Written by Jay Turo on Sunday, December 8, 2013
As has always been the case, most commercial and neighborhood banks only lend against quickly “liquidatable” assets or at a small multiple of historical cash flow.
Given that most startups and small businesses have neither of these, for them attaining traditional bank financing has such a low probability of success that it is rarely even worth the time to pursue.
So, where should the creative and committed small business owner go for funding when the banks say no?
Here are three places to look:
1. Crowdfunding. Donation - based crowdfunding platforms like Kickstarter allow entrepreneurs to raise capital from one's social and professional networks.
And Equity-Based Crowdfunding, approved by Congress in April 2012, is very close to being through SEC rule-making.
While investor appetite will take time to develop, as it does the available pool of investable angel and venture capital (currently approximately $50 billion annually) will expand dramatically, and in turn closing the gap between the tens of thousands of companies seeking capital and the investors interested in providing it.
2. Family and Friends. Since time immemorial by far the most popular funding source for new and small businesses is to ask those that know you best to stake your entrepreneurial journey.
For sure it is emotionally loaded, as so many of us don't want to mix our personal and professional lives, but it does provide a great “gut check” as to how serious, committed, and “sold” you really are on your business.
Well, it is one thing to lose the money of strangers, quite another to do so of Uncle Jed who you'll be seeing each holiday season.
A way to “reverse the frame” in these family and friends dialogues is to recognize that while yes, a relative or friend is doing you a big favor by investing in your business, you in turn are returning the favor and more by providing an opportunity for an outsized investment return along with the unique excitement of being a stakeholder in a small business.
3. Sell Services. Especially for technology and consumer product companies, the long pathway of research, product development, and establishing distribution mean that often years can go by in the dreaded “pre-revenue” stage.
So as opposed to relying solely on investment capital to “deficit finance” this gestation period, how about generating some cash through selling consulting services in the interim?
As examples, a company building a new and proprietary mobile application could in parallel build apps for others, a new restaurant could do catering, or a consumer product business could sell research services regarding their market niche.
And, if structured right, in addition to paying the bills, consulting projects like these can also be utilized to iterate one’s product development forward.
Use these three strategies - and do so as with all matters related to starting and growing a business with creativity, determination, and persistence - and soon you will be laughing all the way to the bank.
This blog post is a reprint of an article written by Jay Turo in Vistaprint.com’s Small Business Blog.
Written by Jay Turo on Monday, November 25, 2013
To read Growthink CEO Jay Turo's article from this week’s Entrepreneur Magazine as to how to make the right bets when making risky business decisions, click
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Written by Jay Turo on Monday, November 18, 2013
Jeff Bezos is a great hero and role model for all entrepreneurs that dream of doing something really, really big, and…pulling it off.
Like all legendary business leaders, he also has a number of management and creative peculiarities well worth studying and emulating.
One of my favorites is how Jeff manages the meetings of Amazon’s senior executive team, as described last year when Fortune named him Businessman of the Year:
“…the Amazon CEO's fondness for the written word drives one of his primary, and peculiar, tools for managing his company: Meetings of his "S-team" of senior executives begin with participants quietly absorbing the written word. Specifically, before any discussion begins, members of the team -- including Bezos -- consume six-page printed memos in total silence for as long as 30 minutes”
Bezos goes on to note that “Writing a memo is an even more important skill to master." Full sentences are harder to write," he says. "They have verbs. The paragraphs have topic sentences. There is no way to write a six-page, narratively structured memo and not have clear thinking."
Now when I learn of things like this, I understand why the success of a Jeff Bezos is no accident.
Remember, in addition to founding and leading one of the most successful technology companies of all times, Jeff Bezos also made arguably the greatest investment of all time.
The story is well-known but worth re-telling. In 1998 when Larry Page’s and Sergey Brin’s Google offices were a Menlo Park, California garage, Bezos invested $250,000 of personal funds into the fledgling startup.
When Google went public in 2004 that $250,000 investment translated into 3.3 million shares of Google stock. At Google’s IPO that represented a stock share position worth over $280 million.
While he doesn’t disclose how many of those shares he still holds, at the current price of Google stock they would represent an investment position worth over $2 billion.
So, what is it about what makes Jeff Bezos tick that allows him to have such great success when so, so many others - with similar ambition and arguably even greater talent - fall by the wayside?
I recently read a great book (bought on Amazon, of course) by Mark Helprin called "A Soldier of the Great War."
It is the amazing story of an Italian PhD student in aesthetics who was drafted into the Italian Army in World War I. In addition to being an unbelievable barnburner of a read and a tale of love and heroism and adventure, it is also the story of a young man trained as an "effete" intellectual struggling to come to grips / find wisdom from and peace with the horrors of war.
The story ends with its hero - Alesandro Giuliani - as an old man looking back on his life of books, of art, of family, of adventure, and of war and loss.
In the end it is the intersection of these two - of his great intellectual journeys tempered into character and resolve via the various "mortifications of the flesh" of his life - hard work, self-sacrificing, courageous deeds and words, and the willingness to push himself to the limits of one's endurance.
And from this coupling of intellectualism and ideas with a life of action and a love of the fight does flow the genius, power and magic of a Jeff Bezos.
So at your next meeting, do like Jeff and put down the PowerPoint and pull out the pen!
Written by Jay Turo on Monday, November 11, 2013
To read my article from this week’s Entrepreneur Magazine as to whether it is or not and if so why, click here.
Written by Jay Turo on Monday, November 4, 2013
It is hard not to laugh when I hear tired old refrains like "Nobody reads business plans anymore" or "In the world of lean startups, there is no time for strategic planning."
Why do otherwise intelligent and well-meaning businesspeople say and think things like this?
Well, for starters as human beings we all struggle to emotionally grasp the impact of the history not made, of the things that don't happen.
You see, poor strategy does not manifest itself as much in high profile flame-outs as perhaps it did in days of yore (see Pets.com, eToys, etc.) as much as it does in nothing of note ever being accomplished.
As in companies that grow slowly, if at all.
And make no profits.
And are led by entrepreneurs whose talent and work ethic doesn’t translate into the kind of pay and lifestyle they seemingly deserve.
Missed opportunities, lost years, unrewarded work.
These are the real but hidden costs of poor strategy.
Now, the other big misconception around strategic plans is confusing the “form of deliverable” with the process itself.
Again, this is a case where otherwise smart and well-meaning businesspeople make an obvious, but critical error: They equate the plan with a physical document.
And when done poorly, more often than not a document that is only tangentially connected to the “real business” it supposedly represents.
Now, the good news is that the literature is filled with great best practices - tested over thousands of businesses - as to how to lead strategic planning processes that are connected to the actual marketing, sales, operations, and finances of a company.
Even better news: Inexpensive, effective, and everywhere accessible business software-as-services are connecting the dots between “big” strategy and the “small” to do’s, tactics and action items at the living, breathing heart of a business.
Software like Basecamp, Klipfolio, Crisply, Results.com, Posthaven, Chatter, Copytalk, Nudgemail, Evernote, Survey Monkey, MVPSocial, and dozens of others (especially the Growthink Dashboard).
This is where 21st Century strategy lives. How 21st Century businesses win.
Now, as for those who prefer to cling to their tired clichés, well I guess they can always reminisce about how things were back in the 20th Century.
But for those who need more than nostalgia to sustain them, there has never been a better time to get on the technologically win by doing strategy right.
Written by Jay Turo on Monday, October 21, 2013
Why am I an angel investor?
Well, for starters I have been very fortunate in my life to come from a family of entrepreneurs who deeply understood that the blessings of our way of life depend on our thriving free enterprise system.
So, from an early age, at the top of my respect pyramid were those that created wealth via their own hard work, creativity, and opportunistic sense of risk and reward.
Or, more simply, the entrepreneurs, the owner-operators, “the risk takers, the doers, the makers of things.”
Those brave souls that embody Picasso's famous credo of "work
being the ultimate seduction.”
From whom business is far more than simply a way to make a living.
AND as they do it, they make money.
A lot of it.
In fact, the vast majority of these smaller companies earn a far higher return on capital than their larger publicly-traded brethren.
In fact, companies on the Inc. 5000 - a list of the country’s fastest-growing privately-held companies - average annual revenue growth of over 70%
And a good number of these companies take in outside equity investment, primarily to accelerate their growth.
Some from professional investors - private equity and venture capital firms - and some from individual, “angel” investors.
And when the better among them do, I take a look. Here’s why:1. High Rate of Expected Return
. Angel investing is by far the highest expected rate of return form of investing, Research from the Kauffman Foundation Angel Returns Study
and the Nesta Angel Investing
study, compiled by Robert Wiltbank
, have demonstrated that the "...average angel investor (across the U.S. and UK) produced a gross multiple of 2.5 times their investment, in a mean time of about four years."2. Home Run Potential
. Smaller operating companies are the only form of investment that offers true "home run" potential.
Almost all great fortunes have been made via positions in small companies that became big. The list is legion, and runs from Standard Oil, DuPont, and Ford, through IBM, Hewlett-Packard, Wal-mart, Microsoft, and Oracle, to modern day supernovae like Amazon, Google, LinkedIN, Facebook, and Twitter. 3. Connectedness
. Perhaps my favorite, investing in smaller, private companies offers a connectedness, realness, and "human scale" interaction best compared to philanthropy.
It is the spiritual opposite of index, derivative, and Federal Reserve tea leave gazing that so unfortunately is what the media now considers “finance.”
Quite simply, angel investing is one of the last, pure forms of doing good while doing well…
…making a high personal expected, economic return decision while
contributing to the entrepreneurial force of the world and providing fuel for innovations of all types that make it a better place.
What is better than that?
Written by Jay Turo on Monday, October 14, 2013
Watching the disaster of a process that is the D.C. budget drama, I found myself with a curious reaction.
And maybe even a little bit of a selfish one.
It was, by golly, how happy I am that I get to work in this so dignifying world of business and free enterprise and not have to waste my precious life energy on such nonsense.
And then feeling a bit more generous, I felt happiness for the hundreds of millions if not now billions of people worldwide that are able to do likewise.
To work in or at a business, just a plain old simple business.
A software development firm. A medical device company.
An accounting firm. A roofing company. An insurance agency.
A tanning salon. A yoga studio. A specialty retailer. A freight forwarding company.
Walmart. A donut shop.
Now don't get me wrong, government is important.
And that those that work in it often are mostly truly public servants and we should be thankful for their service.
And yes, our vexing public policy challenges require our attention and concern.
But it isn’t that important.
So much of the real action in this world of ours takes place in the micro.
In that wonderful world of business production.
The world of multi-billion dollar companies like Cisco utilizing information technology to accomplish the accounting miracle of closing their books each and every day.
The world of General Electric growing great managers and business leaders time and time again.
The world of amazing customer service at places like Zappos and how that service dedication translates to strong profits that fuel our world.
The world of that sumptuous donut fresh out of the oven.
The world where, with a click of a button on my phone, I can buy a mobile app that sends me my text messages as e-mails (but don't ask me why I want this).
The world where I order new leather seat covers for my car, from Greece, on Ebay, and at a fraction of the price of what the dealership is asking.
And oh yes, by doing so making a small dent in that nation's debt and fiscal crisis.
And it is the world of my own business’ unique processes and project tasks and how we will profit from this burgeoning new world of global service exports.
Yes, the real and meaningful action is in this amazing 21st century global world of ours of hundreds of millions of points and more of concentrated business production.
That creates for all of us, this transcendent potpourri, this never-ending buffet, of essential, helpful, frivolous, sometimes conspicuous, but so blessedly diversified consumption.
And you know what else?
History has taught that the more folks focus on getting great at what they particularly produce, no matter how great and glamorous or small and prosaic it might be.
Well, it is by so doing that all of our fiscal cliff and other challenges as if by some magical hand just seem to take care of themselves.
Written by Jay Turo on Monday, October 7, 2013
The saddest lament of entrepreneurs and owners of private companies seeking to sell and exit their companies is that they want their businesses to be valued on their future potential, and not its CURRENT profitability.
Given that the typical, offered purchase multiples for smaller businesses – as in those with less than $5 million in EBITDA – can be as low as 1 or 2 times last year’s tax return profits, this is understandable.
In fact, we often see purchase offers based on multiples of MONTHLY earnings – not exactly the “happily ever after” exit dreamed of when these businesses were founded!
Yes, getting a business valued and sold based on factors other than its earnings while by no means impossible nor uncommon, is HARD.
Yet…there are literally hundreds of companies every month that sell for very high multiples of profits, for multiples of revenue, and even companies that are in a pre-revenue stage that sell every day just on the value of their technology, their people, and their work processes.
What do they?
Well, here are six things that companies that sell for high multiples do that you can and should too.
1. They Are Technology Rich. Companies rich in proprietary technology in all its forms – patents, processes, and people – are far more likely to be valued on factors other than profitability and correspondingly attain purchase prices beyond a few times current year’s earnings.
As an example, the likelihood of a medical device company being sold or taken public is twenty times greater than that for a services - or a low-to-no proprietary technology company - doing so.
2.They Have Gold at the End of their Rainbows. Businesses that sell for high multiples communicate exciting and profitable future growth.
Their managers demonstrate understanding of the big 21st century “macros” - i.e. how technology evolutions and globalization will impact positively and negatively their industry, market, customers, and competition.
Concurrently, these managers understand the micros well too, especially how their business’ human capital will adapt and grow as change happens.
All this translates into well-developed stories that if their businesses aren’t making it now, there is gold (and a lot of it!) at the end of their rainbows.
3. They Are Great Places to Work. Businesses that sell are usually characterized by that good stuff that we all seek in our professional environments.
They are culturally cohesive. If they don’t have low employee turnover, they at least have well - defined career progression paths. And their compensation policies align and pay well with desired performance.
Quite simply, they are great places to work and are reputationally strong within their industries.
4. They are Process and NOT People Dependent. Businesses that are overly dependent on charismatic owners or a few dynamic salespeople or engineers rarely sell because the majority of their value can simply walk out the door tomorrow and never come back.
Important aside: for those entrepreneurs that harbor the desire to sell but not the ambition to build a meaningfully sized, process-based organization should then focus their exit planning almost exclusively on technology and intellectual property development.
If they are unwilling / unable to do this, then they should put the idea out of their head for now and invest this energy into more meaningful pursuits.
Like my favorite - making absolutely as much money today as one possibly can.
5. They Have Good Advisors. Businesses that do everything right but have messy financial statements because of poor accounting, messy corporate records because of poor or non-existent legal counsel, and messy “future stories” because of poor exit planning and investment banking advice, simply do not sell.
Sure, they may get offers, but invariably these deals fall apart in diligence and at closing.
And as anyone that has ever been through a substantial business sale process knows, almost nothing in business is as time and energy-draining as is getting close to a business sale and not getting it done.
6. They Get Lucky. Luck remains a fundamental and often dominant factor that separates the businesses that successfully sell from those that don’t.
The best entrepreneurs and executives don’t get philosophical nor discouraged by this but rather they embrace it.
They try new things. They follow hunches. They make connections.
They start from the pre-supposition of “accepting all offers” and work backward from there.
They and their companies can be best described as “happy warriors” – modern day action heroes ready for the fight. When they get knocked down, they smile, wipe their brow, and get right back in the fray.
And you know what? Our happy warriors, living and thinking and working like this day after day channel some mystical power and draw great luck and more to themselves and their companies.
Yes, companies that sell are the good and lucky ones.
Follow the advice above and fortune just may smile on your company and those you invest in too.
Written by Jay Turo on Monday, September 30, 2013
This past week, I had the good fortune to attend the thinkB2B conference at Google’s Mountain View headquarters.
At it, some of the world's best Internet thinkers and researchers presented on key trends in business-to-business (B2B) online marketing, sales, and client engagement.
My three takeaways:
1. Mobile, Mobile, Mobile. All of the presenters, from Forrester, Motista, The Marketing Leadership Council, to Google itself, drove home the point that mobile browsing, shopping and buying is growing at such a rapid rate that in a few short years it will in fact become indistinguishable from the traditional, desktop-driven Internet.
This is obviously having a dramatic impact on not just consumer markets (i.e. tweeting and texting Millennials), but on B2B markets and interactions as well.
Which leads to takeaway number two…
2. Personalization. As well demonstrated by this awesome Grainger ad, even older line industrial companies and brands selling to other old line companies now must connect their brands and messaging to the personalized needs, wants, fears, and aspirations of individual buyers.
In other words, it is no longer enough to just demonstrate business value (i.e. functional benefits and business outcomes), but personal benefits must be communicated as well.
Things like promotion, popularity, influence, and confidence.
AND do so in a way “that delights, inspires, and surprises…and makes a person want to own it, riff on it, and share with others…”
Yes, this is hard.
But when done right, the rewards can be the kind of word-of-mouth viral campaign effects that to date have only been available to consumer brands and marketing campaigns (see Old Spice, DollarShaveClub).
3. Multiple, Digital Touchpoints. From personalization of message follows multiplication of medium.
With B2B buyers porting their iPhones and Galaxies-trained “always on, at my fingertips” sensibilities to the work place, B2B sales cycles are now increasingly “multi-dimensional.”
These cycles involve not just in-person and on the telephone analog selling, but also multiple digital touchpoints and nudges - texts, tweets, LinkedIn connects, YouTube favorites, Facebook likes, and more.
These are the new rules of the B2B marketing game.
And we either learn to play by them hard and well…
…or we consign ourselves to being left behind in our mobile, so very personalized, sometimes annoying, but also so often delightful and always opportunity-filled world.
Written by Jay Turo on Monday, September 23, 2013
The word from the Fed last week that it would continue with its quantitative easing - purchasing approximately $85 billion per month in U.S treasury bond and de facto continuing to expand the country’s money supply - signaled that that the era of extremely low interest rates will continue.
Predictably, stock markets worldwide cheered along with it being seen as a very positive signal for the well-recovering US housing market.
Now, as to what it means that the Fed has, since 2008, expanded the U.S. Money Supply almost 400% - from $800 billion in 2008 to over $3.5 trillion today?
Well, it doesn’t take a Nobel Prize in Economics to reliably predict the inevitable outcome…
Now, in spite of its strong negative connotations, an inflationary economy while extremely painful for very many, also offers opportunities to profit and win.
Here are three:
Winner Number One: Debtors. This is obvious, but easy to overlook. Those owing money at set interest rates - homeowners with 30 year fixed mortgages and companies issuing bonds - will benefit enormously as the inflation train rolls in.
Let’s look at a worst but not overly improbable case - a hyperinflation period where all prices rise 10X, resulting in a $500,000 home able to be credibly listed for $5 million.
It sounds crazy, but over the years in countries where hyperinflation has hit, this has not been an uncommon occurrence.
Now let’s say that home was financed (or refinanced) with a $400,000, 30-year mortgage at a fixed rate of 3.5%.
Well, with its price increasing from $500,000 to $5 million - while the amount owed on it remains fixed - all of a sudden the house’s equity to debt ratio skyrockets from 20% to 92%!
Winner Number Two: Companies with Pricing Power. Businesses with the ability to increase prices quickly without seeing sales plummet - think luxury goods and easily adjusted staples like gasoline at the pump - will hold significant advantages over businesses constrained by “stickier” prices.
Examples of the latter include services like mobile phones contracts and gym memberships, and the classic example of restaurants not increasing prices because of the cost of printing new menus.
Winner Number Three: Private Companies for Sale. My favorite, as there is no greater form of an entrepreneurial, economic success than a sale of a business at an attractive price.
In a world of rising prices, the acquisition appetites of larger companies increase as their cost of money - as driven by their valuation multiples - decrease.
This is most evident for public companies, now trading at a rich 18x earnings (S&P 500), who are able to buy smaller, usually private companies with the relatively cheap currency of high multiple public equity.
This frothiness also drives the financing environment, where buyers (investors) and sellers (entrepreneurs, companies seeking capital) more easily strike higher risk, higher valuation deals (see Fab.com, HootSuite, and scores of others) with an ease that isn’t there in a flat or deflationary environment.
So, if you're an entrepreneur, think about accelerating and intensifying both your financing and exit planning efforts.
And for investors, remember that the worst strategy in an era of rising prices is to be standing still and sliding away in fast depreciating cash.
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