselves, and what prices they are asking.
And the last time I visited BizBuySell.com, I asked myself an interesting question:
Who primarily visits this site?
And the answer I came up with was 1) business brokers, 2) business owners who are selling their companies, and 3) entrepreneurs looking to buy businesses.
Now, it was this latter group, entrepreneurs looking to buy businesses, which I found most interesting.
Because, what must these entrepreneurs have if they are looking to purchase a business?
Money, or access to money.
Now why this is so important is that there are tons of entrepreneurs with businesses or business ideas seeking funding for their businesses. And these other entrepreneurs (who don't have businesses or business ideas) clearly have their own, or have access to funding.
Which led me to a potentially creative technique for raising funding.
1. List your company (even if it's just a startup or concept) on a site like BizBuySell.com
2. When buyers contact you, explain to them that your preference is not to sell your business or concept to them, but rather to partner with them. That is, have them buy-into your business. Specifically, if they invest $Y, they will get X% ownership in your business.
So, the concept here is simple: find someone who has money and is looking for a business opportunity, and have your company be that opportunity.
Now the question is whether this strategy is ethical or not. Mainly the fact that you are listing a company for sale that isn't really for sale in order to meet potential investors.
I think each of you have to answer that question for yourselves.
On one hand, if you legitimately would consider someone buying your business in its current state, then this strategy is clearly legitimate.
However, if you have no interest in selling, it becomes questionable. But perhaps, in your company listing, you more explicitly state that you are more interested in selling a portion of your business, and not the whole business to a buyer. Then, it seems more legitimate.
Note that I have not discussed this idea with the owners of BizBuySell.com or similar sites. But from their terms of service, it seems that such a strategy is acceptable to them.
A similar and clearly 100% legitimate strategy would be to contact local business brokers and see if they know of any potential buyers who would consider partial ownership (i.e., investing in your company) instead of full ownership.
Finally, one of the key points of this article was not to tell you about this one strategy for your consideration. But rather to let you know that there are tons of creative and alternative ways to fund your company beyond the "usual suspects" of angel investors, venture capitalists and banks.
Written by Jay Turo on Monday, April 16, 2012
A lot of folks are frightened by the word luck.
Especially for those of the capitalistic persuasion, luck can be a very uncomfortable word.
It can offend our puritan sensibilities.
Our sense of us as masters of our fate.
It can fly at the heart of that sacred concept of our American way of life, of the American dream, that if we work hard, we get ahead.
And if we don't, we won't.
Yes, shouldn’t our fate really rest not in our stars but in ourselves?
And then there is our entrepreneur.
Please let me add that I take an expanded view of who an entrepreneur is.
For me, they are not only those who start a new company - the classic man (or woman) with a plan entrepreneur, but they are anyone - in big companies and small, government and non-profits - that channel the famous words of George Bernard Shaw and do not just look at things as they are and say why but rather see things and ways of doing and being that have never been and say why not?
Yes, really all of us - at least every now and again - embrace this expanded “why not” definition of entrepreneurship.
And it is in these moments of idealism, of childlike innocence, that yes there is the kind of luck that every entrepreneur deserves to have.
It is the kind of luck Dave Lavinsky talks about in his upcoming new book “Start at the End,” that in the modern world, the old SWOT - strengths, weaknesses, opportunities, and threats analysis - really no longer applies.
No, Dave posits that our brave new world is a “SO” world.
One of only Strengths and Opportunities.
And in this world, every entrepreneur deserves the kind of luck that their hearts and minds are focused only on the bounties of opportunities that are everywhere around them and that they have the confidence and conviction in their strengths to go out and win them.
And it is in this space of "why not” that every entrepreneur deserves the kind of luck that is expressed in my most favorite of Growthink’s client promises - that we all honor each others hero’s journeys.
Journeys of business, of professional development, of philanthropy, of parenting.
Really of any project of importance and ambition.
And it is in this luxurious space of self-actualization that such a tiny percentage of our fellow human beings are ever afforded even a moment's time to be in…
…that every entrepreneur deserves the kind of luck that they stop and catch themselves and are filled with that even more luxurious space of gratitude to live in a world like ours where so much is possible and for so many.
And from this space of gratitude that we finally reach that so fundamental kind of luck that every entrepreneur deserves to have.
It is that so exalted place where it is not about what luck can do for you - how it can make you rich and famous and powerful - but rather what you can do with the luck.
With it, how we can build and do great things.
And touch and connect and inspire those around us.
And maybe leave this world just a little - or a lot – better place than we found it.
May we all be so lucky.
Written by Dave Lavinsky on Monday, April 16, 2012
If you're like me and passionately roll up your sleeves and get to work on something great for several years or more (your business), you owe it to yourself to have a final result for your efforts that is truly a masterpiece.
I'm talking about your business, once it's complete...Done...Ready to sell for as much as you can reasonably expect, often for several times its yearly earnings.
If and when it does come time to sell, you want to be selling from a position of strength-to sell it when it is at its most valuable point and not when you're burned out, in ill health, or in some other situation where you are rushed or won't make nearly as much from the sale.
Like any great work, you have to start with the end in mind, and to that end I'll be writing this to clarify just what a "sellable" business looks like. This will give you an ideal to work towards and guide your plans and work.
Below are several things to be aware of in increasing the value of your business to yourself and potential acquirers.
Positioned in its clearly-defined niche
Your business must be the best it can be at what it does, without trying to be everything to everyone. A business that knows its customer segments, their needs and language, and how to solicit a response from them is a lot more valuable than one that is a mixture of everything, or an unknown in its market.
Coach your team to run the business without you
Could other people ever run your business without you? They'll have to, if you're selling! So why not make this your goal from Day One?
Make an organizational chart of how your business will look when it's time to sell it. List all the various workers in marketing, operations, and those they report to. It's okay if it's just you or a handful of people currently filling all those roles. Doing this will help you organize who is going to do what in your business before you hire a new person.
Then, over time, you can find other people to fill those positions one by one until you're out of the picture.
Build relationships with customers
Goodwill, such as your reputation and brand in the minds of your current and prospective customers, is considered an asset on your company's balance sheet. You build this over time by treating people right and maintaining good relationships.
If you intend to sell your business someday, or if you just want to have the option, this is something you have to make a priority throughout the business's life. You can't just start doing it well suddenly in the final year. Relationships and recognition take time.
Make sure you're stable
Make sure you're not overly dependent on any one customer, vendor, employee, or anything else. Diversify your strengths. If you have any "whale" customers that make up a large portion of your business, try to get at least 80% of your business from other people.
The new owner does not want to take the reins and have revenues drop in half in the event your biggest customer leaves.
Maximize your revenues
This one's self-evident, but deserves to be repeated. In my last essay, I shared 4 proven ways to increase your revenues-getting more customers, increasing your average order size, get customers to buy more frequently, and finding new ways to monetize your customers and visitors.
A company with higher revenues and which shows growing revenues will be more valuable and attractive to buyers.
Hold expenses accountable
You boost your net profit (and therefore the value) by reducing your expenses. However, no one ever shrank themselves into wealth. You're not going to grow your business by keeping expenses lower-but the numbers will increase as it grows.
Your goal is to keep the percentages the same, such as keeping advertising at 20% of your revenues whether earnings are $100,000 or $1,000,000 per year.
Basically, you'll want to make sure that budgets are made and followed, to keep spending within projected limits and to avoid costs creeping up that don't generate more revenue in return.
Keep great records for the next owner
Keep excellent records of everything for the new owner-your files, databases, customer communications, marketing materials, financial records, employee agreements-everything.
Committing to do this now will make your life so much easier between now and the time you sell. Keep good records for your own efficiency, protection, and to make your business look a lot more attractive to buyers than one where all the records are filed away in the old owner's head.
Develop a plan for when it's "done" and ready to sell
I don't want you to have plans on top of plans, but each of these will take certain actions to make them happen. So here's what to do: Add these end results into your existing business plan, and use your best judgment when choosing how to make each of them happen in your company.
When it's all said and done, the next few years are going to go by whether you maximize your business's value or not. At the end of, say, 5 years, would you rather have a stable, attractive, polished business ready to sell for top dollar, or be left taking what you can get for what you have?
If it seems like a lot, remember you have until the time you sell to take care of these things. You don't have to do it all now! Just add these elements I described to your vision of what you want your company to be, and keep your eye on it until the big day finally comes.
Suggested Resource: Would you like to know more ways to maximize the value of your business. And specifically to turn it into one that exceeds $10 million in revenues? Then check out Growthink's 8 Figure Formula. This video explains more.
Written by Dave Lavinsky on Thursday, April 12, 2012
Below I will show you four fundamental ways to increase your company's revenues, net profit and overall value.
Importantly, don't discount any of these ideas. It's too easy to say "I'm already doing that," or "that won't work in MY business." When, in fact, in most cases you can 1) do a better job doing what you're doing, and/or 2) creatively adapt the idea in your business.
So have an open and creative mind, and get ready to learn some great ideas to take your business to the next level.
Here are the four methods:
1. Sell to and serve more people
This one is obvious-get more customers. So break it down further and look into all the possible channels by which you can advertise and reach new customers. Print, internet, signs, trade shows, direct mail, and so on.
If you're like most of us, you're probably advertising in some places but not yet in others. You need to start testing lots of different marketing channels to find new ones that can work for you. Start with the one that, as best you can tell, stands out as the one most likely to pay off (getting the most qualified people to contact you per dollar spent).
Remember: the more marketing campaigns you try, the more likely it is you'll find the few that are solid gold. And these oftentimes become long-term assets, generating you profits month-after-month, year-after-year.
2. Increase your average order size
Restaurants know this one well. Once someone has come in to your store (or online property, or calls you) your goal is to maximize their total order amount. In doing so, you should simultaneously maximize your revenues and completely fulfill the needs of your customer.
And it doesn't have to be done obnoxiously. For example, when you're in a restaurant and the waiter suggests entrees, appetizers and/or asks if you want dessert, it's not seen as being pushy, and maximizes the restaurant's profits.
Another example of this you may have seen if you've rented a U-Haul or moving van. In those stores, you've probably noticed all the packing and moving supplies they sell. You could add to your customers' order sizes by finding out what accessories or related items they might need, and have them available.
Online, you can see this done when you're adding items to your cart and going through "checkout." Often, other items are suggested at the last minute when you're in buying mode. Amazon.com is the master of suggesting products (think "Those who bought X also liked...") and it's no wonder they have one of the highest conversion rates among online stores.
3. Increase order frequency
How often do your customers need your product or service? Is it something totally out of your control, like a real estate client not needing to buy another house for several years?
Or are there things within your control that can help customers to come in more often or purchase more often from you, like a restaurant inviting its customers in for specials on slow nights?
Loyalty and reward programs can help make this happen. For example, most coffee shops will give you a card to punch each time you buy a coffee to get the 10th one free. If you have 7 of 10 punches already, you know you'll be a little more likely to choose that place over others to get your reward sooner.
Continuity income is another huge one. If you can offer any kind of product or service on a recurring, monthly basis...do it. A winery or liquor store could offer a wine-of-the-month club. Bakeries can offer weekly batches of cookies to local businesses for team meetings.
The odds are that whatever you're offering, a certain percentage of people want it every month like clockwork and will pay accordingly for it.
4. Increase your monetization methods
Lastly, look for your business' byproducts that might be of value to someone else.
An example of this is when sawmills and furniture manufacturers stopped throwing away the tons of sawdust accumulating on their floors, and began selling it to other businesses who could use it (such as for making "starter logs" for burning in your fireplace).
Another interesting example is a group of real estate investors who built a brand around their vanity number, 1-800-NO-AGENT, offering homeowners a chance to sell their house to them at a discount instead of listing it and waiting.
They found they could sell the leads (those who responded but didn't' want to sell to them) to local real estate agents (who would contact them to see if they could represent them). They company ended up generating nearly as much revenue from selling "dead" leads as it did from their core business of "flipping" houses!
Doubling revenues just by thinking outside the box...that'll add value to your company.
Hopefully as you read through these value-adding methods, you were able to find things you can do right now to increase your revenues and profits. At a minimum, add one new idea to your To Do list to accomplish in the next 30 days. And you'll start seeing the benefits!
Suggested Resource: Would you like to know more ways to improve your business; and turn it into one worth $10 million or more? Then check out Growthink's 8 Figure Formula. This video explains more.
Written by Jay Turo on Monday, April 9, 2012
"An entrepreneur is a person who has possession of a new enterprise, venture or idea, and assumes significant accountability for the inherent risks and the outcome. He or she is an ambitious leader who combines land, labor, and capital to often create and market new goods or services."
- Professor Arthur O'Sullivan, from "Economics: Principles in Action"
So who is and who isn’t an entrepreneur. First, the “obvious” entrepreneurs:
Individuals STARTING New Companies. New companies, startups of all shapes and forms, across all industries, all around the world.
Yes, the classic men and women with big dreams in their hearts and ambitious business plans firmly in their hands.
In the U.S. alone, this represents the more than 6 million new businesses started every year, and the many, many millions more contemplated.
Thank heavens for all of them - according to a famous M.I.T study new business starts account for more than 2/3 of all net new job creation.
And this power of entrepreneurial job creation, thank heavens has spread worldwide.
Take Peru, where over the past 25 years more than 1.5 million jobs have been created from microfinance loans (think Kiva.org).
Largely as a result of these thousands of points of small entrepreneurial flowering, the unemployment rate in that still very much developing country is now less than that of the United States!
Individuals LEADING Small Companies. Per that M.I.T study, the other 1/3 of net new U.S. job creation comes from "gazelles," - the 641,000 U.S. firms with between 20 to 1,000 employees. They, along with startups, account for more than 62% of all private sector employment.
Anyone that has spent even a day at a growing, middle market company can literally breathe the entrepreneurship in the air.
The best of them are led by deeply ambitious men and women walking the talk of American business.
Now very importantly, not all small business people are entrepreneurs. The key phrase in Professor O'Sullivan's definition when evaluating whether one is, or is not, is ambitious leader.
All of us know small business men and women - that while certainly possessing many wonderful attributes – for whom it would be a big stretch to describe them as ambitious leaders.
Now how about those that we don’t normally think of as entrepreneurs, but who certainly demonstrate daily the attributes and attitudes described in Professor O’Sullivan’s definition.
In some ways, those that do so in the contexts of bigger business, philanthropy, and government are even more impressive than our obvious entrepreneurs. Such as:
Individuals that are Accountable for Change and Growth at BIG companies. Into this category falls executives like Wal-Mart’s CEO Mike Duke.
Mr. Duke is certainly an ambitious leader with very significant accountability for risks and outcomes, $420 billion in revenues, 2.1 million employees.
Heck, growing Wal-Mart even 5% annually requires creating a company every year that would rank in the top 100 largest companies in the country.
Individuals with Leadership and Change Responsibility in Organizations of All Types. The challenges of leadership and accountability exist in ANY organization taking on meaningful and challenging objectives.
Bono, arguably the world's best known philanthropic celebrity, is an entrepreneur on two fronts.
First, via his commitment to world-class creative output as the leader of the mega-rock band U2.
And he is an entrepreneur, via his unique effectiveness as an activist and spokesperson for big projects - third world debt relief, and AIDS and African development issues, among others.
Other examples of “philanthropic” entrepreneurs include Gary McDougal – a former Partner at McKinsey - who later in his life re-engineered the broken Illinois welfare system and made it a model nation-wide.
Or how about Gail McGovern - President of the American Red Cross - who thinks and works entrepreneurially everyday to expand the brand and effect of the organization beyond disaster relief.
Global Entrepreneurs. Now more than ever ambitious individuals worldwide strive to not just be entrepreneurs per the American way, but to take the best of what we do and how we think and add to it and candidly, then to crush us. And I say more power to them.
Because entrepreneurship at its essence is about creation, and from Peru to Peoria the success of one accountable and ambitious entrepreneur anywhere results in a better life for all of us everywhere.
Yes, entrepreneurs really are the men and women the world over with plans, ambition, and accountabilities that make our world a wealthier, healthier, and all around more interesting and dynamic place.
Written by Dave Lavinsky on Sunday, April 8, 2012
In my many years of running businesses for myself, I've noticed (as you probably have) that no one cares quite as much about your baby as you do. I mean, no one is as committed to realizing your vision as you (or your co-founders if you have them).
This is okay! It's just human nature. It's one of those things you can whine and complain about, or you can accept it and work creatively with it. Look at it from your employees' point of view-they're not YOU! They are probably not as entrepreneurial as you are and what motivates you is not necessarily what "should" motivate them.
Yet it takes a motivated, productive employee to help you reach your vision. So how can you maximize your team's, and therefore your business' productivity?
I will describe a few ways here shortly, but first I want to drive home that some of the answers will seem counterintuitive. They may seem different from the way things have been done in the traditional workplace. But that doesn't mean they don't work, or that the principles behind them aren't sound.
Remember...you are not your employees and they are not you! Everyone is motivated by something. It's your job to find out what and then give it to them by creating an environment where your team can flourish.
1. Inspire them to be productive
If someone is working for an hourly wage, you just can't expect them to have consistently high levels of productivity when they have little incentive to do so. Yes, there's fear of losing their job, but is that really enough in today's world? This isn't factory labor from 1910.
Your team of human beings needs positive reinforcement from you. Be creative and find ways to reward doing a consistently good job. You could offer pay raises for good performance, bonuses for getting results, recognizing the most reliable employees, etc.
Be aware of and cater to the individual personalities of your team. For example, offering monetary bonuses is not going to motivate all employees. Salespeople...probably yes. Bookkeepers...maybe not. In many cases, non-monetary rewards like public recognition are more powerful than monetary rewards.
2. Lose the Overtime
Working more than 40 hours per week oftentimes hurts creativity. Particularly if your employees need to solve problems or do creative work (like most office roles an "information worker" engages in), their performance will drop from fatigue MUCH faster than the performance of someone working with their hands or in a factory.
The typical management model assumes that more hours will mean better results, but it's just not in harmony with psychology and human performance. Studies have shown that when someone works for 60 hours per week, they will have a short-term boost in productivity that lasts for about 3-4 weeks before declining far below original levels. The latter decrease and recovery period is not worth it!
So save overtime for finalizing the occasional deadline-driven project. Help your employees to be well-rested and vibrant. Hire more part-timers to work, if needed. Getting 8 hours of sleep (not something you can control, but you can make it easier without overtime) will increase their problem-solving abilities. And give your top people a rest to get even more of a boost from them. (And do the same for YOURSELF).
3. Have a Daily Focus Huddle
If you set big goals and come in to work each day with single-minded purpose, you're going to reach your goals sooner.
Start by documenting your goals and breaking them down into smaller projects. Then, make sure your team is focused on completing each project. You can do this by having a 3-5 minute "huddle" with them first thing in the morning (or work shift).
During this huddle, you remind everyone of the project at hand and the end results to achieve. Get quick reports or updates on progress, and then answer questions and assign or remind everyone of their individual commitments for the day.
I realize this is more easily done in a weekly meeting, but try it for yourself daily for a week and see how much closer you get to your goals when everyone gets grounded and on track every day.
4. Small team sizes produce best results
Studies have found that productivity is maximized in teams of 4 to 8 people. Fewer people than that usually results in a team that is not diverse enough in talents or knowledge to get the results needed.
And productivity is 30-50% LOWER in groups larger than 10. Maybe it takes too much time to manage that many people, or things get too cluttered. But regardless, think about how your team (or teams) of employees are organized and see if you can break things up a little. 12 people could become 2 groups of 6, or 3 groups of 4-each focused on creating some crucial result for your business.
5. Seat people on the same team together in a closed team room
Lastly, a work team's productivity can increase over 100% when they work together in a closed room. Give them at least 50 square feet of space per person to work.
When teams are grouped in a closed-door setting together, there is faster communication. Questions are answered faster for better problem-solving and decision-making. And there are fewer external interruptions to the team.
If your business is a restaurant or a place where this is more difficult than an office setting, you can't do this; but you can understand this key point: find ways to put people working on a common task in the same place at the same time.
Importantly, remember that productivity is the key to achieving your vision using whatever resources and time are available to you. Your team's productivity is even more important than your personal productivity, though you set the tone for everyone else.
Hopefully these 5 action items will help you to do more with less, and have a happy team and workplace in the process. Pick at least one and try it out for the next week!
Suggested Resource: Follow the tips above and you'll start maximizing the productivity of your team. And check out "Productivity Secrets for Entrepreneurs: How to Get More Done, Make More Money and Take More Time Off" if you'd like to access my complete program for maximizing your productivity and results.
Written by Dave Lavinsky on Tuesday, April 3, 2012
I speak to my friend Steve about once a month. And every few times we speak, he hits me with his latest new business idea.
Once in a while, the idea has merit. But most times it doesn't.
The other day Steve told me his latest idea. I could barely mutter two words in reply when he cut me off. "I forgot who I was talking too," he blurted out, "you don't like any of my ideas."
Interestingly, when he said that, I felt like a venture capitalist. You see, venture capitalists or VCs hear tons and tons of business ideas. And when you hear tons of ideas over many years, and see the vast majority of these ideas fail to materialize, you start developing a pessimistic attitude about new ideas.
And, after hearing so many ideas myself over such a long period of times, it seems that even I have gotten a bit negative or skeptical (well at least on ideas that my friend Steve tells me about).
Interestingly, I went to business school nearly 15 years ago with several bright guys who became venture capitalists. When they first became VCs, they were very positive people. They heard ideas with the mindset of "how can we make this work."
But after hearing thousands of ideas over many years, and investing in lots of companies that didn't pan out, their thinking shifted. In fact, today, their attitude is more like "what are the reasons that this idea won't work."
I tell you this not to be a downer. But to let you inside the head of a venture capitalist, or any investor that's been around a long time. Like it or not, these investors inevitably develop a bit of pessimism when considering new investment opportunities. And while you are speaking, their mind is constantly asking, "what are the reasons this idea won't work."
Why this matters is that you need to understand and play to this pessimism.
Here are four ways to accomplish this:
1. Pre-emptively address their concerns
As you now know, while you speak with VCs, they are considering the reasons your venture won't work. So, address these concerns before they even ask about them. For example, state in your presentation the top 5 concerns you think they might have and why you will overcome/address them.
Generally, you should address these concerns in the core part of your investor presentations. You should also have four or five back-up slides (that you keep at the end of the presentation for use if and when needed) that address other less-common concerns that you guess investors might have. By pulling up these slide when the investor voices the concern, you will have the best possible answer and seem ultra-prepared (which you will be).
2. Avoid superlatives
Most VCs I know hate superlatives.
Superlatives are words like "best," "greatest," "most powerful," "world-class," etc. Unless you can back up these words, don't use them. Since VCs have been promised everything under the sun, and are turned off by such claims.
3. Relate your ideas to proven companies
One way to make your ideas appear more viable is to tie them to proven companies. For example, say that your company is like eBay but you [fill in the blank regarding how you differ]. Both consciously and subconsciously, this simile gives VCs and other investors the impression that your company might become as successful as that other proven company.
Importantly, don't bad mouth another company (particularly a successful company); as this will cause you to lose credibility. Rather explain why you are unique and can perform better and/or differently.
4. Boost your credibility wherever possible
Skeptical and pessimistic people (including VCs) are skeptical of grand claims. Hence why I told you to avoid superlatives above.
But you should also avoid other grand claims and bolster your credibility wherever possible.
For example, having a financial model that shows you are going to grow from $0 to $100 million in revenues in 3 years is generally going to be frowned upon. Since achieving such a feat is extremely rare.
Conversely, by researching the growth profile of similar firms, you can come up with more credible forecasts that will escape skepticism and show investors you really understand the business and its potential.
Likewise, you can boost credibility by getting customers. One of a VCs greatest concerns is whether you'll be able to acquire enough customers. Proving this early on significantly enhances your positioning and chances of raising VC dollars. Even if you don't have a product or service that's ready for customers, there are things you can do. For example, you can get alpha or beta customers. Or, at the least, you could survey customers and show VCs survey results and testimonials from customers saying they are seeking the precise solution you are building.
Finally, building a Board of Advisors and/or hiring accomplished employees will boost your credibility and show VCs that you know how to execute, and can thus effectively grow your business with the funding they invest in you.
Don't get me wrong. Most VCs aren't pessimists or curmudgeons that aren't fun to be around. But many do develop a natural pessimism against new entrepreneurs and ventures they meet. It is your job to overcome this pessimism. And once you do, you can gain the funding and the guidance of a VC that could help you dramatically grow your business.
Suggested Resource: In Venture Capital Pitch Formula, you'll learn exactly how to find and contact venture capitalists, exactly what information to include in your presentation, and how to secure your financing. This video explains more.
Written by Jay Turo on Monday, April 2, 2012
This week, the President is expected to pass H.R. 3606 - the Jumpstart Our Business Startups (JOBS) bill, which includes provisions that for the first time legalize investment-based crowdfunding.
While the crowdfunding portion of the bill still needs to go through SEC rule-making, the die is clearly cast that a whole new social networking – based world of start-up and small business investing and financing is coming fast upon us.
So who will the winners be and who will lose ground once the new rules are fully live?
Well, the first group of winners will undoubtedly be the tens of millions of American entrepreneurs - and eventually hundreds of millions of worldwide - that for the first time in human history will have access to on-demand capital for their creative and future-focused projects and initiatives.
To envision this, visit (or revisit) Kickstarter.com, and browse through the incredible diversity of cause and passion - based projects, from charitable to design to artistic to technological, crowd funded on a donations basis on the site.
Then, layer in elements of the kinds of companies funded by angel investment groups and early stage venture capital firms – i.e. focused on hot technology spaces like mobile commerce, healthcare information technology and possessing fast-scaling revenue and thoughtful “Porter Five Forces-Friendly” business models.
Doing so will give you a good feel for what the first turn of investment-based crowdfunding will be.
But quickly following these early adopters will be the best of the best of U.S. small and medium-sized companies.
These businesses - think of the Inc. 500 list of America's fastest growing companies - are home to the most talented, hardworking, and just nose to the grindstone, money making and job creating entrepreneurs and executives in the world.
And, sadly and embarrassingly, these best and the brightest among us have been mostly abandoned by the U.S. banking system when it comes to funding their growth initiatives.
Well, for starters the very unfortunate “derivatives-focus” of the U.S. financial markets this past decade has resulted in an entire banking industry generation to simply not even know how to do the hard diligence work of equity and fundamentals-based investing in growth businesses.
Add to this mix banking industry consolidation causing smaller capital investments to just “not be worth the trouble” for way too big a swath of the industry and the sad reality is that banks are really no longer meaningful funding players in the small business communities in which they allegedly live.
Liberatingly, crowdfunding will allow smaller companies to simply bypass and disintermediate these broken financial sources altogether.
And to do so for such simple and each to grasp purposes as inventory and receivables financing, capital expenditures with shorter payback periods, and my favorite, for the kind of high ROI, Internet-based marketing and customer acquisition campaigns about which traditional bank underwriters wouldn’t even know the right questions to ask.
The result will be that American small business will innovate and grow faster, and oh yes have the wherewithal to create the jobs and pay the taxes that fuel our whole way of life.
And smaller investors will be winners too.
No longer will the best entrepreneurs with the best ideas and growth prospects only be available to be backed by the "1%" - the cadre of institutional and super high net worth individual investors that under current rules have a veritable monopoly on entrepreneurial investing.
With fully functioning crowdfunding markets, this high return world will be open to anyone with a few hundred dollars, an appetite for intelligent risk-taking, and an abiding belief in the power of entrepreneurship and innovation to improve our world for the better.
And as a bonus, won’t it be nice for the media to cover just a little more about entrepreneurial and fundamental investment successes and a lot less of the tawdry, “give them bread and circus” spectacle of our state-sponsored lottery cabals?
And points to who the losers will be in this soon to come crowd funding world.
Let’s start with the aforementioned banks and other questionably value-adding financial intermediaries (think travel agents in the late 1990s).
But really, all those trapped in cynical, pessimistic and legacy – based financial thinking and being will find these democratized and re-vitalized markets quite threatening.
Yes, financial market change for the far better is coming.
Not as fast as any of us hope, but coming inevitably nevertheless.
So let's thank those few brave souls that have made it happen.
They are the new drum majors for justice and progress on whose shoulders we will all stand.
And oh, yes, profit from too.