Written by Dave Lavinsky on Tuesday, June 5, 2012
Hopefully you collect your customers' (and prospective customers') email address so you can send them tips, announcements, and special offers. Because email marketing is a highly effective way to stay in touch with your customers and generate revenues.
Depending on what emails you send, they can lead to customers calling you, buying something online from you, walking into your store, telling a friend about you, becoming more interested in purchasing from you, etc.
But, most entrepreneurs don't achieve these results. Why? Because they don't methodically track and improve their email marketing tactics.
Rather, to succeed, you must track certain key metrics and modify your strategies based on what you learn. Fortunately, tracking these metrics is simple using most email delivery/management services like ConstantContact, iContact, aWeber, etc. These services all have a tracking section where you can look at previous emails to see their delivery rates, open rates, and clickthrough rates.
Here are certain elements you must track.
You might think that if you have 1,000 people's email addresses and press "Send," that 1,000 emails will all arrive in the Inboxes of those people. Unfortunately, it doesn't happen that way. Emails don't all get delivered because they get sent to Spam folders on accident, get lost in transit, and for other reasons.
Typically, 5-10% of your emails won't get delivered. To improve deliverability, make sure people get removed quickly (or automatically) when they unsubscribe from your list. Also, don't send out irrelevant emails. Both high unsubscribe and low open rates can hurt your email delivery through certain email providers that your subscribers use (e.g., Gmail, Yahoo mail, etc.).
Your email management service will tell you how many emails were opened, and what percentage of the total delivered emails that number represents.
Your open rate can vary a lot-mostly depending on the subject line. That's what people read in their inbox to decide if they want to open the email or not. You've only got about 55 characters (depending on the recipient's email provider), so choose your words carefully and persuasively.
If you send out 3 emails to promote a product of yours, and notice that more people opened one of the three than the others, it suggests that the headline was more effective. This would be a subject line to reuse in the future, or add as an autoresponder message that every new subscriber receives.
Or use the same language in your subject lines as in ads you run to generate leads. After all, you know it already gets the attention and interest of people in your target market.
Importantly, if you see your email open rates go down over time, it means you are not providing your subscribers with value in your emails. And as a result, people stop opening them. The ideal is for subscribers to be excited to open your emails each time they arrive.
Your email management service will also show you how many recipients clicked on a link (or links) that you placed in the email, and what percentage of opens and total recipients this represents (this "click" rate is known as the clickthrough rate).
You want to know your total clicks so you can estimate in advance how much traffic you'll get to the webpage you're promoting. And the percentage of people who click after opening is the main indicator of how persuasive the language was in your email body.
Another idea: Try sending an email with the same subject line to three groups of recipients, but use a different email body in each one. The open rates will probably be the same (because you used the same subject line), but the clickthrough rates will give you an apples-to-apples comparison of which email copy was more effective. Cool, huh?
When people click on your link, they will all visit the webpage to which you chose for them to be directed. What do you want to happen once they get there? Do you want them to read a blog post? Make a comment? Share on Facebook? Buy something?
Whatever you choose, there's a metric involved and a way to track it. You can use Google Analytics to see how much time visitors spent on your page (hopefully several minutes if you want them to read a post). You can count the comments on your blog. Your Facebook "share" button will tell you how many people shared your page. And your shopping cart service will tell you how many people made a purchase from that page. And if your goal was to get phone calls coming in, you can count the phone calls and ask what prompted them to call.
So know what actions to measure, because that's the whole purpose of sending your customers or readers email in the first place.
Importantly, if your goal was to generate sales, then you'll have a dollar amount for the revenue created as a result of sending out your email.
If you email 1,000 people and make $100...congratulations! You have revenue of $0.10 per subscriber. Now imagine if you had 10,000 and ask yourself if it's worth spending a few hundred or thousand dollars on building your email list.
In addition to these metrics, I track:
- New subscribers: how many new people have joined my email list
- Unsubscribes: how many people unsubscribed to my list (and then I look at the recent emails I've sent to see what may have caused this)
- Email revenue per subscriber per month: this is an important metric. If you know, for example, that the average email subscriber is worth $1 per month to you, and the average subscriber stays for 12 months, then you can consider marketing tactics to build your email list, and perhaps pay $1, $2 or even $6 or more per subscriber since you know you'll earn a good return on this investment.
Email marketing is a highly effective marketing tactic. But, you must track your results carefully and improve based on this market feedback.
Suggested Resource: Want to learn my complete strategy for methodically maximizing the success of your email marketing, plus get more online traffic, leads, sales and profits? Then check out my Ultimate Internet Marketing System.
Written by Dave Lavinsky on Thursday, May 31, 2012
There are some marketing methods that take continual effort and persistence in order to pay off someday. This is NOT one of those. And for those of you without a website or for whom internet marketing can seem overwhelming at times...you don't even need a website to use this lead generation method.
I want to give you a quick tip today on listing your website (or just your contact information) in business directories so that people can find you online in ways they otherwise couldn't.
I'm not talking about ranking your site in the search engines, or paying for online ads. I'm talking about going to a website like Yelp.com, Manta.com, MerchantCircle.com, or other sites that list businesses by category with their contact information.
Not everyone searching for something on the internet is necessarily typing in a search for it in Google, Yahoo, or Bing. Sometimes people go to these directory sites and scan for local businesses there. Your goal is for them to find you!
And sometimes the pages about you in a business directory will come up in search results when people are searching for your keywords.
Not as good as having your actual website in the first page of results, I know, but getting your name and contact info in front of people's eyes is definitely a good thing.
Plus, being listed in an official directory can add credibility to your company in the same way that being listed in the yellow pages can set a local business apart from fly-by-night operations.
So without any further ado, here's the quick-and-dirty way to help prospective customers find you through this unique online marketing method:
Step #1: Determine your outcome
You've got to begin with the end in mind. Why are you going to list your business profile on these websites-for backlinks? Or do you want direct traffic from the sites' visitors?
Let me explain...If you list your business information on a directory (I'll describe how in a minute), you will be asked at some point to type in your website address (URL).
Your goal might be to have people find you in the directory and then visit your site at some special page for visitors (called your "money" page, which could be your homepage, your best-selling product's page, or a page designed to collect email addresses or elicit a phone call). If this is the case, then just enter in the URL of that specific page.
But, if you're listing your business in directories to get links to your site to rank higher in the search engines, then you would want to use the keyword you're trying to rank for in the business profile, the tags, and in the link to your website.
This latter method is done assuming you have a search engine optimization (SEO) plan in place, and know what keywords to rank your site for, and how. I can't explain all of that here, so if you're not currently trying to do SEO, then I suggest you just enter the URL of your "money page."
Step #2: Create a list of directories to submit to
I've already done this for you. I put together the below list for you of the Top 23 business directories for local marketing. Copy them into a spreadsheet, or print them out and check them off as you list your business information on each of them.
1. Yahoo Local Listings (listings.local.yahoo.com)
2. Switchboard Super Pages
5. Bing / MSN Local Listings (bing.com/businessportal)
19. Google Profiles (profiles.google.com/me)
Step #3: Enter your business profile into each directory
The task now is to list your business' information manually into each directory, one at a time. This is as straightforward as it sounds-find each site and look for a "list your business" section on it somewhere. Then follow their directions to set up your profile.
You'll enter your business name, address, phone numbers, emails, website, business category, and can often write a description of what you do. I would store these in a Word document somewhere and paste them the same way each time.
This is very simple to do but also very tedious in large amounts, to be perfectly frank. That's why I gave you a list of the top 23 to start with (there are over 200 total). Take 5 minutes after reading this to pick a free one and list your business there.
That wasn't so bad, was it? Now, for the rest of them, you can block out some time to knock them all out in one sitting, do one a day for a month or so, or pay an assistant or contractor to set them up for you by pasting in the business information you give them.
Step #4: Track your results over a few months
When you've listed your business on these 23 directories, you can sit back and do nothing and will probably see some great results within a few months.
Or, you can add to your list of directories and list your site on more of them. It's up to you. But whatever you determined your desired outcome to be, find a way to measure it. If your goal was direct traffic, then you'll want to use Google Analytics or your website's tracking software to see how many visitors came from each of the directories over time.
If it was worth it, go get listed in some more directories. Then evaluate if they were worth it. Keep this up until you start to experience diminished returns-meaning that the directories you're getting listed on have very little traffic and are no longer worth the time to get set up on them.
But worst case, follow these directions and in a few hours, you'll be visible in 23 more high-traffic places on the web than before. No need making it more complicated than it is...just do it!
Suggested Resource: Want to learn my complete strategy for methodically maximizing your online traffic, leads, sales and profits? Then check out my Ultimate Internet Marketing System.
Written by Dave Lavinsky on Sunday, May 27, 2012
To help you to be more productive (and stress-free) during this new era of "crowdsourcing," I put together a list of 23 websites and services that let you harness the power of the crowd, or otherwise help people more effectively work together through the Internet.
Most of these are hubs that brings a wide variety of people together from around the world with some sort of value to exchange. It's amazing to see how this has been done in matching freelance service providers, and now business funding from multiple donors online.
What's also interesting is to see how specialized a lot of these sites are. It used to be that Elance and Guru were the only two places to go to hire people. Now it seems there is a site for every specific kind of niche freelance needs, as you'll see.
So here are 23 virtual platforms and tools that are gaining in popularity and also stand out for their uniqueness, ideas they provoke, or just plain being cool.
- Elance, Guru, and Odesk - These are the 3 old favorites for finding contractors that still got it. I suggest posting a project on each of these and hiring the best from among the total responses.
- OnlineJobs.ph - A subscription site that gives you access to hiring skilled workers in the Philippines directly, often for $300-400 per month full-time!
- Amazon's Mechanical Turk - this is a marketplace where you can request tasks requiring human intelligence-tasks from getting questions answered to writing product descriptions for you.
- Fiverr - It amazes me all of the things you can get from people here for just $5. Professional voiceovers, fast logo designs, and all kinds of writing and search engine marketing gigs are available here.
- 99Designs - a great place to get multiple designs or logos made BEFORE choosing a provider to pay. This is valuable if you've ever paid someone to make a design you didn't like.
- Hatchwise - This site is nearly the same as 99Designs. I've used them both but have no real preference. Both are worth checking out.
- Etsy - this is the "Ebay" of handmade goods. Many entrepreneurs and small businesses test-market new products here first to see what sells better before investing more in promoting it elsewhere.
- Kickstarter - The largest crowdfunding platform for creative projects and endeavors. It uses an all-or-nothing funding system, where donors' funds will not be transferred until you reach your funding goal, and reimbursed if it isn't.
- IndieGogo, RocketHub, FansNextDoor - These sites operate just like Kickstarter.
- DonorsChoose - Backed by Oprah Winfrey and Stephen Colbert, this site makes it easy to donate (as little as one dollar) to any one of a long list of charities, with total transparency.
- 8-bit funding - a crowd funding site specifically for video game developers. Probably not your specialty, but see how there's a niche for everything? Google "your industry + crowdfunding" and see what's out there. Appbackr is a similar site, but is specifically for mobile phone apps.
- RetailMeNot - this is a site where you can get (or post) coupon codes for business services and supplies at significant discounts, like office supplies or even press release submission services.
- ChaCha - A question answering service you can text your questions to get answers on your mobile phone in a few minutes. It's helpful when you're super-busy and don't feel like looking something up.
- 37signals - Probably the simplest and best Customer Relations Management software I've seen for the price (Highrise) and also project management (Basecamp). With everyone on your team able to make and access notes, files, tasks, and emails about a customer or prospect, it makes life a lot easier.
- Skype - a must-download if you hire anyone overseas, for their audio or video chat feature, but also because their Instant Messaging system is just plain handy. It's nice having a record of every conversation with someone in one place, as opposed to a bunch of archived emails.
- TomsPlanner - A good way to manage projects if you're visually-oriented without having to learn to use Microsoft Project. By the way-if you're in business, you manage projects. It allows you to list action items and schedule them in order, in a printable Gantt chart that gets everyone on the same page about who does what and when.
- Quickbooks Online - If you're still using an older version of Quickbooks, consider getting the online version. The monthly cost isn't fun but it's worth it with the time you save. It imports your online bank transactions right into the register so there's not a lot of re-typing.
- SaneBox - This one will change your email experience by making it sane again-a lot faster than by organizing and checking a bunch of folders yourself. There are even timed folders like @SaneNextWeek and @SaneTomorrow that will make your emails re-appear when you're ready to deal with them.
Written by Dave Lavinsky on Friday, May 25, 2012
If you've been following the crowdfunding phenomenon, you've seen the swift rise of small businesses and entrepreneurs that have been getting funded by everyday people-through specific sites on the Internet that put it all together, like Kickstarter.com.
Instead of trying to find the one donor to contribute 100% of your funding, you can post your project online, spread the word about it, and may end up getting smaller donation amounts from tens, hundreds or even thousands of people.
The overall trend is that the people who fund or invest in crowdfunding ventures want transparency in their investments. They don't want to be far removed from their money as with stock market investing, where they have very little control, and insider information is not allowed in the decision-making process.
With a crowdfunding campaign, people of all incomes will be checking out your project and assessing whatever opportunity you offer to them in exchange. Importantly, just as you want to know the demographics of your customers, you also want to know exactly who your "typical" or "ideal" crowdfunding prospect is, so you can attract and influence them to invest in your company.
It's all marketing - identify your target market, position your offering properly, seal the deal!
So here are some interesting facts about what types of individuals are more likely to invest in your company via crowdfunding, according to an ADCI survey asking thousands of Americans asking them just that (FYI, ADCI stand for The American Dream Composite Index(tm), which is a survey conducted by Xavier University's Williams College of Business).
Keep these survey answers in mind when planning your funding campaign:
- People over 34 are less likely to provide crowdfunding dollars.
While those in their 40s and 50s are now getting on Facebook and social networks like never before, and making plenty of purchases online, they're not using it for social connecting like younger generations are - which crowdfunding is very similar.
- Females typically evaluate businesses themselves before investing, while men take greater risks and often invest based on the suggestion of a third party.
To me, this means that it's better to put all the information up for potential crowdfunders to see, for those who want to know the complete facts to analyze themselves.
- On a percentage basis, Caucasians are less likely to provide crowdfunding than other ethnic groups in the US. Also, Caucasians and Asians are more likely to invest in businesses they don't have an existing relationship with than African-Americans and Hispanics.
- People with incomes of $100,000 or more are most likely to engage in crowdfunding. [This does seem to contradict a little with the first statistic that crowdfunders are younger, but does point to the fact that young (aged 25-34), affluent people are the ideal crowdfunding candidates.]
But plenty of people with incomes closer to median ($40,000 or more) will still contribute, and there are many more of these individuals to reach through the Internet.
Now compare this demographic information with what you know about your existing or target customers. If they're people in their 20s and 30s, they may be perfect for crowdfunding your venture.
If not, it doesn't hurt to announce it to them anyway when the time comes. You also know people within your own personal and business network that you can announce your project to, as well.
And you might use it to determine the types of ads that you run and for whom they appear, should you promote your funding project with any kind of paid advertising. Or, you may find that the opposite is true - this is why we always test and track our marketing.
Suggested Resource: I hope you found the results of this survey on crowdfunding prospects' preferences to be helpful. I've identified even more strategies and tips to ensure you succeed with your Crowdfunding raise. I put them all together in a simple-to-follow program called "Crowdfunding Formula."
Written by Dave Lavinsky on Sunday, May 20, 2012
To be effective, your marketing efforts depend on targeting the specific customers (and potential customers) who will produce the best results for your business.
No company, no matter how big their budget, can afford to spend precious marketing dollars on too wide of a group of people. You just can't be everything to everyone.
You can create fast and cost-effective growth however by identifying your core customers and focusing your marketing activities on them - attracting them, selling to them, and providing the right customer support and retention.
This doesn't necessarily mean to focus on customers who buy the most, though that is the most important criteria in a top customer. There are also the "Influencers" who are the most vocal or respected, and spread the word about you to others - very valuable, even if they don't buy more than other customers.
Who are Your Top Customers?
It's easy enough to tell which customers of yours buy the most. Look at sales receipts or customer information to see who has made the most purchases, or the largest dollar amounts.
Sort out the 20% of customers who have bought the most from you over time, and that's your target group to which you want to focus your marketing (mainly to find more potential customers like them).
Then gather whatever other information you have about these customers and see what they have in common. While every customer is different, you'll notice there are certain trends and common characteristics among your target customers.
The easiest and primary information to get about these customers is their demographics - the directly observable characteristics that describe them (as opposed to psychological characteristics such as preferences, needs, motivations, self image, etc.).
Find out their basic demographic information
This includes basic facts:
- City/Zip Code
And also some less apparent information:
- Marital status
And if you serve business to business customers, demographic information will include information such as:
- Size of their business (in revenues and/or personnel)
- Purchasing/decision-making authority
How to turn your customer knowledge into gold
Time for a little alchemy...suppose you're going through your list of top customers and find that the majority are married women in their thirties who live within 5 miles of your store.
What can you do with these four demographic facts? To me, this information could be used in the following ways:
1. Running ads on Facebook that only appear for women, age 30-39, within your city or town. By knowing this information you won't have to pay for clicks and traffic from people who are less likely to buy.
2. Using signs, flyers, or some other kind of print advertising just within the 5-mile radius of your store. This would further saturate your business area and make your potential customers more likely to buy (as it takes 7 contacts with your company or ads on average to get a response).
3. Running an offer that specifically appeals to younger married women; for example, an offer to bring in one's husband and receive a discount, if this is applicable to what you do.
4. Selecting photos for your ads of people who closely match your target customers. In this case, you'd show women in their thirties who look like they live in your city, however that can be represented. Or pictures of happy couples, if appropriate.
5. Using direct mail to target potential customers. Chances are the 5-mile radius around your store is all in 1-2 zip codes. This information is very helpful if you're doing a direct mail promotion. When you buy a mailing list through a service like MelissaData or Listsource, you can select only addresses of women within your zip code. Why spend $.50-$1.00 or more per person if they're not as likely to respond, purchase, or love you?
6. Finding out where these women congregate and then going there or sponsoring and event. For example, if you determine that most of your target customers belong to the local PTA (Parent Teacher Association), sponsor a PTA meeting or event. As a related note, this is why I love airport lounges. Yes, it's nice to stay in a comfortable environment when waiting for a plane, but I love the marketing implications. That is, virtually all of the people I see in these lounges are corporate executives and salespeople that travel a lot. If your business' core customers fit this demographic, then hanging out in these lounges could be a goldmine.
7. Designing your store's appearance and layout with these women in mind. Your store would probably be colorful, aesthetically pleasing, and perhaps "hipper" and less formal than if most of your visitors were Baby Boomers.
8. Conducting research to learn what has been discovered about these women's preferences. Did you know there have been tests showing that women prefer ovals over squares, or purple over red? This information would be very useful when creating a logo, designing your store's outside and inside, and all of your promotional materials.
See all the ways you could utilize this information? This is why big companies spend a LOT on market research and surveys, and ask this information of customers when they buy online, etc. The more you know about them, the better marketing decisions you can make.
But what if I don't have this information about your customers?
Start with what you know
If you're interacting with customers face-to-face, you know their gender and can guess their ages. Your sales receipts will probably tell you customer addresses, so there's the city and zip code.
If you have collected business cards or know your top customers' demographics from memory, write that up as a working profile for now until you can do it more formally.
Then, start collecting their information
The best way to do this is to ask for it! Have a jar on your counter for business cards and a drawing/raffle. Or hand them a short survey form to fill out with 5-8 questions.
Or you can make simple online surveys using SurveyMonkey, SurveyGizmo, or Zoomerang, and then promote the web address where people can fill it out. It helps if you offer them some incentive, like a free gift or chance to win something.
It seems like fast food restaurants are getting pretty systematic now about encouraging customers to rate their experience online or by calling into a hotline.
And last time I went to a new doctor, they had me fill out a "Patient Information Sheet" asking for quite a bit about me medically, as well as about my demographics. See how doctors and dentists collect this so routinely? Make it a part of the way you do things and you won't have to remember.
Have you ever registered for something online and they ask for your company name, company type, your job title within the company, and so on? That's a great example of collecting demographics about a business, for B-to-B sales.
Make a demographic profile
Take your findings and summarize them on one page, for easy reference.
I know several copywriters who have told me that the best way to "get through" to people reading their sales letter or persuasive copy is to sit down to write with a photo of their "ideal" or "typical" person from their target market, and write as if speaking directly to that person.
Photo or not, at least write what you know about your top customers' common characteristics and print it out on a sheet of paper.
Make this profile a quick snapshot to reference that will represent them, rather than going about your marketing haphazardly, or in a less focused manner.
Lastly, do some research
As I said, you should also look for studies and reports online about how people of certain ages, genders, or marital statuses behave differently (from a marketer's perspective).
Lastly, in order to prevent false assumptions, if your main customers fit a certain demographic, for example they are mostly of a lower income, ask yourself if this was intentional, or if your previous marketing efforts just happened to attract them.
Executing on the ideas above will shed light on exactly whom you're working hard to serve, and will aid you in your efforts to find more of them and treat them the way they want to be treated.
Otherwise, it's "Round peg...meet Square Hole."
Here's to focused, targeted marketing...good luck!
Suggested Resource: Growthink's Ultimate Marketing Plan Template allows you to expertly create your marketing plan. Importantly, it allows you to quickly and easily build your target customer profile as explained above, and much, much more in order to dominate your market. Click here to learn more.
Written by Dave Lavinsky on Thursday, May 17, 2012
Below is an easy exercise that will boost your profits.
First, list your products and/or services
Create a spreadsheet. In Column A type the names of each product or service you offer.
Second, list your market segments (customer groups)
In the first row of columns B, C, D, etc., write the names of the different types of customers you serve.
For example, if you have a walk-in store as well as a website set up for e-commerce, you will have at least two groups of customers - those who come in to purchase and those who buy online.
Or you may sell to consumers and businesses.
Or you may sell to affluent consumers and less-affluent consumers. Or you might sell different products and/or services to men vs. women.
List all of these customer segments in the first row of columns B, C, D, etc.
Place an "X" in each cell in which you have a combination
To recap, in Column A you have a list of your products and services. And in the top row of the other columns, you have a list of all your customer segments.
Now, place an "X" in each cell in which you offer that product or service to that customer segment.
For example, if you sell insurance to affluent consumers, then type an "X" in the cell that intersects these two variables.
The result will be a chart with "X"s showing all your product/service and customer segment combinations.
Next, write down a list of all the combinations you found. For example, your list might include:
- insurance to affluent consumers
- insurance to businesses
- home security to non-affluent customers
Determine your revenues and profits for each combination
For each combination, type in how much revenue and profit you generate from it.
In many cases, you will find that one combination dominates your profits. Or that one customer segment (among several products and/or services) buys the overwhelming majority of your products and services.
Importantly, in completing this exercise, you may also identify combinations you didn't know even existed.
Sharpen your marketing focus
Most entrepreneurs and business owners place equal marketing focus on ALL their combinations of product/service and customer segments.
But, smart entrepreneurs and business owners place more emphasis on the combinations that are proven winners. Now that you know your winners (i.e., the combinations that are generating the most revenues and profits for you), focus on them.
Using the example of "insurance to affluent consumers" being a winning combination for you, here's what you should do:
1. Do more marketing to them. Figure out how can you reach more affluent consumers. Perhaps stop doing general advertising that reaches both affluent and non-affluent consumers and do more targeted advertising like direct mail or cable television. Or perhaps there's another company serving this clientele with whom you can partner. Etc.
2. Better tailor your marketing to them. Rather than having advertisements that mention several of your products/services, create ads that solely focus on your insurance offering, since this is what generates the most revenues and profits. Likewise, since you know the specific customer segment you want (i.e., affluent individuals) use terminology and images that will specifically appeal to that segment.
Most entrepreneurs and business owners make the mistake of trying to be all things to all people. As a result, they water down their value proposition to the customers that give them the most revenue and profits.
Rather, by identifying your most profitable customer/product combinations and focusing your marketing efforts to them, you can quickly grow your revenues and profits, and distinguish yourself from your competition.
Suggested Resource: Growthink's Ultimate Marketing Plan Template allows you to expertly create your marketing plan. It will help you fully leverage your most profitable marketing combinations and dramatically increase both your revenues and profits. Click here to learn more.
Written by Dave Lavinsky on Sunday, May 13, 2012
In your business experiences, you may have noticed that "selling" is not particularly hard when you have the right product positioned correctly, in front of the right person who wants it NOW.
But, when one of these factors are "out of whack," it can be a much tougher sale to make.
Getting funding from angel investors is the same way. It's not so much about how good of a presenter or salesperson you are (though those qualities help). Because the most important time you spend influencing potential investors is done long before you present to them, even long before you even contact them; it's done when you prepare your company for funding.
You've probably heard the quote from Abe Lincoln, "If I had 8 hours to spend cutting down a tree, I would spend 6 hours sharpening my saw." The point -- you can get a job done with a lot less effort when you are fully prepared.
So how do you prepare?
You prepare by making sure angel investors will want to invest in your company. And they'll want to invest if they believe your company has great potential to achieve a liquidity event, and one that enables them to earn a significant return on their investment.
Trust me, you're not going to show them that potential with your passion and enthusiasm alone, or a killer presentation. There are certain criteria that, if your business meets them, will show the angel that you DO have the potential. Here they are below...
Criteria #1: Scalability
This is the potential for your company to achieve significant annual revenues. An angel investor, when no future funding is required, might be willing to invest in a restaurant or website that has the potential to generate hundreds of thousands or a few million dollars-as long as a clear path has been laid out regarding how they could get a sizable return on their investment.
The problem is that some businesses are not as conducive to scaling as others. If you offer a professional services business, you can probably only handle so many customers yourself. Even with an office full of lawyers, for example, you would have to hire and manage more and more people in order to grow.
In a truly scalable business, you can multiply your sales without having to greatly increase your resources. You would simply turn the knob up and an existing infrastructure can handle it.
Criteria #2: High Barriers to Entry
Barriers to entry are those things that make it difficult for another firm to compete against you, such as patents or proprietary technology, a unique location, strategic partnerships with larger firms, and long-term customer contracts.
Having first-mover advantage (being the first to offer something) will give you an initial head start. But rest assured, competitors will copy your idea, once proven. You've got to find ways to keep that advantage by excelling so well at what you do that it will take others a long time to catch up.
Your company will need what Warren Buffet describes as a "sustainable, long-term competitive advantage" and looks for in the companies in which he invests.
Criteria #3: Strong Management Team
Who is running things (besides you)? The angels must believe in and be comfortable with both the founders and the key operating personnel of the company.
Does your management team have relevant experience and successes under their belts? Are they capable of taking things to the next level? Do they advise you, or are you currently more of a babysitter to your managers?
Experiencing massive growth is hard. You need capable leaders who can deal with the unknown and adapt to rapid change. You need people who can figure things out on their own and pioneer new ways of getting results.
The "Who" often comes before the "What" in priority. Get the right people together and they will likely choose the right course among all the options. Keep this in mind when hiring managers-will they be able to grow with your company, or does it seem like they will only be capable of their current role?
Criteria #4: Your Exit Strategy
The fourth criteria in which angel investors need confidence is your exit strategy. This means that the chances are good of eventually having another firm purchase you or your firm going public.
You have to remember that it's typically through your exit strategy that these investors profit from their investment in you. It's hard to get a company to generate enough cash off the top to pay them back over time-the original investment and some interest, maybe, and generating the cash to pay them several times their investment isn't likely (or desirable).
So angel investors count on some event happening that will generate a very large sum of money that pays them back, plus their profit. Unless they want to be an owner of your company forever, you have got to choose and prepare for your preferred exit in advance.
If you plan to sell, that's the most straightforward way to go. Set a time frame for when you'd like to accomplish a sale and work consistently towards that end. If you don't intend to sell, you'll either need to take the company public someday, or negotiate other ways of paying back the angel.
Criteria #5: Being a Local Company Helps
Another important criterion, while not necessarily tied to liquidity potential, is that angel investors tend to invest in local companies. In fact, according to the Center for Venture Research, 70% of angel investments are made within 50 miles of the investor's home or office.
Angels often like to invest in companies that are close by so they can visit them and participate in Board meetings and other events. And for retail businesses like a restaurant, they like being able to drive by and think or say "I'm an owner here."
Criteria #6: The Right Price
Finally, angel investors will only invest when the price is right. If you price your equity too high, angels may not have the potential to reap significant enough returns and will not invest.
If you know a few angel investors or angel groups in your area, find out in advance what kinds of prices and returns they would find acceptable. With this information, you may have to reset your revenue goals to achieve before getting the next stage of funding from angels, ask for less funding to increase their return, or commit to a higher payout if that's what it takes.
Understanding and preparing yourself and company to exhibit these six criteria will help you achieve your main goal-to convince angel investors to write you a check.
And not surprisingly, working towards the same objectives that attract angels will also help your business to be more profitable, stable, and positioned for growth even if you decide not to raise additional funding down the road.
So, start sharpening your saw today. Think about and strengthen your exit plan. Think about how you can build a better management team. And so on. And then, you'll be able to raise all the angel funding you need.
Suggested Resource: In Growthink's Angel Funding Formula, you'll learn exactly how to find and contact angel investors, exactly what information to convey to them and how, and how to secure your financing check. This angel funding video explains more.
Written by Dave Lavinsky on Friday, May 11, 2012
When seeking equity investments, the source of capital is, for the most part, tied to the stage of capital being raised.
You see, equity capital is raised in stages or rounds. The five main stages include the following:
1. Pre-Seed Funding
2. Seed Funding
3. Early Stage Investment (Series A & B)
4. Later Stage Investment (Series C, D, and so on)
5. Mezzanine Financing
Most companies that raise equity capital and are eventually acquired or go public receive multiple rounds of financing first. Do you intend to go big before selling or becoming publicly-traded?
No right or wrong answer here, but if this is your vision then it's important to consider when negotiating deal terms on earlier stage financing rounds. As Steven Covey said, you'll want to "begin with the end in mind" and not make arrangements with your angel and/or early investors that will complicate later stages of funding.
If it's not your plan to get venture capital down the road, then you'll probably stop in Stage 2-receiving enough funding to boost your marketing, sales, and infrastructure to grow organically from there to the point where you are satisfied or ready to sell.
Here are the five main stages of equity capital:
Stage #1: Pre-Seed Funding
Pre-seed funding refers to the initial capital a company brings in that comes from friends, family members, credit cards-whatever you can get. This could be as small as $5,000 and as high as $100,000.
Though the dollar amounts are lower, this round is more difficult to get institutional funding for ("institutional funding" is when a financial institution, rather than an individual person, funds you). Banks are not ready to make a Small Business loan on a company that has yet to launch, break even, or establish a track record.
Nevertheless, this is when you get the startup money to kickstart your business with the bare essentials needed to begin making and fulfilling your first sales. Necessary machinery, an initial website, your first batch of inventory-things you can't function without. Put everything else on your "wish list" to buy with revenues from sales or additional financing.
With this funding, the company often perfects its business plan and starts building its management team in order to position itself for its next round of funding. Your first year or two in business is where your dreams merge with reality and take a new form to guide your future efforts.
Many entrepreneurs end up taking their company in a different direction after some time spent testing your initial business model. Take the founder of Wrigley's chewing gum, who began selling baking powder and soap door-to-door and giving away gum as a bonus before discovering people wanted it a lot more than soap.
So during this round, you'll be testing what works and what doesn't. Here, you prepare to scale up the things that do with future funding. It might even be a good thing to not have too much funding at this point of your business so you don't invest too much going in a direction you'll abandon later.
Stage #2: Seed Funding
Seed funding (also called seed capital) typically ranges from $100,000 to $500,000 and is often provided by angel investors, and is usually structured as convertible notes or common stock.
With seed funding, you hope to grow your business and, at the very least, gain proof of concept. That is, you'll use the funding to build a product or service and prove that customers want to buy it. At this point, you will be ready for institutional investors who can provide funding to scale or rapidly grow your business.
Stage #3: Early Stage Investment (Series A & B)
"Series A" is the term used to describe the first round of institutional funding for a venture. The name is derived from the class of preferred stock investors receive in return for their capital.
The average Series A round is between $2 million and $5 million, with the expressed goals of funding early stage business operations. Providing enough capital for 1 to 2 years of operations, funds obtained from the Series A round can be used for the full gamut of needs-from product development and marketing to employee salaries.
Series B is the round that follows series A in early stage financing. In this round you can generally raise $5 million to $10 million, but can sometimes you can raise up to $20 million in capital or more.
Stage #4: Later Stage Investment (Series C, D, etc.)
Series C, D, etc. (some venture backed companies have raised over 10 rounds of financing) are further rounds of venture capital funding.
Each round may raise between $5 million and $20 million or more. Series C, D, etc. rounds are also typically obtained from venture capital firms and/or strategic/corporate investors.
Stage #5: Mezzanine Financing
Mezzanine capital, often provided by private equity firms, is capital provided either as equity, debt, or a convertible note that is provided to a company just prior to its Initial Public Offering.
Mezzanine investors generally take less risk, since the company is generally solid and poised to "cash out" relatively quickly.
Hopefully this lays out the different types of funding you can get and when. There's no sense going after venture capital if the time isn't right, or if it's not needed to reach your vision. For most of my readers, the main concern will be preparing your business for angel financing until the time is right for venture capital.
Suggested Resource: In our Angel Funding Formula program, you'll learn exactly how to find and contact angel investors, exactly what information to convey to them and how, and how to secure your financing check. This video explains more.
Written by Dave Lavinsky on Sunday, May 6, 2012
Every business needs a vision - a clear definition of what you'd like your business to become in the future. And, every business needs a set strategy - a definition and plan of how your business is going to reach this vision.
All the key elements -- what you sell, to whom, for how much, what you promise, etc. -- they are all part of your company's strategy or direction towards creating the business you want. My last article covered how to set this strategy so that the rules of the game are tilted in your favor.
When you've chosen a direction and vision, the next step is strategic planning - mapping out how you will achieve this over a long-term time frame (usually one year). This, like all planning, involves determining what projects you will complete and when, and how you will allocate resources such as man hours, money, and assets.
Lastly, your strategic plan will break down into specific, detailed short-term plans that help you know what to do on a month-to-month and even day-to-day basis.
But can you imagine what happens when you have a short-term plan to handle all the business and projects you have going on, but no longer-term, strategic plan to tie it all together? Maybe you've experienced it...the answer is chaos, drudgery, and endless wheel-spinning with no little progress.
So, let me explain some of the key errors and obstacles facing entrepreneurs and what to do about them:
Unclear, Unshared Vision
With all the time team members spend together in meetings and talking to each other, it's surprising how often they come away with different mental pictures of what the company is supposed to be and in what direction it's supposed to be going.
Everyone sees the company's future from their own perspective and function. It's your job to repeatedly communicate your company's vision and strategy to them-50 or 100 times if you have to-so they're all on the same page and can give you better advice and support.
Operational Thinking Dominates Your Time
This happens when most of the time spent in meetings is discussing how to run the business and putting out the fires that come up so often. Rather than also spending time strategizing and planning.
It's easier said than done to carve out time in your schedule for strategic thinking and planning, but that's the nature of entrepreneurship-taking care of today's business with an eye on the future. Hard to do, but keep in mind that delegating more of the day-to-day operational tasks to your team can free you up to do the strategic work, which may be something that only you can do.
I have to admit, when you show up for work it's easy to turn your attention first to all of the urgent tasks and demands for your time. Strategic thinking, on the other hand, is one of those activities that time management gurus classify as "Important, but not Urgent" (an example of "urgent" being something you must deal with immediately like an irate customer on the phone).
This means you have to fight for your strategic time, as it's the process that takes an unfocused business and sets it firmly on the track to success. Block it out on your calendar -- each week, schedule time to assess and/or discuss strategy.
Getting Complacent When Things are Good
My friend Paul Lemberg refers to the Comfort Zone phenomenon as leading business managers to become "fat, dumb, and happy." In other words, becoming complacent when things are going fine. This can lead to becoming reactive with your strategy, rather than proactive. Do you want to be reconfiguring your company and innovating under duress at breakneck speed at the last minute, or well ahead of time when the pressure is off?
Quite a few companies wait until a crisis comes around to kick-start their strategic thinking out of necessity. You don't want to be planning during a crisis...
Wasting Time With 5-Year Plans
Let's be honest here...isn't a five-year pretty much a one-year plan, plus 4 years of guessing?
You MUST have a clear vision of what your company will be like in 5 years, but to try and guess the details of what will be going on in 43 months, for example, in a fast-changing world is wishful thinking.
But once again, you must create your long-term (5 year) vision, which will guide all of your annual and other planning. Take a sheet of paper and describe the key elements of what you'd like your business to do, be, and look like in 5 years. Document this and use it to judge new opportunities and directions to see how well they fit.
Planning Once Per Year, Out Of Routine
We all know how around New Year's Day, many individuals start thinking about their personal goals for the year ahead. And many businesses work hard on a yearly plan during the same month of every year.
But can you wait to do your strategic thinking until your annual cycle calls for it? The business environment just isn't that predictable.
I suggest writing up your strategic plan right now and then making periodic changes throughout the year. You must set your annual plan, and then judge your progress and adjust your strategy and plan as needed.
No Process or Methodology For Strategic Planning
I suggest you discuss and choose your strategy in one session, then do your full strategic planning in another.
In setting strategy, you'll be in creative mode, exploring all possible options. Choose the strategy that makes the most sense, and then figure out the precise action plan to achieve it in a separate, more analytical meeting.
With appropriate time set aside for strategic thinking and planning, and by avoiding the obstacles discussed herein, you'll experience the joy that comes from knowing exactly what you're striving for and how to get there.
You'll feel more grounded, balanced, and centered. You'll come to work with greater purpose and passion. And you'll have more to show for your efforts at the end of each year.
Suggested Resource: You just learned how to remove the obstacles that cloud your strategic thinking...a key part of the strategic plan to guide you in growing your business. What else should you include in your current growth plan? To have a great strategic plan, there are 13 crucial sections. For your reference, they're listed in this video I put together. Watch it now.
Written by Dave Lavinsky on Thursday, May 3, 2012
The entrepreneurs and companies that will prosper and outpace their competitors during the next two decades will be those that outthink their competitors strategically, not outmuscle them operationally.
Specifically, the winning companies will craft a focused strategy that gives them a distinctive advantage. Conversely, too many companies try to compete by imitating their competitors. A successful strategy is one that makes competition almost irrelevant.
Isn't that the best position of all to be in...to have no direct competition? To achieve this, you have got to stop playing the game by the same rules as everyone else, and to embark on a strategy that changes the rules in your favor.
Chances are you're in imitation mode when you:
- Copy what your competitors are doing
- Attempt to outpromote and outsell them
- Attempt to outmanufacture them
- Attempt to outservice them
All of this results in a race with no winner...it will just be brief leads and falling behind again. It leads to incremental advancement only, often fleeting, and certainly isn't going to help you dominate your market.
Let me give you an example of market dominance by discussing the market for cigarette lighters. Most cigarette lighters are disposable and cost 99 cents or so. However, rather than playing the price game (a race with no finish line), Zippo has turned the game on its head by specializing in more expensive, higher quality lighters that sell for $15-35 each-or more, for certain collector's editions.
Another example is IKEA, whose distinctive strategy sets it apart from other furniture dealers. Ever walked through an IKEA store? I doubt you'll find a larger selection anywhere else selling furniture so inexpensively.
Why? Because their strategy targets customers who are willing to assemble furniture themselves (relatively easily) in order to save a bundle. The furniture's materials can be compactly packaged for shipping still in the box, at a much lower cost than shipping, say, an assembled dining room table that takes up a lot more space.
So here's the golden rule...never play the game according to the rules the leader has set. Don't try to outdo the top dog at their own unique strengths they've spent years or decades developing. They know the rules better-after all, they designed them!
The joy of entrepreneurship is finding a game worth playing!
Find things competitors are lacking in, or-even better-reach markets they're not reaching. No matter how big they are, no one company can be everything to everyone.
For every mammoth Anheuser-Busch selling the most beer to the most people, there's a quaint microbrewery selling a double chocolate stout that would fail on store shelves but is the ONLY one that a certain rabid group of buyers want.
As an example, I pretty much love all the beers created by Lagunitas Brewing Company in Petaluma, California. Since my supermarket doesn't carry it, I'll drive 20 minutes to a beer distributor that does.
When you change the rules, you neutralize and paralyze the leader. The odds are they are so entrenched in doing business the way they have, and have grown so large, that they're slow to change. You can make a lot of progress while they're catching up.
In fact, sometimes changing the rules of the game can put the entire industry in jeopardy. Examples are Charles Schwab allowing people to trade stocks online by themselves in 1997, and Craigslist making life difficult for print classifieds salespeople.
You might be wondering, "Sure, all this sounds great...but HOW do you actually do this in real life?"
Here are some questions to get you started on your game-changing strategy:
What can you excel at?
The odds are your leading competitor has achieved success because they dominate in some area.
So what? You don't have to compete against them, remember? Ask yourself what YOUR company can excel at, and you'll attract customers no matter how big a competitor is who's not serving their needs as well.
Where do you see opportunities for leverage?
Successful companies leverage their unique set of capabilities (things that make you excellent) across as many products, markets, and people as possible.
Often this is done through alliances with strategic partners and other opportunities for synergy.
What new products or services could you innovate?
No matter how much advertising and distribution a monster competitor has in place, they still can't profit from a product or service they don't offer.
Creating a new product or service, or specializing in an overlooked product/service category can make you the best in the eyes of certain customers.
How's your implementation?
The best strategy in the world still won't bring results if it isn't executed. This is where your project planning and management skills will come in handy, to see your dreams through to completion.
In summary, if you want to make substantial gains at your competitor's expense, tilt the playing field to your advantage. Choose a strategy that helps you sidestep the copycat game, and build your strategic plan around it.
As General Sun Tzu, famous Chinese war strategist, would say, "To subdue the enemy without fighting is the acme of skill."
Suggested Resource: You just learned the importance of choosing a distinctive strategy to change the rules of the game. This is the key to a great strategic plan that will guide you in growing an ultra-successful business. What else should you include in your current growth or strategic plan? Click here to find out.
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