Growthink Blog

How Could This Possibly Happen to A Rock-Solid Company?


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The conversation I had the other day started like many others I have with entrepreneurs.

"How can I help you?" I asked.

"I need money to grow my business," he said.

"So how far along is your business right now?" I replied.

Now, here is where things got a little strange.

In most cases, the entrepreneur says that they are just starting out. Or that they have been around for a year or two and have some customers and a nice revenue base.

But this entrepreneur responded, "Well, we're 7 years old and projected to do $120 million in revenue this year."

???  No, this was not the response I was expecting.

So, why does a company that's doing over $100 million in revenue need capital? To buy a competitor? To build market share since it's selling products at a loss?

While these are two valid reasons why more established companies constantly need capital, this company was actually very profitable and not looking for acquisitions.

So, why then did this company require capital?

Because it was growing too quickly and hadn't financially planned for that. You see, the company was manufacturing and selling products at a nice profit, but it needed to pay its manufacturing costs 90 to 120 days prior to when it received payment from its customers.

The result is a cash crunch.

The company has lots of outstanding orders. But it can't fulfill them since it can't lay out the cash to manufacture the goods. This is extremely frustrating for the entrepreneur, and potentially lethal (if customers decide to switch to a competitor).

Now, there are two key ways around this problem.

One, as discussed in Growthink's Definitive Guide to Creative & Alternative Financing Sources, is customer financing, whereby the customer pays for the product upfront or more quickly in return for some benefit (equity or price discounts).

The other is getting outside capital to solve the cash crunch.

The underlying issue here that you must understand is that "cash flow" is very different than "profitability."

Profitability compares your revenues to your costs. 

On the other hand, cash flow determines when, where and at what times cash is coming into and cash is leaving your company. And without proper cash flow projections, a fast growing company can find itself in big trouble. 

That's why it's critical that all companies, as part of their business planning process, prepare a Cash Flow Statement or forecast. And in fact, companies should prepare cash flow forecasts every month if not every quarter.

This is particularly important for companies who expect significant growth or those with seasonal sales fluctuations.

Your cash flow statement is roughly calculated as follows: Cash Flow From Operations minus Cash Invested in Equipment plus Cash Received from Outside Financing.

It gets a little more complicated than this, since Cash Flow From Operations includes things such as whether your accounts receivable (how much money you are owed from customers) is going up or down, etc.

So, the key takeaway is this - do NOT risk bankrupting or slowing the growth of your business because you don't forecast your cash flow statement every quarter or month.

If you need help, the financial model portion of Growthink's Ultimate Business Plan Template has a full, plug & play, financial model which includes your Income Statement, Balance Sheet and Cash Flow Statement, so you can accurately project what your monthly cash flow will be. 

Importantly, this will ensure that you can get financing, as needed, well BEFORE the months when you need it (and not risk your company's future).

Here's the link to Growthink's Ultimate Business Plan Template -  http://www.growthink.com/products/business-plan-template.

Growthink on the Town: At the 2009 Inc. 500/5000 Conference


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Why Every Entrepreneur Should Wear a Top Hat

Last week, I had the great honor of attending the annual Inc. 500/5000 Conference, which celebrates the fastest-growing companies in the United States.  Surrounded by the country's most inspired and innovative entrepreneurs, I was constantly amazed at what people can accomplish when they set their minds to it.  Truthfully, I took a look back at my life and career and thought, "Should I be doing more?  Am I inspiring others?"

It was a question that hung around me, like a text bubble in a cartoon, as I met and spoke with the many attendees, honorees, and sponsors at the event.  The answer came to me via multiple sources, interactions and conversations.    

The first of such was when I sat in a session hosted by Norm Brodsky, author of "The Knack", Inc. Magazine columnist, and notable entrepreneur.  For those who have yet to hear him speak, he's a cross between Mickey Rooney and Carl Reiner; so it's no wonder he's a dynamic CEO and writer.  One of his main credos in life is, "A smart person learns from his own mistakes; a wise person learns from the mistakes of others."  Brilliant.  As I applied this wisdom to my daily responsibilities with Growthink, I realized that it held an ultimate truth for ALL growing companies: analyze where competitors fall short or stumble, and make THEIR mistakes YOUR advantages.  In business planning, we do this all the time when we assess the competitive landscape: what can our clients do right, that predecessors did wrong?  By way of illuminating these insights for clients, I truly believe we help inspire them.  

While I was exiting the above discussion, a young man to my right looked at my name tag - which displayed Honoree, and said, "Congratulations."  Why did I have that moniker on my badge?  A compliment meant for Growthink Founders, Jay Turo and Dave Lavinsky, the designation let other attendees know that the company I represented was on the distinguished 500/5000 list.  Running into that same young man later - the founder of a recruiting firm - I learned that he aspires to be on one of the lists someday.  He humbly asked if he could send his business plan for review, to which I was very receptive and began speaking to him about his vision.  The fact that he was able to come to the conference and talk to people that were once where he is now, or who could help him set and achieve growth milestones, was something that he treasured.  Maybe one day, at another Inc. conference, I will see him again with Honoree on HIS name tag. Wouldn't that be something?

One of the most jaw-dropping moments of the conference was when Bob Williamson took the stage.  Serial entrepreneur and new author with "Miracle on Luckie Street", he came out to applause and started to speak about his experiences.  Jaws hit the floor when he admitted he arrived in Atlanta with only a few dollars, was homeless (living on Luckie St., no less), and began a rampage of drugs and felonies including heroin, crystal meth, dealing, armed robbery, stints in jail, and grand theft auto that led to a head-on collision and months in the hospital.  Long story short, he was an avid reader that discovered the Bible and - shortly after fully recovering - quit all vices cold turkey.  As we sat there, stunned, he brought the crowd to raucous laughter by admitting that "needless to say, [he] didn't have the greatest resume."

So why was he on that stage?  Well, he lied to get a job in the Glidden manufacturing plant and found a way to save them $50K on labels.  Several promotions, years, and companies later, he's a happily-married, soon-to-be great-grandfather who sold his last ground-up company for $75M.  

Whoa.  One thing is certain: I will never again pass judgment on anyone coming to Growthink for services.  

Can I do more?  Yes.  I can believe wholeheartedly in the people who rely upon the guidance of my company to make vital business decisions; and if, at any time, the road gets rough, I'll ask them, "Have you heard of Bob Williamson?"

The most memorable moment of the conference, however, was when U.S. Secretary of Commerce, Gary Locke, spoke in the general session on Thursday afternoon.  He announced a new initiative by the Obama Administration that will surely motivate those starting and running small businesses, whether left, right or center: the creation of an Office of Innovation and Entrepreneurship.   Along with an Advisory Committee/Board, the Office will enable the incubation of new and growing companies across the nation via education and a network of support (follow the Tweets at seclocke).  Echoing the sentiments of the President, Mr. Locke infused the room with a sense of confidence and belief in entrepreneurs, now and in the future, and their ability to exponentially impact the economy, employment, and the generation of new ideas.  Looking around me, the room was alit with the knowledge that each of us - by way of being entrepreneurs or working WITH them - could make a significant difference.

Everything culminated with an awards ceremony and gala, where "Puttin' on the Ritz" was a celebrated notion and all Honorees approached the stage in recognition of their ranking on the 500/5000 lists.  As I accepted on behalf of Growthink, I commended Mr. Brodsky on his top hat; very fitting for such a festive occasion.  It made think of a time when fashion statements like this were the norm for an evening out. During the Great Depression, more businesses were created than ever before; many people lacked money, but what they didn't lack was ambition, tenacity, and a good top hat.  Why is that, do you think?  While I don't expect we'll see a chapeau resurgence, I do think it's a relevant and bittersweet analogy about succeeding when the economic odds are pitted against you.  

With that said, there were so many other speakers from whom I gleaned inspiration.  Not possessing time to write a novella, I will capture their respective wisdoms below while wishing each and every reader tremendous success built upon fortitude, courage, belief, and the ability to endure.

Scott Griffith, CEO of Zipcar: 7 Steps to Success
1) Get the business model RIGHT
2) Use information as a competitive advantage
3) Keep it simple
4) Create a value-based culture
5) Sell the steak, NOT the sizzle
6) Have a world view
7) Innovate yourself, along with the company

Norm Brodsky: "Build a business like you're going to be in business forever."

Bob Williamson: "Bigger is sometimes better, but PROFITABLE is always good!"

Jill Blashak-Strahan, Founder & CEO of Tastefully Simple: 3 Things to Remember
1) Just start (many times it's the 'start' that stops us)
2) Know where you're going (which doesn't mean you always know what you're DOING.  Dream it, believe it, work it)
3) Don't stop (don't get sucked into fear; fear is the gatekeeper to strength)

Herman Chinery-Hisse, "The Bill Gates of Africa": "Everyone saw Africa as a problem; I saw it as an opportunity."

Ray Anderson, author of "Confessions of a Radical Industrialist", on the mindset that transformed him and led to his polluting company evolving into a GREEN company: "If business and industry must lead, then WHO will lead business and industry?"

Jack Stack, author of "The Great Game of Business": "Operate your business, every day, as if you could GO OUT of business.  A little paranoia goes a long way." (Mr. Stack ran his companies profitably through TWO economic down-turns)

And finally, per Tony Hsieh, CEO of Zappos.com: I don't have the exact quote, but suffice it to say that anyone who travels to Las Vegas and wants to visit the Zappos  Corporate Office in Henderson,  will be picked up by a Zappos shuttle, given a guided tour, and driven back to their hotel. Talk about customer service! (Perhaps I could wrangle a pair of shoes out of it as well?)

I hope to see many of you at next year's conference.  In top hats, of course.


Lessons from Two Married Shrinks on a Bus


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I just read this really interesting story about Dr. Doreen Orion in Psychology Today and wanted to share it with you.

Dr. Doreen Orion is a psychologist, as is her husband, Tim.

That's why she truly thought her husband was insane when he proposed that they give up everything and travel the country in a converted bus for a year.

But after two years of being nudged to do it, Dr. Orion finally gave in.

So, off they went around the country in their bus. And, during that time, they experienced it all... from a fire, a flood, an armed robbery and finding themselves in a nudist RV park.

Was it worth it?

According to Dr. Orion the answer is a whopping YES. In fact, enough so that she and her husband have decided to sell their home and live on their bus full-time.

So, what did she find? What did she learn?

Dr. Orion learned that "being comfortable" is not all that great. She said, "I hadn't understood how important it is to keep stretching myself, to keep trying new things. A certain spark I hadn't even known was missing suddenly came back into our lives."

The key for me is this -- it is the process of making yourself uncomfortable and stretching yourself when real personal growth and progress is made. As an entrepreneur, you MUST do things that make you uncomfortable. You can not let fear get the best of you.

Consider Johnny Carson who is well known for his severe stage fright. Fortunately that didn't stop him.

And consider the millions of great entrepreneurs who had the courage to develop their business plans and launch their business to the world.

Now, if you haven't truly launched your business, that is, if you haven't developed your business plan and raised capital (if needed for your business), then now is the time to do it.

And, to "make you an offer you can't refuse" (to borrow the line from the great mafia movies), until this Thursday at 5PM EST, I have a really special offer for you.

The offer is this:

For just $1, you can instantly download Growthink's Ultimate Business Plan Template and get a 14-day trial to GrowthinkUniversity.com

To learn more, and take us up on this $1 special offer, click the link below to watch a video that explains it all:

http://www.growthink.com/products/template-special-offer

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An Entrepreneur's Most Controllable Success Factor: An Interview with Dr. Basil Peters


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The other day I had the pleasure of interviewing someone who I really admire - Dr. Basil Peters.

What I really like about Basil is that he's had success in so many positions. As an entrepreneur, he co-founded Nexus Engineering, which he grew to over 300 employees and sold to Scientific Atlanta.

He's also had success as a venture capitalist as CEO of the venture capital fund, BC Advantage Funds. And he is a successful angel investor, and co-founder and CEO of an angel fund called Fundamental Technologies II.

Basil also writes a blog on best practices for angel investors and entrepreneurs at www.AngelBlog.net and he is an Entrepreneur in Residence at Simon Fraser University where he spent 15 years as an Adjunct Professor of Engineering Sciences.

And finally, Basil is the author of a great book on exit strategies called Early Exits: Exit Strategies for Entrepreneurs and Angel Investors.

So, with this wealth of experience, I knew that I would learn a ton from the interview, and more importantly, be able to pass on several nuggets of wisdom to other entrepreneurs.

And he delivered.

In fact, Basil made one statement during the interview that I've thought about nearly every day since we spoke. Here's what he said:

"...So I've come to believe that it's a law. I believe that successful entrepreneurs have mentors, and I also believe that it's the most controllable success factor - it's the single thing entrepreneurs can do that would dramatically improve their chances of success that they can control."

An entrepreneur's most controllable success factor. Those are pretty strong and pretty wise words. Let's think about this. From the perspective of a proven entrepreneur and investor, having a mentor is one of the smartest thing an entrepreneur can do to improve their chances of success.

And Basil told me that virtually every successful entrepreneur that he has met has had either a formal or informal mentor.

So, why wouldn't every entrepreneur have a mentor?

Let's start with me. I don't have a formal person that I call my mentor and who considers me their mentee.  But I have had several informal mentors. An uncle who's a successful business man. Mega successful Growthink clients (I define "mega successful" as having exited companies for $100 million or more) who I've worked very closely with for years. And professors who have taught me and answered my numerous questions over time.

Now for those of you entrepreneurs who do not have mentors, I'm going to give you a hard time....Let's go over some excuses you might have:

  • I don't have enough time
  • I'm afraid to ask a potential mentor for fear I might get rejected
  • I don't know who to ask to be a mentor

Unfortunately, none of these excuses are valid.

Finding a mentor shouldn't take all that much time, and this time will possibly have the greatest ROI of all your time investments.

Regarding fear of getting rejected, you'll simply have to overcome this. The fact is that you probably will get rejected by some potential mentors. That's ok. But you can't be afraid to ask. And to persevere until you find a great mentor.

Like everything else in entrepreneurship, rarely does your first effort work as planned. You need to persevere and keep trying.

Now finally, with regards to not knowing who to ask, I believe that any business person who has achieved success and who you respect and admire can make a great mentor.

Wow, 500 words so far, and I've only touched on one of Basil's great points. To get many other great insights from Dr. Basil Peters, listen to the interview.

Click below to hear excerpts from the interview:



To download the full interview and/or transcript click here.

An Interview with Renaud Laplanche, Founder & CEO, Lending Club


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I recently had the opportunity to speak with expert entrepreneur and founder/CEO of Lending Club, Renaud Laplanche.

Renaud is an expert in raising capital, as he has successfully raised multiple rounds of venture and other capital -- totaling over $50 million for both Lending Club and Triple Hop Technologies, of which he was also the founder.

So I was excited to ask him questions about raising capital for one's business and how LendingClub can help individuals and entrepreneurs. In the interview we covered:

  • How LendingClub works
  • The importance of your FICO score in getting a peer to peer loan
  • How your track record of success factors into a successful capital raise
  • That factor matters the most in selecting a VC
  • Renaud's single most important tip for those looking to raise funding


Click below to hear excerpts from the interview:

 

 

To download the full interview and/or transcript click here.


Creative Transformation - From Idea into a Business


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Starting a venture and launching a product/service is not an easy task as can be testified by the thousands of individuals that start a business every year.

Yet many of these individuals overlook what I term, "Creative Transformation," the thought process, emotions, and actions needed to take one's idea and transform it into a viable business.

Often reality is not representative of what we think/dream in our heads. This predicament is often seen in start-ups in which entrepreneurs have a great idea but when developing that idea into a business the results may be a venture that is not representative of what they thought.

What causes this discontinuation?

Each case is different, but for a majority of cases a mix of a misguided thought processes, escalated emotions, and ineffective actions may lead to an unsuccessful venture. A recent client of mine, Alex Wagenheim, has experienced Creative Transformation and exemplifies how an entrepreneur can overcome it.

Alex Wagenheim is an ambitious and true entrepreneur by heart who has identified an unmet need in the small business market: the need for simple and efficient software. Alex's first major obstacle as an entrepreneur was being able to articulate his idea and vision into words so that our consultants could help him craft a business plan.

Alex went through a thought process where he had to analyze his idea and determine the value proposition that his service would provide to his potential customers. This thought process was a struggle as different variables had to be considered such as existing technologies, the market needs, and the level of sophistication of the customer base.

Each of these areas revealed more questions that needed to be answered and from there Alex experienced emotions of excitement when he discovered a large market for his venture.  But he became apprehensive when he realized that in order to launch his venture properly a large amount of work would need to be completed. Alex stayed optimistic and decided to curtail his frustration and create a plan of action.

Overcoming emotions and creating a plan of action is often the breaking point for many entrepreneurs. When the thought process, emotions, and risks are all negative it is typical for an individual to abandon their idea. Plans of action are abandoned and what is left is just an idea of what could have been.

At the onset of Creative Transformation, Alex realized that he needed help to develop his venture and service. The emotions he was feeling prompted Alex to react and seek the consulting advice of experts.

With Growthink's help Alex was able to transition smoothly through Creative Transformation and execute on the proper actions that will increase the success of his business. Creative Transformation was not a breaking point for Alex, but was the catalyst that prompted him to search for help from professionals.

Alex is currently completing a market survey for his target market and will develop the first beta of his software in the near future.


Capital Raising Bootcamp - Registration Now OPEN


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I’m excited to announce that today is the first day of registration for the Capital Raising Bootcamp!

To register your spot, go here.

And here are a couple of important updates about the Bootcamp.  

Update #1: I realize it’s the middle of summer, and many of you have probably planned vacations – or may even be on vacation right now (lucky you!).  To account for this, I’ve decided to provide recordings and transcripts as an added bonus when you register, in case you have to miss all or part of one of the sessions.  

Update #2:  I’ve decided to add an extra day to the Capital Raising Bootcamp curriculum, to allow for questions-and-answer time.  I’m going to dedicate this 4th day (Friday August 7th) entirely to Live Q&A.  

So, now, the finalized Capital Raising Bootcamp curriculum/schedule is as follows:

Day 1: Tuesday, August 4th:  Essential Overview of Raising Capital
Day 2: Wednesday, August 5th:  Venture Capital and Angel Funding
Day 3: Thursday, August 6th:  Debt, Grants, and Creative/Alternative Financing
Day 4: Friday, August 7th: Questions and Answers

(Each session runs from 2:00pm EST to 3:30pm EST).

Remember: There are only 50 spots available.  

We are putting a strict limit on registration in order to make the experience as valuable as possible for each participant – and, most importantly, to allow enough time for each person to have his or her questions answered during the Q&A time.  

To register go here.





Capital Raising Bootcamp Preview


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Here is a video that explains precisely why raising capital is so important to your business.

And, importantly, it includes details regarding why it’s critical that you understand how to raise capital from multiple sources, even if you currently are only seeking one particular type of capital...

Near the end, I reveal a fantastic (and perhaps my favorite)  tip, which is the single most controllable factor that you have to improve your success in both fundraising and successfully growing you business.

 


Israel Venture Capital: The Silicon Valley of the East


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Israel, more fondly nicknamed as the “Silicon Valley of the East”, is the largest recipient of United States venture capital, absorbing 7.7% of outbound investment dollars. For a small and relatively new country, Israel has jumped into the limelight as one of the largest producers of new technologies. The country is responsible for some of the most prominent inventions over the past several decades, including drip irrigation, instant messaging (ICQ), Intel’s Centrino computer chip, and voicemail technology.

Israel also holds the second greatest number of foreign companies on the NASDAQ, second only to Canada. Some of the more prominent multi-billion dollar corporations listed on the exchange include TEVA Pharmaceuticals (market cap: $41 billion), the world’s largest generic drug manufacturer, and Gilead Sciences (market cap: $43 billion), which develops therapies for viral diseases, infectious diseases, and cancer.

In 2008, over $2 billion was invested in 480+ Israeli high-tech companies, an increase of 18% over the prior year. Roughly 50% of funds came from outside of Israel, primarily from the United States, which has also shown significant investment in Israel by building Israeli satellite offices for American companies. In 1974, Intel chose Israel as the location for its first design and development center outside the United States, and thereafter opened 8 locations, employing over 5,300 employees. International companies such as Microsoft, IBM, Nokia, and Motorola have also followed in the footsteps of Intel Corporation by opening offices in Israel.

So why has Israel drawn so much VC funding and attention from the international business community?

Israel has the highest number of university degrees relative to the population and the largest number of scientists per capita in the world, with 145 scientists per 10,000 citizens, in comparison with the United States at 85 per 10,000. Additionally, Israel has the highest number of start-up companies in the world outside of the United States.

Israelis also receive extensive technical training through their compulsory military service and have adapted several advanced military technologies to other applications. For example, Given Imaging, which in 1998 came out with the first ingestible disposable video camera for viewing and diagnosing the small intestine, developed and adapted their product from an electro-optical device for military missiles.

The enormous pool of talented workers in Israel is also much more affordable for technology companies than those in Silicon Valley, and the government has been a strong supporter of growth in the hi-tech sector. The Israeli government provides incentives and grants to encourage capital investment and scientific research within the country.

Growthink has worked with dozens of Israeli entrepreneurs throughout its ten years of operations and has several strategic alliances with individuals within the Israeli Venture Capital community.

A Venture Capitalist, A Corporate Investor & Two Angels - Animoto is Listening


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When entrepreneurs ask me what sources of capital to tap to fund their businesses, my answer is generally "as many as you can."

I often point to companies like Google, who relied on credit cards, angels and venture capitalists in its early days.

Recently Animoto heeded my advice. In it's most recent round of funding, Animoto raised $4.4 million from a venture capitalist (Madrona Venture Group), a corporate/strategic investor (Amazon.com), and two angel investors: iStockphoto founder Bruce Livingstone and angel investor Jeff Clavier (Clavier is also the founder and managing partner of SoftTech VC, a seed-stage venture capital firm).

What's even more interesting is what Animoto is. Animoto is a website where you can quickly and easily turn photos into videos. Why is this interesting? Because you can use Animoto to create a video about your company to market it to investors.

So not only is Animoto teaching each of us about how to best raise capital to fund our growth, but is offering a tool to help us market ourselves to investors.

To see how it worked, I created an Animoto account (doesn't cost anything and is quick to do) and created a quick video. I was home at the time with my daughter, so we did it together and created one with a few of her recent horseback riding pictures.

The good news is that it was really simple to create the video. The negatives were that 1) rendering time was slow (plan to wait at least 5 minutes before the video is ready to be viewed for a 30-second clip), and 2) the non-paid version only allows your video to last 30 seconds. Fortunately for $3 per video, or $30 for a year, you can create full-length videos.

Overall, Animoto is a great lesson in capital raising and a great tool to use when raising capital for your business!

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Jay Turo

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