Written by Dave Lavinsky on Friday, March 8, 2013
The word "crux" is an interesting word. It's a noun that can be defined as: (1) the decisive or most important point at issue, or (2) a particular point of difficulty.
In either case, the word aptly applies to raising funding for your business, because in doing so, most entrepreneurs and business owners encounter difficulties.
I believe the crux to successfully raising money for your business lies initially in understanding that investors are essentially professional risk managers.
Let me explain. Most sources of money, like banks and institutional equity investors (defined as institutions like venture capital firms, private equity firms and corporations that invest), are essentially professional risk managers. That is, they successfully invest or lend money by managing the risk that the money will be repaid or not.
So, your job as the entrepreneur seeking capital is to reduce your investor or lender's risk.
Let me give you a simple example. Let's say that both you and your worst enemy both wished to open a new restaurant.
In this scenario, which is the riskier investment?
- You have put together a business plan for the new restaurant.
- Your worst enemy has also put together a business plan for the restaurant...and he/she has also put together the menu, secured a deal for leasing space, received a detailed contract with a design/build firm, signed an employment agreement with the head chef, etc.
Clearly investing in your worst enemy is less risky, because they have already accomplished some of their "risk mitigating milestones."
Establishing Your Risk Mitigating Milestones
A "risk mitigating milestone" is an event that when completed, makes your company more likely to succeed. For example, for a restaurant, some of the "risk mitigating milestones" would include:
- Finding the location
- Getting the permits and licenses
- Building out the restaurant
- Hiring and training the staff
- Opening the restaurant
- Reaching $20,000 in monthly sales
- Reaching $50,000 in monthly sales
As you can see, each time the restaurant achieves a milestone, the risk to the investor or lender decreases significantly. There are fewer things that can go wrong. And by the time the business reaches its last milestone, it has virtually no risk of failure.
Let me give you another example. For a new software company the risk mitigating milestones might be:
- Designing a prototype
- Getting successful beta testing results
- Getting the product to a point where it is market-ready
- Getting customers to purchase the product
- Securing distribution partnerships
- Reaching monthly revenue milestones
The key point when it comes to raising money is this: you generally do NOT raise ALL the money you need for your venture upfront. You merely raise enough money to achieve your initial milestones. Then, you raise
more money later to accomplish more milestones.
Yes, you are always raising money to get your company to the next level. Even Fortune 100 companies do this - they raise money by issuing more stock in order to launch new initiatives. It's an ongoing process-not something you do just once.
Creating Your Milestone Chart & Funding Requirements
The key is to first create your detailed risk mitigating milestone chart. Not only is this helpful for funding, but it will serve as a great "To Do" list for you and make sure you continue to achieve goals each day, week and month that progress your business.
Shoot for listing approximately six big milestones to achieve in the next year, five milestones to achieve next year, and so on for up to 5 years (so include two milestones to achieve in year 5). And alongside the milestones, include the time (expected completion date) and the amount of funding you will need to attain them.
After you create your milestone chart, you need to prioritize. Determine the milestones that you absolutely must accomplish with the initial funding. Ideally, these milestones will get you to point where you are generating revenues (if you are not already generating revenues). This is because the ability to generate revenues significantly reduces the risk of your venture; as it proves to lenders and investors that customers want what you are offering.
By setting up your milestones, you will figure out what you can accomplish for less money. And the fact is, the less money you need to raise, the easier it generally is to raise it (mainly because the easiest to raise money sources offer lower dollar amounts).
The other good news is that if you raise less money now, you will give up less equity and incur less debt, which will eventually lead to more dollars in your pocket.
Finally, when you eventually raise more money later (in a future funding round), because you have already achieved numerous milestones, you will raise it easier and secure better terms (e.g., higher valuation, lower interest rate, etc.).
It might surprise you what you can accomplish with less money! So write up your list of risk mitigating milestones and determine which must be done now and which can wait for later, focusing first on what is most likely to generate revenues.
Suggested Resource: Want funding for your business? Then check out our Truth About Funding program to learn how you can access the 41 sources of funding available to entrepreneurs like you. Click here to learn more.
Written by Jay Turo on Thursday, March 7, 2013
Last week I flagged the shocking and even depressing statistics that most entrepreneurs - holding constant for socioeconomic factors - make less money, work more hours and suffer more work-related stress - than their employed counterparts.
And when we combine these statistics with those that show a very incredibly low percentage of startups and small businesses ever attaining meaningful profitability, it is remarkable that people ever dream to be entrepreneurs and start businesses at all.
But start them they do!
Quite possibly the most amazing and inspiring number in all of American business is 550,000.
That is the approximate number of new businesses that are started in American each and every month, or more than 6 million per year, or close to 3% of the U.S. adult population.
Now these opposing statistics beg the question, “Why?”
Why would 550,000 people - who statistically are far better educated and wealthier than the population as a whole - engage in behavior that on the surface clearly seems contrary to their self-interest, irrational, and dare I say, delusional?
Well, on the cynical side, many of these brave folks probably think the odds of economic success are greater than they really are. And even if they know the odds, they think that they don’t apply to them.
On the slightly less cynical but still not totally inspiring side, one could argue that businesses are started out of boredom – out of the need for that “action rush” that in the realm of business only an entrepreneurial endeavor can truly provide.
Inspirationally, many believe like I do that entrepreneurship is the greatest force for positive change in the world today, and they start and grow businesses to be positive change agents, on levels big and small.
They start restaurants to create and share beautiful food, service, and atmosphere.
They open day care facilities to provide quality, spirited child care for working families.
They start creative agencies – graphic design, public relation, web development firms, and the like to leverage their business and creative talent to its most effective end.
And they start drug development and medical device companies to help people live longer, healthier lives.
And thousands of types and forms and sizes of business in between, led by entrepreneurs with aspirations big and small, driven by motivations both pedestrian and soaring.
But at the heart of all of their reasons for starting businesses, at least of the ones that survive, is that often begrudged but really most inspiring motivation of them all.
They start businesses to make a lot of money.
Now the key word in that sentence is make – as in bringing into existence through creativity, effort, and as often as not more than a little serendipity and luck, something that did not exist beforehand.
Making money is the difference between Mo Ibrahim becoming a billionaire through bringing inexpensive mobile telecommunications to millions in Africa and Mo Gaddafi stealing billions of his people’s money at the point of a gun.
It is the difference between Steve Jobs and Apple creating $325 billion in market capitalization (and untold additional hundreds of billions in economic and multiplier effect), and governmental “who you know” redistribution and inefficient waste of this created wealth.
Now often, for the entrepreneur and those that back them, the touching of this money often takes many years, even decades, of under-paid, hard, and often thankless work, before a cash windfall in the form of a business sale or a public offering.
But that is a story for another day.
For now, find those that can truly make money, encourage and back them, and you and the world will get to a better place.
Written by Dave Lavinsky on Tuesday, March 5, 2013
In my last essay, I discussed the three benefits of using outsourced workers (cost savings, reducing overhead, getting work done while you sleep). And then I gave you tips for finding and selecting the right outsourced provides.
In this essay, I'll lay out my system for rapidly training these new hires (it also works for new in-house and/or full-time hires).
Before you start the training
Before you begin their training, take a few minutes to break down the work to be completed into a list of steps, or even a process map (a simple, visual flow chart of how the process will go). As a manager, your job is to create these processes and coach your team to implement them and report the results back to you.
If something goes wrong, it's either because they did not follow the process correctly as you spelled it out -- or there is something less effective about your process to correct. Listing all the steps and putting them in the right order will also clarify your thoughts and give you a guide or agenda to follow when training them.
The simple system for rapid training
Step #1: Explain
This is where you take the time to describe the work to your virtual assistant or outsourced person. Show them the list of action items or an overview of the process. A written summary coupled with a verbal explanation is usually the most thorough way to do this.
Tell them what the task is called (for easy reference later on), what it accomplishes, why it is
important, who will need to do it and when, and how it is to be done, step by step. The
more details you can give, the better, because they will grow to understand you and
your company goals and will be able to handle more things for you later on without
having to ask a ton of questions.
Also, understanding your business model, your customers, and your purpose will help them make more informed decisions along the way -- subtle differences that can turn good work into greatness.
Step #2: Demonstrate
People learn better by seeing an example of how something is supposed to be done. This will teach them better than the longest explanation. Demonstrations can be done in different ways:
1. In person. Example: Demonstrating how to fold and stuff envelopes.
2. On the phone, via webinar. Via phone or webinar you can tell or show a virtual person how to do something.
3. Via video. if you show someone something via a webinar, record the webinar. That way, the next time you need to train someone, they can simply watch the video rather than requiring your time to train them.
4. Hypotheticals. In this case, you would give a few "if-then" scenarios to your hire and tell them what to do or say depending on what happens.
For example, you might write in an email to your hire, "Call Joe Contractor and ask him if the work is about 2/3rds of the way done. If it is, ask him for a range of days and times for me to meet him to do a walkthrough. If not, ask him when he expects it to be and call him back that day."
Step #3: Practice
After learning how to do a task, the hire must then attempt it on their own under your supervision. It's important that you monitor their work for a while until you are certain that it is being done correctly. Otherwise, neither of you will know if it needs improvement.
Find a way to watch them in action or to see the results of their actions. This might be hard for some of you, but let them fail. It is least distracting and demotivating for you to observe the entire process and save your comments for the end.
The whole point of training is for them to get used to the whole process on their own. NOW is the time for them to make mistakes. Hopefully you budgeted enough time for them to practice things a few times and get it right before crunch time.
The way to monitor them could be watching them in person, listening on the phone, or reviewing a finished product of some sort, like a design or written work.
Step #4: Feedback (Positive and Negative)
This is the part of training where you help them to improve at their job by pointing out things that could be done differently or better. I prefer to use the "Feedback Sandwich" approach, in which you tell them what they could do better in between two compliments so it's not harsh or overly negative.
For example, you could say:
(Compliment) "Julie, this mail looks really good. You somehow found a way to fold the
letters in just the right places so that they fit inside an envelope perfectly."
(Critique) "You know, I read once that the better lined up the stamp is on the front of the envelope, the more people respond. Would you mind making sure they are all put on
straight from now on?"
(Compliment) "Thank you so much. That, plus the handwritten address, which looks so
personalized I'd think it was coming from my mother, makes these mailers perfect."
Once you have given your feedback, the training cycle begins all over again. Your feedback
is their new explanation (Step #1). You may demonstrate it again if you feel you need to (Step #2), and have them practice it again (Step #3), until you decide that the results are good enough.
A Trained Assassin
When you have decided that your hire is capable of performing the task consistently on their own, they are now officially trained. Be sure to congratulate them on learning the task, and thank them for making your life easier.
And lastly, this rapid training system is not just something to use when they are first hired.
If at any time their performance falls behind, or you want to help them take one of their skill sets to the next level, or you think of something new for them to do, just follow these 4 simple steps again.
Suggested Resource: If you don't outsource, you can't compete. The math is simple...if your competitors are outsourcing and only pay $X to complete a task, and you pay $3X, $5X or $10X, your competitors will eat your lunch. You simply must outsource to stay competitive. Outsource the right way using Growthink's Outsourcing Formula. Learn more by clicking here.
Written by Jay Turo on Monday, March 4, 2013
This past weekend, I had the privilege of moderating a planning session for the leaders of some of the world's best known and most successful collections agencies, collectively responsible for billions of dollars of receivable's debt.
They traveled from around the world to progress toward a common end - making doing business globally as credit safe as doing so close to home.
This is of course extremely challenging, and in a world of exploding international trade, also an enormous opportunity.
So for 40 hours over three days together we grappled long and hard with the various aspects of the business problem - from the right SaaS technology to use to fee-sharing to compliance to channel and end-user marketing.
It was hard. It was draining. It was often contentious.
It was time away from the pressing and equally vexing concerns of everyday work.
AND it was glorious.
Now, if you thought that in a hard bitten business like collections - and at a meeting attended by 25 year+ industry veterans - that there wouldn’t be many moments of idealism, well you would be mistaken.
No, there were a LOT of those “aha” moments - always the best and most inspirational evidence that whole new worlds of strategic and tactical possibility had been discovered.
For sure, post-meeting the participants have now traveled back to their home markets and are faced with the hard challenges of tactical implementation and the inexorable pull of business as usual.
And while meeting for 40+ hours, and traveling to them from around the world IS hard and painful…
…and while we all love our e-mail, our text messaging, our web conferencing, our video hangouts…
…There is just no substitute for personal contact.
And there is NO faster, better, and yes cheaper way to arrive at great and actionable business ideas.
So for a moment, let’s all put down the phone, turn off the e-mail, stop the texting.
And fly, drive, run, walk, crawl to that conference, that party, that face-to-face get together.
When done right, it is always time well spent, and in its aggregate creates both businesses well run and lives well lived.
Written by Dave Lavinsky on Saturday, March 2, 2013
There are three main benefits I typically derive from outsourcing:
1. Cost savings. I'm often able to pay less for jobs I outsource, particularly if I outsource them to people in lower cost-of-living states or countries.
2. Reduce overhead. Usually I outsource projects that are not full-time or that I am able to easily stop if they aren't working out as planned. This reduces my overhead (and allows me to scale down as needed) since unlike a full-time employee, the outsourced people are not a fixed expense.
3. Supplemental work at night-time hours. When you outsource overseas, it often provides great timing of workflow. For instance, in one company I ran, I would create tasks during the day, give them to my outsourced team in India, and they would be done by the time I arrived in the office the next morning.
However, for outsourcing to work, you need to find the most qualified people to which you outsource.
The key to this is to start by getting the largest pool of qualified outsourced providers to apply for the project you need accomplished. Because you want to have as many people as possible to choose from.
Even if you only hire one, you can go back and contact the same pool of talent for future projects. Consider applicants as being in your "rolodex" of people to call.
To help you do this well, here are some tips to consider when finding and judging outsourced people to complete your projects.
Choose Your Outsourcing Platform
There are many sites in which you can find outsourced providers for the tasks you need done. Among many others, these include Craigslist, ODesk.com, Guru.com, Elance.com and 99designs. Some of these sites focus on certain types of outsourced projects like technology and design, while others allow you to find people for all types of tasks.
The process of posting a project is very similar on each of these sites, but there are also minor differences to get acquainted with as you go -- worry about those later and follow these basic steps.
Create a Clear Project Title
Include the work to be done, on what, and in what industry. For example, "Help Making Ebook" could mean anything from research to writing to editing to cover design. Compare that to "Writing 10,000 Word Real Estate Ebook." The latter will be more likely to catch the eye of writers and providers with real estate knowledge.
Create a Clear Project Description
This sounds simple enough, but you should try to answer as many possible questions as you can, which means addressing certain areas, like:
- The scope of the project. In the above example, requiring a 10,000-word Ebook to be written vs. 20,000 words would be helpful information for applicants to know. This helps them estimate the time it will take to complete and therefore their bid for the project. If you are paying hourly, it will help prevent misunderstandings later.
- Software needed. Make sure they at least have Microsoft Word and Excel, if that's what you use. Other software is industry-specific, like Adobe Photoshop among graphic designers.
You may or may not know what software is needed for things you don't specialize in, but you will soon enough. All other things equal, choose the person who already has the best software for the job, as you'll get better results.
- Programming languages. Some website projects require that the provider knows certain programming languages besides standard html, such as PHP, AJAX, etc. In these cases, it's better to post "PHP Programmer Needed to..." than just "Programmer." You'll get fewer, but more qualified responses. If you don't know what languages are needed, either ask a friend or do a Google search beforehand, or you could post in the project that you don't know what language is needed, and ask them to make suggestions.
Ideally, you will want to hire people who can educate you, so this sets the tone right from the beginning. I know some people who post $10 projects for 30 minutes of a programmer's time just to answer their questions and learn simple tips and tricks to quickly do yourself without having to hire someone.
- Payment amount. First, decide if you want to pay them by the hour, or for the whole project. There are pros and cons to both. If you estimate that something will take 5-8 hours, going hourly is fine. For work that will take longer than that or that has a higher likelihood of uncertainty, I would try a project-basis.
Sometimes you can't estimate how long something will take-in this case, hire them on an hourly basis for a little while to get started and figure things out. Sometimes applicants will claim that they can't estimate how long it will take, while others can. I would go with people who are able to give you specific information as it shows they have their act together and have done something enough times to know how long it should take.
Often after working on something for a little while, the way ahead becomes much more clear and they can better estimate the remaining hours from there. Sometimes I will hire 2-3 people on an hourly basis to do parts of the same project, and compare their performance to decide who should finish the whole project themselves.
Also, you may not have a clue what something will cost, so make your best guess and let the range of proposed prices confirm this assumption or bring you back to reality. It may surprise you by being higher or lower, on average, than you thought.
- Payment terms. Do not pay more than 50% up front. Rather, you can pay up to 50% up front, but then have milestone payments.
Also, never pay someone the final amount if there is still work left to be done...you may never see it finished if they take off to chase down new work.
- Payment methods. Many of the sites listed above will handle the payment. If they don't, choose the one that feels most comfortable for you, or whichever the providers prefer most.
Upload samples of what you need
You can write 5 paragraphs trying to explain the final product, or you can show them something similar you have done before (or someone else's to model yours after).
Most sites will allow you to upload files to show them what they'll be working with or making. You can also insert links in the project description to files, audios, or videos showing or explaining things more vividly.
Choose the time period for bidding
You might be given options like 3 days, 5 days, 7 days, 15 days, or 30 days to accept bids. I would lean towards giving a longer time period, unless the urgency of your project means that you don't have as much time to wait.
But basically, the more time that providers have to find and respond to your project, the more qualified applicants you'll have to choose from.
Also, some of the best providers are also the busiest, so by giving a longer time frame to respond you are more likely to catch them when they're available.
This is not an exhaustive list, but covers the most important elements of a good project posting-one that will put you in a position of strength and cut down your odds of a bad experience. Cover these bases and you'll have more people applying than you can sort through.
Which then leads to the final phase: judging your applicants. In judging which applicant(s) to choose for your project, consider:
1) How they responded to your project request: were they articulate? Did their comments and/or questions make sense?
2) Their portfolio: do they have a website which shows their portfolio of work that you can judge? If so, take a close look.
3) Their ratings. On most of the outsourcing sites listed above, past clients will rate the outsourced person's work. I never use someone who hasn't completed at least 20 projects and has a rating of 4 stars or above.
Follow this advice and you can find the right outsourcers to help you grow your business and profits.
Suggested Resource: If you don't outsource, you can't compete. The math is simple...if your competitors are outsourcing and only pay $X to complete a task, and you pay $3X, $5X or $10X, your competitors will eat your lunch. You simply must outsource to stay competitive. Outsource the right way using Growthink's Outsourcing Formula. Learn more by clicking here.
Written by Dave Lavinsky on Thursday, February 28, 2013
"Knowledge is power." This is a well known saying commonly attributed to Sir Francis Bacon, who was an English philosopher, statesman, scientist and author.
In business, knowledge certainly is power. For example, if you knew where your market was heading, you would have a massive leg up on your competition.
So, how can you gain more knowledge to outsmart your competition? Here are 7 ways.
1. Learn from your customers. Marketing consultant Jay Abraham once said, "your customers are geniuses; they know exactly what they want."
Because your customers know what they want, speak to them. And don't just speak to your current customers, but speak to your competitors' customers too. Learn to listen deeply to your customers and to ask probing questions. And when you hear consistent feedback (and not just one customer saying something), take action.
2. Learn from your competitors. Watch your competitors closely and learn from them. What do they seem to be doing well, and how can you better emulate them in this respect? What are they doing poorly that you can capitalize on?
Importantly, don't just copy your competitors until you know that what they are doing works. For example, if a competitor starts offering a 25% off discount for new customers, don't copy them right away. Rather, wait and see what happens. If the competitor stops offering the discount quickly, then the promotion probably didn't work. Conversely, if the competitor is still offering the discount 6 months later, it probably did work. Only copy the competitor's "winners."
Also try to figure out what competitors are saying about you. And, if criticism from a competitor gets back to you, don't become defense or dismiss it casually. Rather, engage critically with it. The criticism may prove to be quite helpful. A competitor may be aware of your weaknesses in a way a friend or customer cannot be. So don't disregard negative feedback, but rather consider it carefully, and take corrective action as appropriate.
3. Learn from your employees. Oftentimes your employees have a lot more information than you do. They are the ones who are interacting with customers, and they are the ones that are building your products and providing your services.
Speak to your employees and get their feedback, ideas and suggestions. As an example, nearly all new innovation at Toyota comes from front-line employees. Encourage your employees to come up with ideas and give you feedback. They may also alert you to changes in the marketplace and customer behavior that you need to understand in order to adapt.
4. Learn from your community. This is particularly true for local businesses. Find out what is going on in your community. For example, if your community is heavily involved in recycling, or if the local high school football team just won a championship, then you need to know about it since these are things your community cares about. Importantly, leverage this information. In these two examples, you could offer a sale related to the football team's victory. Or post signs explaining how your business recycles. These actions would position you as part of the community and cause customers to flock to your business.
5. Learn from coaches and consultants. The right coach and/or consultant will have lots of knowledge that you don't. They will have worked with other business owners and "been there, done that" - that is, they will have seen challenges and overcome them already. Because you won't have to "reinvent the wheel," these paid experts can allow you to make the right decisions, avoid mistakes, and grow more quickly. Plus, paid experts can give your business a reality check and keep you focused and accountable.
6. Learn from mentors. The right mentor serves a similar function as a paid coach and/or consultant in that they have experience, expertise and connections that allow you to avoid mistakes and grow your business more quickly. The challenge is finding the right mentor, and setting up the appropriate structure to get ongoing feedback (this naturally happens when you pay a coach or consultant).
7. Learn from other business owners. In previous articles, I have mentioned the massive power of mastermind groups. Mastermind groups are groups of business owners who work together to grow everyone's business. Mastermind groups are incredibly powerful since other members of the group will have already overcome the challenges you face, and thus can give you the answers you need.
Likewise, in many cases, skills and knowledge that have taken other business owners months or years to learn can be transferred to you in minutes. So, you gain massive knowledge quickly, and gain a support group that all shares the common goal of building a great company.
Knowledge certainly is power. Leverage these seven ways to gain knowledge, and you will be able to outsmart and dominate your competition.
Written by Dave Lavinsky on Tuesday, February 26, 2013
Becoming a millionaire entrepreneur is possible, and many people have shown us how they managed to quickly build empires.
If you are an entrepreneur and are looking for inspiration, then these 5 modern success stories will certainly motivate you.
1. Sara Blakely
Written by Jay Turo on Monday, February 25, 2013
So much of the challenge that both entrepreneurs and investors face in earning return on time and capital is driven by the low growth rate of the economy as a whole.
U.S. GNP growth, after averaging 3.6% annually for the period 1982-1999, has since 2000 slowed to a mere 1.8%.
Not coincidentally, in that same period stock market returns have declined dramatically.
From averaging over a 17% annual return rate in the '80s and '90s, most of the major indices have painfully dwelled in negative return territory since.
And to pile on the misery, with budget deficits exploding from 58% of GNP in 2002 to over 100% today, all of the "free" money poured into the system over the past decade has not had any kind of meaningful stimulative effect.
But it is going to be okay.
Why? Well, because as business people and as investors we do not work in the "macro", but rather in the far more confined - and controllable - dimensions of our particular “micro.”
And here, we can escape from the “tyranny of the average.”
How? Well by simply exhibiting that most blessed of American freedoms – individual action.
Here are actions that smart entrepreneurs and investors can take today to “break out” and attain well above average results and returns:
Think and Act Globally. The developing world continues to maintain rates of growth and virgin and nascent market opportunities probably never again to be seen again nearer to home.
How about China, even with its recent slow-down, still averaging well over 8% growth?
Or India, at 6%?
Not your cup of tea? Well how about Mexico, Brazil and South Korea all growing faster than 4%?
And don’t tell me that you can’t compete there - via technology these markets are more accessible to small and medium-sized US businesses and investors than ever.
Think Sector. The overall economy may be flat, but there are sectors within it that are booming.
Like software, growing close to 6% annually.
Or how about the entertainment industry, growing at 5.5%?
Even seemingly mature industries, like transportation & food services, are growing at close to 5%.
Think Inefficiency. Remember that to make a small fortune - and a big difference - we do not need to solve the challenges and difficulties of the overall economy.
No, we just need to find those little market and competitive inefficiencies, those niche needs and wants, those investment strategies born and won far from Wall Street.
Now, when tens of thousands us follow our particular rainbows toward our particular pots of gold the byproduct of all of this thoughtful, opportunistic, and individual action…
…is that yes collectively we all do win.
Written by Dave Lavinsky on Saturday, February 23, 2013
For the past 5 years, I have been part of several mastermind groups that have helped me dramatically grow several of my own businesses.
Below I will explain to you what mastermind groups are and how they can benefit you and your business.
What is a Mastermind Group?
Written by Dave Lavinsky on Thursday, February 21, 2013
As you may recall from last year, the Jumpstart Our Business Startups Act (called the JOBS Act) was passed and signed by President Obama in April, 2012.
The JOBS Act makes equity-based crowdfunding much easier
The JOBS Act makes it possible to raise funds from investors and donors through certain crowdfunding sites in exchange for equity in your company.
This was supposed to start on January 1st 2013. (more on this below).
The key to the JOBS Act is this: it opens up more possibilities in equity funding without the tedious requirements to register your funding as a public offering with the Securities & Exchange Commission (SEC).
If you have tried to raise funds in the past by going the public offering route, you'll know that it's expensive. Being able to bypass all that is huge, especially if you are raising smaller amounts of funding that don't justify such expenses.
The passing of the JOBS Act also means you won't have to seek out accredited investors specifically (people with incomes of $200,000 or more, or a net worth of $1,000,000 or more-not including their residence). Rather, you will be able to get funding from people of all income ranges, which makes the pool of potential investors MUCH bigger.
Imagine how many regular people are out there, who might want to reallocate some of the funds they already have invested in savings, stocks, mutual funds, or other investments that aren't paying so well at present. In the future, funding other businesses might be a much more common way to diversify your capital-that anyone can do and not just accredited investors. Even you!
So, what's the latest?
As mentioned above, equity based crowdfunding was supposed to go live on January 1st 2013. This was predicated on the SEC writing the crowdfunding regulations by December 31 2012 like they were supposed to.
But this never happened. The two key issues regarding why this didn't happen were: 1) a lack of consensus within the SEC decision-makers about the regulations, and 2) the recent resignation of the former chair of the SEC.
Both of these issues are expected to be resolved with the recent appointment of Mary Jo White to head the SEC. White is one serious woman - her career includes serving as the New York prosecutor who brought down John Gotti and put many terrorists in jail.
So, it is expected that within the next 60 to 90 days that Mary Jo White will take the helm and help the SEC write the regulations that make equity based crowdfunding legal in the United States.
How can you prepare for this now?
If you want to raise equity capital later this year and beyond, here's a quick list of things you can do now to be ready when the time comes:
Broaden your network
One advantage crowdfunding sites offer you is having access to more investors and donors than there already are in your personal network. These sites generate their own traffic, and a percentage of your funding will come from people searching those sites or stumbling across it.
As it turns out, enough projects have been successfully funded (using the donation-based Crowdfunding model, not the equity-based crowdfunding model) for experts to be able to look back and say that your project is much more likely to be successful if the first quarter to third of the funding comes from your existing network first. Reason being, they are the ones most likely to believe in and trust you already, and strangers want to see some social proof and credibility in advance before they jump on board.
Deepen your relationships
Do this for the same reason I mentioned above-to get the ball rolling on your funding from your existing contacts. So in the coming months, you should be out seeking new relationships and strengthening the ones you have-specifically with those who are more likely candidates for funding you, or those who are in a position to spread the word for you.
You don't even have to mention funding during this time. Just spend the time necessary to confirm that they have the means and would be interested in your project, while at the same time showing your willingness to serve them and build trust and experience together.
If you're already in business, keep growing it
As with any kind of funding, you will be in a much stronger position to ask for funds if you can demonstrate success in the past. You will have more data available to work into your plan and forecast. And, people want prefer to invest in something that looks like a sure thing-with the least uncertainty. So keep doing what you're doing and you'll be able to show prospective investors your first-half 2013 financial statements and smile.
Work on your business plan
Also, as always, have a solid plan for how much funding you need, how you will spend it, and what effects it will have on your operations and revenues. People want to lend to someone who has thought things through and looks less likely to run into unforeseen problems-especially strangers online! Remember that.
It will also take some time to craft your presentation and pitch. If you plan on using a slideshow or video of some kind (or even just writing it out on your project's page), it will take some time to put that together in advance. But, it's something you can be doing now.
So there it is...equity-based crowdfunding is one more way to get the funds you need to launch or grow your business. Stay tuned to the developments (you'll hear them from me) and prepare for funding like you normally would. This might just be the key to your company's growth!
Suggested Resource: Do you want Crowdfunding? If so, don't try to raise it from scratch -- the 14-step blueprint already exists. Get the Crowdfunding blueprint here.