An effective marketing plan is necessary to grow your business. Among other things, the right marketing plan details your target customers, your unique selling proposition (USP), and your pricing strategy.
And importantly, your marketing plan covers the "channels" you will use to get new customers (known as your "promotions strategy"). These channels include, among others:
While most of these channels require advertising dollars, there are some additional strategies you can employ that are low or no cost. Four such strategies are detailed below.
1. Get To Know Your Competitors
Regardless of what you're selling or the services you provide, you must know how your competitors are doing it. Why? Simple. Because you want to do it better-or at least not get left behind!
Visit their brick and mortar stores to see what they are doing differently this year. And/or take a real close look at their websites and blogs to see what they're doing and the customers they're serving.
Sneaky Tip: When visiting a competitor's blog, make sure to leave high-quality comments on a number of posts. By doing this, you can also mention your website directly or perhaps just indirectly through the Name and Website fields (they turn into a link when your comment is posted).
Once your comment is approved, everyone who sees your comment will be able to click on your link and visit your website.
2. Create Some YouTube Videos
I recently met with representatives from Google who presented some very interesting information to me. Including the fact that more and more consumers and businesses are relying on video in their decision-making process.
Specifically, more and more people are searching YouTube for videos when thinking about making a purchase. And they showed me specific research stating that "1 in 3 small businesses purchased a product or service as a result of watching the related video."
Which means that you need to create videos.
Importantly, these videos can also bring you a flood of new customers.
Here's an example. I created a video entitled "How to Write an Executive Summary for a Business Plan." On YouTube alone it's been viewed nearly 27,000 times. Here's the link: https://www.youtube.com/watch?v=gLAZpFKRgUg
Once again, I haven't shared this video 27,000 times. Rather, people are finding it by searching Google, searching YouTube, social sharing, etc.
3. Use An Effective LOCAL Search Engine Optimization (SEO) Strategy
An effective search engine optimization strategy will get your website on a top position in the search results pages of all the major search engines, such as Google, Yahoo, and Bing.
While ranking at the top of the search engines on generic phrases (like "business plan") is hard, ranking on these phrases locally is a lot easier.
Essentially, all you need to do is choose the keyword or phrase that best describes your business, add your city or area name, and use it in texts that you post on your website (e.g., Business Plan Development Chicago IL).
Your keyword or phrase should appear in the URL of your website and it has to show up in its meta description tag. For example, even though we don't have an office in Chicago, IL, this page on the Growthink website ranks near the top of Google's results for searches on "Business Plan Development Chicago IL" - http://www.growthink.com/businessplan/help-center/chicago-illinois-business-plan-writers
4. Write Newsletters And Send Them To Your Contacts
Keeping in touch with your customers is critical if you want your business to blossom. Information is crucial nowadays. Therefore, make sure that you keep your customers informed with regard to your products and services.
Some businesses do it with a print newsletter, which is fine if the business you generate is worth the costs. But an email newsletter is a much less expensive and time-consuming way to start.
Invite people to subscribe by offering a small discount or freebie, if they are willing to provide their e-mail address. After that, any message you send them is free advertising!
This does not mean that you will have to send a weekly newsletter-they might not be that interested. Instead, write a newsletter with the sole purpose of informing your customers about new products you are adding to your current offer.
Make sure that you mention discounts and advantages. Send these newsletters weekly or monthly at first (but it is better to under promise and over deliver). This will show your customers that your business is serious and it will help create a long-lasting relationship with your clientele.
In conclusion, add these 4 strategies to your 2013 marketing plan, and start rapidly growing your business.
Suggested Resource: Growthink's Ultimate Marketing Plan Template allows you to quickly and expertly create your marketing plan. This template includes multiple proven strategies for attracting new customers and dramatically boosting your sales and profits. Click here to learn more.
One of my friends works for a multi-billion dollar cable company. And his role is extremely interesting. Specifically, he's charged with figuring out what the company needs do to now so that it will be competitive ten years from now.
Imagine that? 10-year planning. For most businesses, it's inconceivable to do this. But for a cable company, it could take years to implement changes such as installing cables to hundreds of thousands of homes. So, he spends his days researching, analyzing and theorizing over what the world might look like in 10 years and what the company needs to do today to start preparing for it.
And I'd like to think that he, and perhaps those before him, have done a great job at this. Because while 10 years ago I only use my cable company for television service, today I pay my cable company for television, internet access and phone service.
Break-Even Thinking Doesn't Work
But what about your business? Do you need to plan 10 years into the future? The short answer is "no." But it's important to point out that any planning is significantly better than no planning.
In fact, for most small businesses, planning generally tends to be more along the lines of thinking "what do I have to do to have enough revenue to pay the bills for the next month?" Missing from this thinking are the critical long-term decisions and directions on how to grow the business, increase its revenue, and expand market share.
And what inevitably happens is this: if your immediate focus is just trying to break even, your business often ends up just struggling rather than growing.
The solution is to develop a five-year plan, and using it to guide daily operations.
How It Works
A five-year plan is not a set of financial pro-forma statements and twenty pages of text and history on your company. Rather it must incorporate real thinking about 1) what goals you want your company to achieve, and 2) what goals every key division of your company must achieve.
Specifically, you must document the revenues and profits your company seeks to achieve in 5 years and then set similar goals (with different metrics as appropriate) for each operational area (e.g., marketing, fulfillment, etc.).
This in turn becomes the basis of the roadmap you'll use to grow our organization.
Use The Map
Ironically, after putting considerable time and effort into building a 5-year strategic plan, many business owners and managers never look at it again.
To avoid this, work backwards and document shorter term goals. Let me explain. Now that you know what you need to achieve within 5 years, determine what you need to achieve this year in order to make solid progress towards your 5 year goal.
Next, figure out what you must achieve this quarter to progress to your annual goal. You can break this down even further to figure out what you must accomplish this month to reach your quarterly goal.
This process allows you to set monthly goals that progress your business. Document these goals and share them with your team so you can accomplish them.
And importantly, use these short-term and long-term goals in your daily decision making. For example, is forging a relationship with a new partner in line with your goals? Or is it another distraction that will take time and prevent you from reaching them?
Also, use the shorter-term goals to measure your success. Are you meeting revenue goals? Do you have the amount of clients you projected for this time of the year? Use objective measurements that will not allow you to fudge your results. Your shorter-term goals give you a black and white, hopefully not red, assessment of where you stand in accordance to your goals.
Keeping your five-year plan alive is like having an up-to-date, accurate map of a foreign city when first walking its streets. It allows you to not just think about breaking even, but to reach specific performance targets and goals.
When people have a clear idea what to strive for and how to get there, even when challenging, they perform better. That translates to improved operations which also eventually improves revenues and profits for your company.
A five-year plan and periodic short-term goals also does away with complacency. When a business is in the "break-even" mode, it's only thinking about the immediate demands, never pushing to do more than just what's needed to meet the given threshold. Processes become routine and complacency sets in.
Your 5-Year Plan Must Be Updated
It's important to remember, however, that your five-year plan needs to be updated regularly. Markets, environments, customers and regulations change over time, all of which have an impact on a business and its profit margins. For example, the recent healthcare laws enacted by the federal government impose new health plan requirements on businesses of a certain size. Clearly, businesses did not consider this regulatory change in their five-year plans back in 2010.
So, update your five-year plan annually to reflect new changes, new ideas and new goals.
Finally, your five-year plan is only as good as the effort you put into it. The components, goals and targets have to be well thought out so as to be realistic and achievable. When you do this, and when you break down your 5 year goals into annual, quarterly and monthly goals, you will know precisely what to do to grow a thriving business. For help with this process, download my strategic planning template.
Last week, my column received quite a reaction as I pointed out how much of a disaster the public equity markets have been these past 14 years.
I shared some key statistics, especially that while from August 1982 to September 1999, the Dow Jones industrial average rose from 777 to 11,078, in comparison since 1999 it has moved only from 11,078 to 13,986 (approximately 25%).
Given that inflation since then has reduced purchasing power by over 37%, the net return for the period has been significantly negative.
To this, a lot of folks came back with basically two questions / comments:
1. Why has this happened?
2. What should we do about it?
Well, first of all with overall GNP growth rate being cut in half, from averaging 3.6% annually from 1982 to 2000 to 1.8% from 2000 - 2013, there is simply less money to go around.
Then, the returns that are to be had…well they have been mostly eaten up by the huge big bank infrastructures built up as trading volumes have increased over twenty-fold since the 1980s.
Sadly, slow overall GNP growth remains our most likely macroeconomic reality, and does anyone really see Wall Street slimming down any time soon?
So what to do about it?
Well, I suggest three prescriptions:
1. Give up on the public markets.
2. Find market inefficiencies.
3. Do it Right.
“Doing it right” should of course be all of our favorite, so on a webinar I will be hosting later this week I will share what I have discovered as to why today’s smart investors avoid the public markets and where, why, and how they invest now, including:
• How many of them no longer invest in “companies,” but rather only in projects
• How they are and how they are NOT planning to utilize the new laws regarding crowdfunding
• How they are utilizing “cross-border” and “in-kind” transactions to shelter returns from Obama era tax increases
• How they limit risk through "Black Swan" portfolio theory and modeling
The last time you needed to drive to a place you had never been before, what did you do?
Did you the load the specific address of your destination into your GPS, determine the best route, and then follow the directions?
Or, did you print out and follow your directions?
Or, did you do the opposite, that is, did you aimlessly follow random roads hoping that eventually you would arrive at your destination?
Sounds crazy, right that someone would consider this? But, that is exactly what millions of business owners do every year and it is the reason that less than 20% of businesses succeed long-term.
Building a successful business is not a collection of random acts of guess work and blind decisions. To realize your dream of a successful business you have your make your destination a part of your current reality.
Know Your Destination
When Alice was in Wonderland she asked the Cheshire Cat which road she should take. He asked her where she was going. Alice replied that she didn't know. Then came the much quoted Cheshire Cat reply of, "Then it doesn't matter which way you go".
That may work very well in fiction or for a day of exploring a new hiking trail. But it doesn't work that well in business. Most business owners don't start a business thinking "Okay, I'm going to sink all my money, time, and effort into this venture, play it by ear, and if I lose all my money that is perfectly okay."
Businesses are typically born out of a goal or a dream, such as "to be the best Italian Restaurant in the Tri-County area and be booked 3 months in advance" or "to grow my consulting business to $2M in revenue by my fifth year in business."
These aspirations and reasons for even starting are also the destination -- and they cannot be forgotten or buried in the frenzy of daily operations.
Your destination must be known and visible every day. It must be at the core of every decision you make.
Large corporations don't have a vision and a mission just as a fad. They have these plastered all over the walls because knowing your destination helps assure you will get there.
The same way you would enter the precise address of your destination on your GPS, so it is in running your business. Know your goals and keep them front and center to make sure you are in route to achieve them.
Importantly, take time to review your business plan or your 5 year strategic plan. What were the main objectives of your business? How do you describe your end-game?
When planning a long road trip, you typically break it down into small pieces. You study the map and learn the paces you will drive through. For example, when going to New York to Las Vegas, you may map stops in Ohio, Missouri, and Colorado. Because you prepared, and know what to expect along the way, and you know that if you see a sign that says "Welcome to North Carolina," you have veered off course.
Marking key places in your road map to business success is equally important. If you determine that for your business to thrive, you need to have 100 new clients by December, then reasonable milestones would be 25 by March, 50 by June, and 75 by the end of September.
By planning milestones in advance, you know whether or not you are on track to meet your goals. If by July you only have 30 new clients, you know you are off track, and need to reconfigure. On the other hand, if you have 80 new clients by August, then you know you are ahead and can consider revising your goal upward.
So review your strategic plan, and then break down your goals into shorter term objectives. Identify specific, objective measurements that you can take at precise intervals and map them out. These milestones can take many forms such as sales, revenue, profit, clients, etc. The important part is that you use quantifiable data that will tell you clearly if you are on track.
Institute Scalable Systems
People, especially business owners, dream of success. They have very vivid visions of the day they will "make it big," but so many are not really prepared for success. Very often a business owner will successfully pitch their product only to have to turn down a lucrative deal because they don't have the production capabilities.
Take the "Wal-Mart Catch." Inventors of new products salivate to have their product on the shelves of every Wal-Mart in the country. However, when Wal-Mart puts in an order, it's not for 100 units. It's for tens of thousands of units. Inventor after inventor has lost their distribution contract because they did not have the systems in place to allow them to quickly scale up their business. They did not have the manufacturing support to produce so many units.
They knew the destination, but were unprepared to arrive.
What is your end state? Do you have the systems in place to support having your dream come true tomorrow? Be prepared. Know exactly what it will take to run your business such as it will be at the end of your 5 year plan, and have all the partnerships, alliances, agreements, channels, support staff, and raw materials identified and ready to access when needed.
If you want outrageous success, you have to be outrageously prepared for it.
Your Destination is Your Reality
Your everyday business operations need to be focused on your destination. When you are driving to the mall, you are driving to the mall. Every turn you take, every road you choose has one purpose, to get you to the mall. The same applies in your business. Every product you manufacture, every service you provide, every relationship you cultivate must align to your target end-state.
Avoid falling into auto-pilot. Actively work toward your "end" every single day. Be conscious of how every sale gets you close to hitting your next milestone.
Carefully measure your progress. If you are off track, don't wallow. Make adjustments and keep moving forward. If you are ahead, pin-point the actions that are giving you an advantage, and do more of that!
Keeping your destination alive and visible in your daily functions will keep it as your current reality and help you prepare for the success that comes with arriving!
And make sure you have a written strategic plan that maps out your end-vision and your periodic goals and milestones. If it's not written down, you can't achieve it. My strategic plan template allows you to quickly and easily get your plan down on paper.
This is a true and pretty ridiculous story that happened to me at my first job. It was about 20 years ago and I was working at a market research firm.
After working in the job for nearly 6 months, I had an idea for a new product. You see, our company had been selling access to a large database of information to our clients. My idea was to better package the information.
Specifically, my idea was to create pre-defined reports from the information that allowed them to access key
pieces of data quickly and easily. This would not only help existing clients, but it would open the door to new clients who only wanted the specific information rather than paying for full database access.
Instead of asking approval to launch the new product, I used my spare time to actually create it. I then showed it to the VP of my division.
So what do you think happened?
I got yelled at.
Seriously, the VP was angry at me. He questioned my immediate boss as to what
I was doing and why I had invested time in creating something new.
Obviously this was not a very entrepreneurial company.
But what I found most interesting about the event was how much face time I
got with the VP.
You see, that VP was what I consider to be a "stealth manager." That is, he pretty
much sat in his office, door closed, day after day after day.
So he really had no idea what everyone was doing. So he didn't know that I created
the new product after hours, and that between 9 and 5, I was accomplishing all the regular tasks assigned to me.
In fact, he didn't know much about anything that was going on.
And the result -- the employees were not inspired. We were not motivated. We lacked a clear vision of what the organization was trying to achieve.
And all this resulted in lackluster performance.
We didn't go out of business. But we certainly weren't growing like gangbusters like we should have been.
Think about your days. Are you a stealth manager? Are there others at your organization who are stealth managers?
Stealth management doesn't work. Effective leaders and managers walk around and speak to their employees. They listen to them. They inspire them. Because effective leaders know that it's the employees who make or break their companies. They (the leaders) are the conductors of the orchestra -- without the players (the employees), there is no music.
Here are 5 things you can do TODAY to quickly break out of the "stealth manager" mode (and make your team more productive).
1. Walk around the office
Simply walk around to see what everyone is up to. Don't make it seem like you're Big Brother checking up on them. But rather, be very casual about it (the next points will give you some talking points to help with this).
2. Ask people what they are working on
Ask people what they are working on, and then really listen to their answers. Ask them why they are completing a task a certain way, and as appropriate, suggest another way they may accomplish it. Not only will they appreciate this mentorship, but you could improve their performance.
3. Tell someone/several people they're doing a good job
Tell at least one person that they're doing a good job. Let them know you found real value in something they accomplished recently.
4. Buy cookies
I don't know many people who don't like cookies. Come back from lunch with cookies, and either hand them out or put them in a main area. In either case, let everyone know that you bought them "just because." Even those on a diet who refrain from eating them will appreciate the gesture.
5. Picture each of your team members as they looked when they were toddlers
This will force you to smile when you see them. And that smile alone will brighten their day.
Great companies are not built by one entrepreneur. They are built by entrepreneurs who inspire their employees to accomplish great things. Make sure you keep this top-of-mind, since if your employees don't succeed, neither can you.
The muted reaction to the major U.S. indices approaching all-times highs this past week felt a bit off for those that remember a time when folks that made their living recommending stocks were held in an almost mystical regard.
Whether they be Wall Street investment analysts, venture capitalists, or even plain old stockbrokers, the bull markets of the 80s and 90s raised all boats and reputations.
Take a look at the average annual returns of the Dow Jones Industrial Average from 1982 to 1989:
And in the 90’s, the good times continued to roll - with the Dow skyrocketing from 2800 at the start of 1990 to over 11,000 by September 1999.
Now THAT was a bull market.
Since then, not so much.
Think about it, on an inflation-adjusted basis the return of all major US stock indices over the past fourteen years (1999 – 2013) has actually been negative.
And it gets worse.
Historically low interest and inflation rates - combined with massive and seemingly permanent federal budget deficits - have given the bond and money markets an even less appealing combination of low return and systemic risk.
And to top it all off, how about governmental policy and tone that if not outright hostile to the plight of the equity investor, is at its best supremely indifferent to it?
Yes, it is enough to cause despair in those that still believe that well-functioning equity markets are at the heart of a vibrant and growing economy.
But all is not lost.
You see, in the mist of all this malaise over the last 10-15 years, some investors have been making money.
Who Are They?
Now who these folks are and how they invest is something that I have dedicated a large part of my professional life to understanding and replicating.
And starting this Thursday, I am going to share what I have discovered.
The lifecycle of most businesses from the owner's perspective is generally the same. First, you start or buy the business. Then, you grow the business. And finally, at some point, you exit the business.
During these second and third phases the differences between higher quality and lower quality entrepreneurs is really apparent. Specifically, the best entrepreneurs are able to maximize the value of their businesses and exit them at a price substantially greater than the price they paid to acquire or start the business.
So, what do these entrepreneurs do that increases the value of their businesses to themselves and potential acquirers. Here are the eight most common things they do.
1. They position their companies in a 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.
2. They coach their teams to run the business without them
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.
3. They 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.
4. They make sure their businesses are 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.
5. They maximize their revenues
This one's self-evident, but deserves to be repeated. Make sure you leverage the 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.
6. They 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.
7. They keep great records
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.
8. They 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' 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.
This weekend I had the very good fortune to attend Ryan Deis and Perry Belcher's Traffic and Conversion Summit in downtown San Francisco.
Headlined by speakers including Guy Kawasaki and William Shatner, it was an awesome gathering of 2,000+ of the best, brightest, and most accomplished from the worlds of online marketing and sales.
“Aha” moments were aplenty for all who made the effort to attend. Here were a few of mine:
These are the Worst AND the Best of Times for New Client Acquisition.
To large part because of gatherings like this - where the best SEO, SEM / PPC, landing page, copy-writing, and e-mail marketing strategies, tactics, and techniques are shared and then used (and in volume) by creative and aggressive marketers worldwide - it is more challenging than ever to attract new customers online.
Today’s online buyers have developed a killer combination of hardened skepticism AND sky high expectations as to pricing, product and service features and benefits, and to performance guarantees.
Now for the ambitious online seller this represents not just a great challenge, but an incredible opportunity as well.
You see, while these expectations have driven up customer acquisition costs, they have also driven the cost of a competitor acquiring that customer away from you even higher.
Now, this is where most companies who sell online get off track.
The very nature of the web - with its seductive ease of marketing to prospective customers worldwide - often causes the very dangerous myopia of neglecting those so good and honorable folks that are your customers now.
It is a bit funny that this was my big "aha" moment from a conference gathering of the some of the world’s biggest, baddest, and most aggressive online marketers.
And this led to my second aha.
The truth is already out there.
In this brave new world of ours where tens of hundreds of thousands of online businesses worldwide put their best stuff online for all the world to see…
…that imitation is not just the highest form of flattery, but it is great business strategy as well.
Now yes, what to do with all of this stuff can often feel overwhelming.
And this is where events like the Traffic and Conversion Summit are so valuable.
Ryan and Perry and their merry band curate and interpret this global treasure trove of strategies, techniques, and tactics for you.
AND they give you a framework for how to do so yourself.
And finally, the energy one draws from a gathering of 2,000+ of decidedly private sector, decidedly ambitious Internet entrepreneurs and executives…
...animates in one the energy and inspiration to take all of this knowledge and translate it into that most precious of all business assets.
I usually hesitate to analogize from the world of sports that of business.
In contrary to many motivational videos, these are two very different realms of human endeavor and there is not a clear line between the attributes and mindsets that drive success in one as compared to the other.
This past week, however, I was moved by the stories and coverage of Baltimore Ravens linebacker Ray Lewis’ retirement after 17 seasons of professional football, and those of Alabama head football coach Nick Saban winning his third BCS national championship in four years.
Watching the various retrospectives and tributes to Lewis, the overriding takeaway was how his "always on” persona inspires those around him with feelings of action, of possibility, and of strong positive intent.
This kind of energy and presence is indispensable in very many aspects of business, but none so obviously more so than in sales and presentation.
Especially in this technologically distracted world of ours, the ability to consistently project high positive emotion is a key success factor and competitive advantage.
Now, a lucky few of us are blessed with a naturally "high motor" that can go on and on without a lot of maintenance.
But the vast majority of us have to work at it.
To eat, sleep, and exercise right.
And to feed one's mind and spirit with equally nutritional fare.
Now, when it comes working at it, Nick Saban is as great a role model as he is a legendary football coach.
While for some it was a bit off-putting to hear - just minutes after his team won the championship - - the notoriously "always on-message" coach already start talking about next season, for me it was refreshing.
Because in Nick Sabin’s world it is the work itself - as opposed to any glory or accolades or money that might come from it - that is the real reward.
And that as this work and its example catalyzes the success and growth of others, it is the satisfaction of so doing that is far sweeter and more gratifying than any personal triumph or celebration could ever be.
Ray Lewis. Nick Sabin.
Strong role models not because of their far greater number of wins than losses but because, in the words of Lewis himself, wins come and go but it is effort that is eternal.
And this effort, when taken to its methodical extreme, results in a life and career like that of Nick Saban's.
Which, of course, leads to triumphs and transformations and joys for millions to experience.
Just ask any Alabama football fan if you have any doubt about that.
Venture capitalists (VCs), unlike angel investors, are professional investors that invest other people's money. Similar to angel investors, their goal is to earn a solid return on this money. In fact, VCs are judged and compensated by the performance of their investments. As a result, they are extremely rigorous in their investment decision-making process.
Here's how VCs earn returns for their investors:
1. Finding high growth companies
2. Making investments in them at favorable terms
3. Guiding and nurturing them
4. Enacting a liquidity event. This typically occurs by selling the company or taking it public.
VCs swing for the fences and only invest in companies they think can give them a "10X" return or 10 times their money back. This is because even with all their relevant experience, the average venture capital firm will lose money on half the companies they invest in and only break even on a third. Where VCs make their money is on the approximately 20% of companies they invest in that see explosive growth and provide remarkable returns of 10 times or more on their investment.
So, the first criteria when seeking venture capital is that you can offer the potential of a 10X return to them.
The second criterion is that is your company must have significant market potential of $50 million, $100 million or more. Now, you might think that if a venture capitalist invested $100K in your company and got back $1 million (a 10X return) that they would be happy. This is not the case. This is because venture capitalists like to be "hands on" on their investments and help the companies they fund (called "portfolio companies"). And since each partner in the venture capital firm can only nurture so many portfolio companies, they want to invest in fewer companies, each of which can provide not only a 10X return, but a check of $50 million or more when it reaches liquidity.
To summarize, when approaching venture capitalists, remember the 3 hurdles:
1. Their primary goal is to make significant money from investing in you
2. You need to show them how they can earn a 10X return
3. You need to show them how your company can eventually be valued at $50 million or more
Now, if you meet these criteria, you should be a good fit for venture capital. But, raising this type of funding it is virtually impossible if you don't know what you're doing and haven't done it before. So follow this plan:
1. Develop a list of VC firms.
Start by creating a list of venture capital firms.
2. Narrow your list.
Each venture capital firm invests based on particular characteristics (e.g., some only invest in software firms), so you need to make sure your list only includes VCs that are interested in your type of venture.
3. Make sure the VC is active.
Many VC firms that have websites aren't active. That is, they aren't making new investments. You don't want to waste your time contacting and talking with these firms.
4. Find the appropriate person to contact.
This is critical. Venture capital firms are comprised of individual partners and associates. If you contact the wrong one, you'll be dead in the water.
5. Send the VC partner or associate a "teaser" email.
You don't want to send the VC a full business plan or executive summary initially. Rather, you need to send them a "teaser" email to see if they are interested. You don't want to "over shop" your deal.
Once the VC "bites" on your teaser email, the next step is generally to send them your business plan. Following that you'll do an in-person presentation(s), receive and negotiate a term sheet, and then sign a formal agreement and receive your funding check.
The venture capital raising process is a lot of work, but once you receive their multi-million check with which you can dramatically grow your company, you'll agree it's worth the effort.
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 presentations, and how to secure your financing. This video explains more.