Entrepreneurs Don't Plan To Fail, They Fail To Plan


 

Most businesses fail. I hate to be so blunt, but this is the truth. The only thing that varies is just how many businesses fail.

According to research from the University of Tennessee, 44% of businesses fail within the first three years. And within certain sectors, like information (which includes most technology companies), 63% fail within 3 years, or in Retail, 53% fail within 36 months.

On the other hand, according to research from Bradley University, 70% to 80% of new businesses fail within their first year. Bradley University also found that half of those who survive the first year will fail within the next four years.

And the number one cause of this failure? According to Dun & Bradstreet, the primary cause is lack of business planning.

Yes, entrepreneurs and business owners don't plan to fail. Rather, they fail to plan (which causes them to fail).

In my view, there are two types of business plans; (1) the one you develop when you start your business, and (2) the one you develop to grow your business.

When you start your company, the purpose of your business plan is to ensure you have fully thought through your venture.

Among other things, this plan includes significant market research. It assesses your market size to ensure the opportunity is big enough. It analyzes customer segments to confirm that customer needs match your company's proposed product and/or service offerings. And it analyzes the competition to determine how your company will position itself and how you will most effectively compete.

From a strategic standpoint, the business plan must document your marketing plan (how you will secure customers), your human resources plan (who you will hire) and your operations plan (what key milestones you will accomplish and when).

When you're done, your business plan will confirm your market opportunity and give you a roadmap to follow. It will also be required should you wish to gain funding from investors and lenders.

Now, once your business is up-and-running, you still need a business plan in order to succeed. This is the second type of business plan, and I refer to this type of plan as a "strategic plan." I term it as such because this type of plan requires much less research (since you already know who your customers are, the market fundamentals, and lots of information about your competitors). Rather, the focus of this plan is strategy.

Specifically, this plan needs to identify precisely:

1. Where you want your company to be in five years


2. What you need to accomplish within the next year to progress you to that point, and


3. What your strategy is to complete your key milestones in the next 12 months

In determining the optimal strategies, you need to consider your company's strengths, and opportunities that can best leverage them. If you don't take time to do this, you become too tactical. That is, you continue to use the same tactics that have gotten you to the point you are at. And oftentimes, the strategy and tactics that got you where you are today are NOT the strategy and tactics that will get you to the next level.

So, spend time figuring out the best strategies to follow. The good news is that you've already proven you can execute on strategies (which is what got you to where you are now).

After you figure out the big picture opportunities to go after (which often fall into the categories of further penetrating your existing market, going after a new market, or creating new products/services for existing and/or new markets), you need to revisit the three core strategies you developed in your initial business plan.

To start, you need to modify your marketing plan. Importantly, your marketing plan should always be adding new marketing venues or channels (e.g., direct mail, print, radio, search engine optimization, etc.) as the more channels you have, the more customers you will get and the less risk you have of one channel losing effectiveness. For example, think about businesses who used to get all or the majority of their customers from the yellow pages; many of these companies have perished.

Next, consider your human resources strategy. What new people will you need to hire to accomplish your key goals in the coming years? In what areas will you need people, and what skill sets must they have?

And finally, you need to develop your operations strategy. Figure out what key tasks and milestones you need to accomplish over the next year and break them down into smaller projects that you and your team must accomplish. And then create a master schedule showing who, how and when these projects will be completed (I like using a Gantt chart to do this).

Creating a business plan when you start your company, and annually creating strategic plans to grow your company is absolutely essential to your success. Research proves it. So, if you want to avoid failure, and achieve maximum success, make sure you are continuously creating, updating and following your business and strategic plans.

 

Suggested Resource: You just learned the importance of choosing the right strategies to build your company. Including this information in your strategic plan is critical to 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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Zig's Simple Technique for Building a Great Company


 

If you're not familiar with Zig Ziglar, he was a well-known author, master salesman, and motivational speaker. Unfortunately Zig passed away last November. I apologize for taking so long to honor him with this essay, in which I tell my favorite Zig Ziglar story.

In Zig's early years as a salesman, he visited peoples' homes, making presentations to sell them high-quality cookware.

He had a competent assistant at the time who helped him keep track of appointments and handled administrative duties. One week, however, Zig realized he had two appointments scheduled for the same time. Not waiting to cancel any appointments he asked his assistant to cover one of the appointments for him.

She was terrified.  She did not want to do it and he wasn't going to make her!

Being the consummate salesman that he was, Zig eventually got her to calm down.  Then he assured her that she knew the presentation as well as he did, and that she would do great.  After he solemnly promised to never ask her to do a presentation again, she agreed to cover the appointment just that one time. 

Zig recounts that at the end of the evening, she was convinced she had fumbled half the presentation. But, to her surprise and delight, the clients ordered quite a bit of cookware.  Most surprising, is that when she got over her nerves, she found she rather enjoyed the experience. 

His timid and sales-panicked assistant evolved into a top notch salesperson, was his right hand partner for many years, and years later (with his delighted consent) became a highly-sought out and respected sales trainer for a leading cosmetic company.

Zig shared this story to show human potential.  He puts all the praise on her and generously applauds her for her accomplishments.  While I am inspired by her transformation, I want to focus on his role in her transformation because I believe that was Zig's greatest gift to the business world.  Yes, his sales training is worth bars of gold, but ultimately what really made him a success was his ability to develop others.

He could have made millions as a star salesperson.  He could have kept his philosophy, his techniques, and his secrets to success all to himself.  Instead, he made hundreds of millions by sincerely applying himself to improving everyone around him who was willing to listen.

Zig Ziglar was a true leader.

Yes, he sold books, and videos, made speeches, and made money, but he invested in people.  He believed that the success of a company was largely dependent on the quality of their sales force, and the quality of their sales force was solely dependent on how much that force really cared about helping people.

And, a sales force isn't going to care about helping anyone if they don't feel that their company cares about them. 

Zig could have benched his assistant, sent her right back to her phone and typewriter after she covered that one appointment.  Instead, he nurtured her potential and encouraged her to continue developing her sales skills.  Now think about this, how much more money did Zig make by having her on his team at her full potential instead of at her lowest potential? 

How much more money will your company generate if you make the time to develop your team to their full potential? Beyond just money, how much loyalty will you cultivate? Will you feel more confident about your future success when you have a top-notch team you can trust?  How many talented people will want to work for you when the word gets out about your leadership?

Yes, it takes time and energy, yet Zig demonstrated over and over that when you invest in helping someone be the best version of themselves possible, the rewards, material and otherwise, greatly outweigh the sacrifice.

Zig Ziglar died in November of 2012.  He left behind dozens of books, thousands of hours of video and audio, and most of all, he left behind millions of grateful professionals whose lives were touched and even changed by the empowering lessons he left behind.  His message that you could accomplish more in life and in business through caring and investing in the success of others is a timeless gem that lives on.

As he once said, "You can have everything in life you want, if you will just help other people get what they want."

Rest in peace Zig.  We'll miss you. And for all of you listening, develop your employees and customers, and everyone around you, to their full potential, and you will achieve incredible success!

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5 Techniques to Scare Competitors Out of the Market


 

On many levels, competition is good.

For example, when you start a business, you want there to be competition. Since if there was no competition, there may not be a market or customers who want to buy what you are selling.

And once in business, competition is generally good since it forces your company to get better. It forces you to better satisfy customers (or they will choose your competitors) and it forces you to become more efficient (so you reap more profits even if you have offer more competitive pricing).

Now, while competition does provide these advantages, you clearly want to have less competition, and you'd like for fewer new competitors to enter the market. In doing so, you'll enjoy more of a monopoly in your market, which means more customers and more profits.

The best way to knock competitors out of your market and discourage new entrants is to build "business assets" that your competitors don't have. (I define "business assets" as resources you build now that will give you and your company future economic value.)

Here are five examples of business assets you can build:

1. Customers: Most mobile phone companies offer 2 year service contracts that all new customers must sign (and face penalties if they leave before the two years are up). This essentially "locks up" customers making it harder for new entrants (or existing entrants) to come in the market and take their customers. Customer agreements and contracts are one of the most powerful business assets you can build.

2. Systems: Most franchise organizations (e.g., Subway, McDonalds, etc.) have made significant investments in systems in areas such as taking orders, producing products, handling customer complaints, etc. These systems make it easier and less expensive to hire and train employees and better service customers. This makes it harder for others to compete against them. Likewise, I know many companies who have built customized software systems that allow them to perform faster, cheaper, and more consistently than their competitors.

3. PPE (Plant, Property and Equipment): When I was a teenager, I made a lot of money shoveling snow. I used that money to buy a snow blowing machine. Equipped with the snow blowing machine, I was able to remove snow ten times faster than my competitors. This allowed me to dominate my local market.

4. Product or Service Variations: A local pizza shop promotes itself as having 36 varieties of pizza. Offering this large variety makes it harder for new pizza companies to enter the market. Because a new company would have a very hard time creating 36 varieties from the start, it would be harder for them to satisfy customers.

5. Exclusive Partnerships: Creating exclusive partnerships could be a key business asset that gives you competitive advantage. For example, if you create exclusive partnerships with top organizations in your industry, they would only work with you and not your competitors. For example, let's say you and a competitor both serve the senior market. But you have an exclusive relationship with the AARP whereby they only promote you, and not your competitors. With 37 million senior members, your AARP relationship would give you considerable advantage.

What I want you to consider now is how you can build business assets that "unlevel the playing field." How can you make it so that nobody wants to compete against you?

  • Can you lock-up customers with agreements and contracts?

  • Can you build new systems to make your company more effective and efficient?

  • Can you make investments in plant, property and equipment that allow you to cut costs or increase output?

  • Can you develop new product and/or service options that better serve customer needs?

  • Can you form exclusive partnerships to help you gain new customers that your competitors can't?


Importantly, whatever answers you come up with, realize that building these business assets will take time. Often times they may take as much as a year (or even longer). And also realize that short-term profits may go down when you are building them. For example, in the AARP example above, forging such a relationship could take 6-months, during which you invest lots of time and generate no incremental revenue.

But, once the asset is built, you may profit (and profit big) for years.

So make sure to properly plan and prioritize the development of your business assets, even though they often have less short-term benefits than other activities (such as setting up a new advertising campaign).

Set a long-term goal for when you want the assets built. And make sure that you build time into your daily, weekly and monthly schedules to move the development forward. Doing so will dramatically improve your revenues and profits, and at the dismay of your competitors who will be forced to go elsewhere.

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The Secret to Highly Effective Marketing


 

In this article, I'm going to give you the secret to highly effective marketing.

Let me start with an example.

Let's say your competitor runs an advertisement that reaches 10,000 target customers and gets these results.

  • 1 percent response rate (response rate means that prospective customer visited competitor's website, went into their store, called them, etc.)
  • 35 percent conversion rate (conversion rate means the responding customer then purchases)
  • $500 price per widget (widget being the item sold by your competitor)
  • 1.5 widgets per buyer (average buyer purchases 1.5 widgets in initial order)
  • 30 percent profit margin
  • 10 percent repurchase rate (10% of customers buy from your competitor again)

Assuming the ad reached 10,000 target customers, your competitor's gross profit from the ad would have been $8,662.50 (minus the cost of the ad).

Now let's assume that your company did a 20 percent better job on each of these factors. Your results would be as follows:

  • 1.2 percent response rate
  • 42 percent conversion rate
  • $500 price per widget
  • 1.8 widgets per buyer
  • 36 percent profit margin
  • 12 percent repurchase rate

Now let's look at the results.

If your ad reached the same 10,000 target customers, your gross profit would be $19,596.

That's 2.3 times greater than your competitor's.

Now, what would happen if you generated 2.3 times greater profits than your competitors every time you ran an ad?

The answer is that you would absolutely dominate them.

Now, the key marketing secret that I'm sharing with you here is that you don't have to revolutionize your marketing system. Rather, small, 20% improvements in each part of your system lead to revolutionary results.

So, here are some ways in which you can improve each part of your marketing system:

Response Rate

The more you know about your customers' wants and needs, the more easily you can design advertisements that appeals to them.

And the more you know about them, the better you could craft a unique selling proposition (USP) to attract them.

For example, if you are local hardware company and you know your typical buyer is a busy male with a wife, kids, and dog, you could easily craft ads with a higher response rate.

You could also boost response rates by developing better offers that attract customers, such as an offer for a 90-day money-back guarantee.

Conversion Rate

Remember, conversion rates are the percentage of prospective customers that you converted into actual customers.

A few ways you could increase conversion rates include having a better process in place for training your staff and sales team, providing better employee incentives (e.g., commissions or bonuses for closing sales), or by developing and testing sales scripts that boost results.

Number of Widgets Per Buyer

To increase the number of units purchased per transition (including purchasing more widgets or related items), you can rely on similar tactics to increasing conversion rates such as better hiring, training, sales scripts and so on.

Remember McDonalds doubled its profits when it started asking "would you like fries with that?" and increased them again when it starting asking "would you like to supersize that?"

Profit Margins

Better systematizing your business and implementing the right processes and procedures will allow you to generate higher profits per sale than your competitors.

Repurchase Rate

Finally, to increase repurchase rates, do a better job of communicating with your clients and showing them how special they are. For example, send them emails, call them, or send them letters in the mail to educate them and remind them that you have products and services that can help them.

As you just witnessed, making small improvements to each part of your marketing system is incredible powerful and massively increases your profits. If you want to learn more, check out our "Double Your Profits" program which provides detailed training on how to make these improvements in your business.

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3 Little Known Reasons Why Angel Investors Fund Entrepreneurs


 

When most entrepreneurs start out and realized they need funding, they are typically presented with three options.

The first is debt financing, which is typically in the form of a loan from a bank.

The other two funding options are typically in the form of equity, and they are 1) equity from individual or "angel" investors and 2) equity from venture capitalists.

Importantly, when considering these two sources of funding it is important to understand that most venture capitalists will not invest in companies that have not achieved "proof of concept" (which generally means a working prototype and/or revenues). Also, venture capitalists generally only invest in companies that have the potential to be valued at over $100 million within five years.

These criteria make venture capital inaccessible to most entrepreneurs. Furthermore, angel funding is often a better option since it is much easier to attain.

Consider these statistics:

  • In an average year (according to the Center for Venture Research at the University of New Hampshire), 250,000 angel investors will fund 60,000 companies, giving them $20 Billion in total.

  • Conversely, in and average year (according to the National Venture Capital Association), there are only 800 active venture capital firms, who fund only 4,000 companies, also giving them $20 Billion in total.


So while venture capitalists write much larger checks, 15 times more entrepreneurs raise funding from angels.

So why do angel investors fund entrepreneurs?  The common answer is that they hope to get a solid return on their investment. Obviously, investing at the earliest stages for a company that eventually goes big can earn the investor 100X their money back or more.

However, there are three lesser known, but equally important reasons, why angel investors fund entrepreneurs:

1. They know, like and trust the entrepreneur. Like with friends and family investments, sometimes angels know and trust the entrepreneurs and want to help them succeed.

2. They feel they can add real value. Many angels have lots of relevant experience that can help the companies they fund, from experience hiring staff to connections with key potential customers or suppliers. If angels can see their involvement adding a lot of value to the company, they might be very interested in investing.

3. Sometimes the angel wants or likes the action. Simply put, angel investing is exciting. It is generally a higher risk/higher reward version of the public stock markets requiring a more entrepreneurial analysis which is highly intriguing. This is particularly the case when the angel investor is a retired entrepreneur or executive.

So, if you are an entrepreneur seeking funding, keep these motivations in mind when you identify, approach and speak with angels.

Because understanding them is often the difference between whether you will raise money or not. Finding angel investors is also easy if you know where to look.

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Is This The Secret to Entrepreneurial Success?


 

Today's article was written by my son, Max.  Max is 12 years old. I did not edit the article at all. He wrote it for his seventh grade English class.

I personally was inspired by his article. And it made me think about you and all the other entrepreneurs I strive to help succeed. As entrepreneurs, we will experience countless ups and downs. And throughout this process, we need to stay optimistic and have a positive attitude. And we need to enjoy the journey as much as the destination we hope to achieve. Maybe Max has the answer to this.

Enjoy!

Dave

"This I Believe"

by Max Lavinsky

 

"LIVE FROM NEW YORK... ITS SATURDAY NIGHT!" The jazz music starts blaring, and I'm in New York City surrounded by mobs of people, walking briskly to where they need to go. I see the faces of hilarious comedians like Bill Hader and Jay Pharaoh. I feel like I'm living in a carefree world. I believe in Saturday Night Live. It can teach us more meaningful lessons than you would expect.

As a young child I had always heard from my parents about this hilarious show called "Saturday Night Live." I can remember being shown little clips of skits from time to time. I instantly fell in love with them. I dreamed of the day when I could watch a full episode, or go into New York City to see a show live. This first time I was able to fulfill this dream, I was in the fifth grade. I had a fever, and I was home from school. I was going in and out of sleep when my mom came in and told me that I could watch something. I turned on the TV and came across Saturday Night Live. Without any hesitation, I turned it on and started watching. Jim Carey was hosting, and in my opinion he is one of the funniest actors ever. In the next hour, I laughed more than I normally would in a month. I forgot about all of my pain. It was crude and offensive, but I couldn't seem to wipe the smile off of my face. After the show ended, I wanted to keep watching.. I had to turn it off of course, but I knew I had just found something I loved.

After having watched Saturday Night Live, I look at everything a little bit differently. The glass is always half full. There is always a little bit of sun peeking out between the clouds. Now, I tend to laugh more. It has also taught me deeper and more important lessons, though. Saturday Night Live can be racist, bias, use terrible stereotypes, and just be flat out horrible. While this is certainly a bad thing, there is some good. It teaches us to laugh at ourselves, and to be able to deal with getting made fun of. This is a skill that many people lack, and it makes them uptight, and without a full sense of humor. If everyone was able to laugh at themselves, maybe nobody would fight. Maybe, we could all live in peace. Maybe, if we could just do something as simple as laugh at ourselves, our world could be perfect. To think that Saturday Night Live could make a perfect world may sound outrageous, but it is not. Things as little as a TV show can change us. To some people that seems irrelevant, and it did to me once. But that of course, was before I watched Saturday Night Live.

So Saturday Night Live definitely has its cons. But while it embarrasses and offends us, it teaches us how laugh at ourselves. Will Ferrell once called Saturday Night Live a "comedy boot camp" because it teaches us how to have a sense of humor and appreciate comedy. So try something new. Watch Saturday Night Live and laugh.

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4 Emails That Get An Investor's Attention


 

If you were raising funding 25 years ago, you probably called prospective investors on the phone and sent them your business plan via fax or overnight delivery.

As you can imagine, things are very different today. And email is the number one way to communicate with prospective investors, particularly professional investors like venture capitalist.

The challenge, as you can imagine, is getting their attention. As most venture capitalists receive tons and tons of unsolicited email each day. So, the key is having a great subject line on your email to get them to open it.

Before giving you some subject lines that do work, let me tell you ones that don't. Subject lines such as "Unique Investment Opportunity," "Please Invest in our company," and "Great Investment Opportunity" don't catch investors' attention and turn them off.

So, don't use these. Here are some you can use:

1. Your Involvement in XYZ Company

Where XYZ company is a company that the investor has funded and which is in your general space. You would start the email with something such as "based on your investment in XYZ company, I think you will be interested in what we are doing..."

2. New in the "XYZ Space"


Where XYZ is the "space" in which you are operating in (e.g., the financial software space). The first line would tie the subject line to what you are doing.

3. Referred by XYZ


Where XYZ is a referral source that knows both you and the investor. This works extremely well, but clearly you must first get the referral.

Because referrals are so powerful, go on LinkedIn and/or other networks to see if you already have someone in your network that can refer you to the investor.

4. Comment on Your Post About XYZ


Where XYZ is a blog post that the investor recently wrote about a subject. In your opening line you explain what you agree with in their post and then tie it to your company.

Importantly, after your subject line and introductory line that ties your company with the subject line, you should NOT tell the investor everything about your company.

Rather, this first email should be a "teaser" email. A "teaser" email is an email that "teases" the investor by giving them a bite-sized amount of compelling information about your company.

The goal of the email is to see if they are interested. If they are, you will follow up with more information (maybe your Executive Summary and/or full business plan) with the goal of getting a face-to-face meeting with the investor.

There are two reasons you shouldn't send your business plan in your initial email. First, you don't want to "over-shop" your deal. Over-shopping is letting too many investors know about your company. If too many investors know about you, the law of numbers states that many investors will pass on investing in you (remember, most investors passed on the opportunity to invest in Google years ago).

So, if an investor isn't even interested in your market space or teaser email, they certainly won't invest in your company. And here's what can happen -- an interested investor asks this investor (the one who isn't interested in your space) if they've heard of your company. That investor says "yes" (since you unwittingly sent them your plan) and that they weren't interested. And then their disinterest dissuades the once interest investor from investing in you.

The second reason you don't want to send out your business plan in your initial email is for confidentiality reasons. You just don't want your business plan out there for everyone to see. Rather, wait until the investor shows that they are at least somewhat interested in your venture before sending it.

So, now that you know that you should start by sending investors a "teaser" email, the question is what to include in the teaser.

Here's the answer: the teaser email should include 5 to 6 bullets about your company and should be very short (200 words or less).  The goal, once again is simply to create a general interest in your venture so the investor commits time and energy to learning more about it (by requesting additional documents or setting up a meeting).

Your bullets should describe what space your company is in and credentials that make you uniquely qualified to succeed (e.g., credentials of management team, customers serving already or showing interest, etc.).


To summarize, send investors a teaser email instead of your business plan to start. And realizing that they receive hundreds of emails every day asking for funding, make sure your subject line stands out and seems like you're offering them value.

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The 5 Most Common Funding Sources


 

If you want to be successful in business, it is crucial to determine when, where, and how to obtain the funds you need. Whether you need $1,000 or $1 million to start or expand your business, if you can't raise this money, you can't build the business you want.

Before You Look For Funding

Before you look for funding, you need to create your business plan. In addition to explaining your business and your strategy for success, your plan must determine how much money you need and for what it will be used.

Also, it's very important for you to understand the timing of the funding. For example, do you need all the funding now (e.g., to build out a location), or can you receive your funding in stages or "tranches."

The amount of funding you seek will effect the source of funding you approach. For example, if you require $250,000 in funding, angel investors are more applicable then venture capitalists. If you need $5 million, the opposite is true.

While I have identified 41 sources of funding for your business, below are the 5 most common.

The 5 Most Common Types of Funding

1. Funding from Personal Savings

 
Funding from personal savings is the most common type of funding for businesses. The two issues with this type of funding are 1) how much personal savings you have and 2) how much personal savings are you willing to risk.

In many cases, entrepreneurs and business owners prefer OPM, or "other people's money." The four funding sources below are all OPM sources.

2. Debt Financing

Debt financing is a fancy way of saying "loan." In debt financing, the lender (often a bank) gives you funding that you must repay over time with interest.

You must prove to the lender that the likelihood of you paying back the loan is high, and meet any requirements they have (e.g., having collateral in some cases).  With debt financing, you do not need to give up equity. However, once again, you will have to pay back the principal and interest.

3. Friends & Family

A big source of funding for entrepreneurs is friends and family. Friends and family members can provide funding in the form of debt (you must pay it back), equity (they get shares in your company), or even a hybrid (e.g., a royalty whereby they get paid back via a percentage of your sales).

Friends and family are a great source of funding since they generally trust you and are easier to convince than strangers. However, there is the risk of losing their money. And you must consider how your relationship with them might suffer if this happens.

4. Angel Investors

Angel Investors are individuals like friends and family members; you just don't know them (yet).  At present, there are about 250,000 private angel investors in the United States that fund more than 30,000 small businesses each year.

Most of these angel investors are not members of angel groups. Rather they are business owners, executives and/or other successful individuals that have the means and ability to fund deals that are presented to them and which they find interesting.

Networking is a great way to find these angel investors.

5. Venture Capitalists (VCs)


VC funding is a suitable option for businesses that are beyond the startup period, as well as those who need a larger amount of capital for expansion and increasing market share. Venture capitalists are usually more involved with business management, and they play a significant role in setting milestones, targets, and giving advice on how to ensure greater success.

Venture capitalists invest in companies and businesses they believe are likely to go public or be sold for a massive profit in the future. Specifically, they want to fund companies that have the ability to be valued at $100 million or more within five years. They also go through an expensive and lengthy process of deciding on the best business to invest their money. Hence, the approval process usually takes several months.

Bottom Line

As you search for the best funding source for your business, you will discover that some financing options are complicated while others may offer a very small amount.

Choosing an inappropriate type of funding can lead to unfavorable outcomes such as feuds between the lender and business owner, shift of control, waste of resources and other negative consequences.

With this in mind, you should study the benefits and drawbacks of each financing option and select the ideal one that will help you meet your business goals. Because with the right source(s) of money, the sky is the limit for your business.

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Why Your Worst Enemy Can Raise More Money Than You


 

The word "crux" is an interesting word. It's a noun that can be defined as: (1) the decisive or most important point at issue, or (2) a particular point of difficulty.

In either case, the word aptly applies to raising funding for your business, because in doing so, most entrepreneurs and business owners encounter difficulties.

I believe the crux to successfully raising money for your business lies initially in understanding that investors are essentially professional risk managers.

Let me explain. Most sources of money, like banks and institutional equity investors (defined as institutions like venture capital firms, private equity firms and corporations that invest), are essentially professional risk managers. That is, they successfully invest or lend money by managing the risk that the money will be repaid or not.

So, your job as the entrepreneur seeking capital is to reduce your investor or lender's risk.

Let me give you a simple example. Let's say that both you and your worst enemy both wished to open a new restaurant.

In this scenario, which is the riskier investment?

  • You have put together a business plan for the new restaurant.

  • Your worst enemy has also put together a business plan for the restaurant...and he/she has also put together the menu, secured a deal for leasing space, received a detailed contract with a design/build firm, signed an employment agreement with the head chef, etc.


Clearly investing in your worst enemy is less risky, because they have already accomplished some of their "risk mitigating milestones."

Establishing Your Risk Mitigating Milestones


A "risk mitigating milestone" is an event that when completed, makes your company more likely to succeed. For example, for a restaurant, some of the "risk mitigating milestones" would include:

  • Finding the location
  • Getting the permits and licenses
  • Building out the restaurant
  • Hiring and training the staff
  • Opening the restaurant
  • Reaching $20,000 in monthly sales
  • Reaching $50,000 in monthly sales

 

As you can see, each time the restaurant achieves a milestone, the risk to the investor or lender decreases significantly. There are fewer things that can go wrong. And by the time the business reaches its last milestone, it has virtually no risk of failure.

Let me give you another example. For a new software company the risk mitigating milestones might be:

  • Designing a prototype
  • Getting successful beta testing results
  • Getting the product to a point where it is market-ready
  • Getting customers to purchase the product
  • Securing distribution partnerships
  • Reaching monthly revenue milestones


The key point when it comes to raising money is this: you generally do NOT raise ALL the money you need for your venture upfront. You merely raise enough money to achieve your initial milestones. Then, you raise
more money later to accomplish more milestones.

Yes, you are always raising money to get your company to the next level. Even Fortune 100 companies do this - they raise money by issuing more stock in order to launch new initiatives. It's an ongoing process-not something you do just once.

Creating Your Milestone Chart & Funding Requirements


The key is to first create your detailed risk mitigating milestone chart. Not only is this helpful for funding, but it will serve as a great "To Do" list for you and make sure you continue to achieve goals each day, week and month that progress your business.

Shoot for listing approximately six big milestones to achieve in the next year, five milestones to achieve next year, and so on for up to 5 years (so include two milestones to achieve in year 5). And alongside the milestones, include the time (expected completion date) and the amount of funding you will need to attain them.

After you create your milestone chart, you need to prioritize. Determine the milestones that you absolutely must accomplish with the initial funding. Ideally, these milestones will get you to point where you are generating revenues (if you are not already generating revenues). This is because the ability to generate revenues significantly reduces the risk of your venture; as it proves to lenders and investors that customers want what you are offering.

By setting up your milestones, you will figure out what you can accomplish for less money. And the fact is, the less money you need to raise, the easier it generally is to raise it (mainly because the easiest to raise money sources offer lower dollar amounts).

The other good news is that if you raise less money now, you will give up less equity and incur less debt, which will eventually lead to more dollars in your pocket.

Finally, when you eventually raise more money later (in a future funding round), because you have already achieved numerous milestones, you will raise it easier and secure better terms (e.g., higher valuation, lower interest rate, etc.).

It might surprise you what you can accomplish with less money! So write up your list of risk mitigating milestones and determine which must be done now and which can wait for later, focusing first on what is most likely to generate revenues.

 

Suggested Resource: Want funding for your business? Then check out our Truth About Funding program to learn how you can access the 41 sources of funding available to entrepreneurs like you. Click here to learn more.

 

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4 Step System for Rapidly Training New Hires


 

In my last essay, I discussed the three benefits of using outsourced workers (cost savings, reducing overhead, getting work done while you sleep). And then I gave you tips for finding and selecting the right outsourced provides.

In this essay, I'll lay out my system for rapidly training these new hires (it also works for new in-house and/or full-time hires).

Before you start the training


Before you begin their training, take a few minutes to break down the work to be completed into a list of steps, or even a process map (a simple, visual flow chart of how the process will go). As a manager, your job is to create these processes and coach your team to implement them and report the results back to you.

If something goes wrong, it's either because they did not follow the process correctly as you spelled it out -- or there is something less effective about your process to correct. Listing all the steps and putting them in the right order will also clarify your thoughts and give you a guide or agenda to follow when training them.

The simple system for rapid training

Step #1: Explain


This is where you take the time to describe the work to your virtual assistant or outsourced person. Show them the list of action items or an overview of the process. A written summary coupled with a verbal explanation is usually the most thorough way to do this.

Tell them what the task is called (for easy reference later on), what it accomplishes, why it is
important, who will need to do it and when, and how it is to be done, step by step. The
more details you can give, the better, because they will grow to understand you and
your company goals and will be able to handle more things for you later on without
having to ask a ton of questions.

Also, understanding your business model, your customers, and your purpose will help them make more informed decisions along the way -- subtle differences that can turn good work into greatness.

Step #2: Demonstrate


People learn better by seeing an example of how something is supposed to be done. This will teach them better than the longest explanation. Demonstrations can be done in different ways:

1. In person. Example: Demonstrating how to fold and stuff envelopes.

2. On the phone, via webinar. Via phone or webinar you can tell or show a virtual person how to do something.

3. Via video. if you show someone something via a webinar, record the webinar. That way, the next time you need to train someone, they can simply watch the video rather than requiring your time to train them.

4. Hypotheticals. In this case, you would give a few "if-then" scenarios to your hire and tell them what to do or say depending on what happens.

For example, you might write in an email to your hire, "Call Joe Contractor and ask him if the work is about 2/3rds of the way done. If it is, ask him for a range of days and times for me to meet him to do a walkthrough. If not, ask him when he expects it to be and call him back that day."

Step #3: Practice


After learning how to do a task, the hire must then attempt it on their own under your supervision. It's important that you monitor their work for a while until you are certain that it is being done correctly. Otherwise, neither of you will know if it needs improvement.

Find a way to watch them in action or to see the results of their actions. This might be hard for some of you, but let them fail. It is least distracting and demotivating for you to observe the entire process and save your comments for the end.

The whole point of training is for them to get used to the whole process on their own. NOW is the time for them to make mistakes. Hopefully you budgeted enough time for them to practice things a few times and get it right before crunch time.

The way to monitor them could be watching them in person, listening on the phone, or reviewing a finished product of some sort, like a design or written work.

Step #4: Feedback (Positive and Negative)

This is the part of training where you help them to improve at their job by pointing out things that could be done differently or better. I prefer to use the "Feedback Sandwich" approach, in which you tell them what they could do better in between two compliments so it's not harsh or overly negative.

For example, you could say:

    (Compliment) "Julie, this mail looks really good. You somehow found a way to fold the
    letters in just the right places so that they fit inside an envelope perfectly."

    (Critique) "You know, I read once that the better lined up the stamp is on the front of the envelope, the more people respond. Would you mind making sure they are all put on
    straight from now on?"

    (Compliment) "Thank you so much. That, plus the handwritten address, which looks so
    personalized I'd think it was coming from my mother, makes these mailers perfect."


Once you have given your feedback, the training cycle begins all over again. Your feedback
is their new explanation (Step #1). You may demonstrate it again if you feel you need to (Step #2), and have them practice it again (Step #3), until you decide that the results are good enough.

A Trained Assassin

When you have decided that your hire is capable of performing the task consistently on their own, they are now officially trained. Be sure to congratulate them on learning the task, and thank them for making your life easier.

And lastly, this rapid training system is not just something to use when they are first hired.

If at any time their performance falls behind, or you want to help them take one of their skill sets to the next level, or you think of something new for them to do, just follow these 4 simple steps again.

 

Suggested Resource: If you don't outsource, you can't compete. The math is simple...if your competitors are outsourcing and only pay $X to complete a task, and you pay $3X, $5X or $10X, your competitors will eat your lunch. You simply must outsource to stay competitive. Outsource the right way using Growthink's Outsourcing Formula. Learn more by clicking here.

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