Business Mentoring for Entrepreneurs
Bill Warner Wednesday, February 17, 2010
Approximately 26,000 new companies are formed each year in North Carolina. In that same year, over 23,000 companies fail due to poor management and operational mistakes. The statistics are worse in rural and minority populations. This means that good ideas go to waste along with the grant and investor funds that helped get these companies started. As a result, the potential growth of revenue and new jobs is lost also.
If we had assistance for entrepreneurs who are struggling to create successful businesses, the failures should decline considerably. Entrepreneurs should be seeking out business mentors that can help them through the early years of their business.
EntreDot™ Connects the Dots for Entrepreneurs
For the majority of the companies that fail, the missing ingredient that could have ensured their success is basic business-operations “know-how.” This is the void that EntreDot™ fills. At no cost to them, EntreDot™ provides business mentoring to entrepreneurs and helps them make the right decisions as they start and operate new companies.
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Managing in an Uncertain Economy
Bill Warner Monday, February 01, 2010
There is no one single thing that will protect your business in this economy. You need an array of actions to maximize your chances of getting through this downturn and pull you through what might be in store for us, whether it’s further depression or looming inflation.
Cash remains king
Have you tried to get a business loan lately? Pretty tough isn’t it? Better take a look at your line of credit and see if you can get a higher limit and a better interest rate over a longer period of time while you can.
Take a really hard and pessimistic look at your cash position. How long will it last in the grimmest of sales forecasts? Establish refreshed limits on your cash reserves and then create the cost and expense budget that would achieve it.
Have you looked at your accounts receivables and their aging? Do it now. If needed, establish new goals for collections and execute them with discipline.
Of course, manage expense
Take a more insightful approach to managing expense. It’s not just a budget cutting exercise, although you may find unnecessary things to eliminate. More importantly, it’s a matter of getting more for your dollar.
This is about working smarter, being more focused and increasing productivity. Consider things like:
- Taking stock of your knowledge of your market and determine if there are better ways to reach your customer
- Looking for ways to reach additional customers within your current market, with essentially the same marketing dollars
- Creating teams of people that look at process improvements in marketing, sales, development, manufacturing and customer support, looking for ways to be more productive. Constantly ask why we do things they way we do them. Give them a reward when they find substantial improvements
- Analyzing your lines of business, bringing focus on those that are performing poorly. Find out why and fix them or eliminate them entirely
Communicate
Often overlooked, communications is even more important in tough times. When employees are left in the dark about the business situation, they will surely make things up based on any observation they make or rumor they hear. As they make up the situation for themselves, they will take care of communications for you by simply telling others what they believe to be true. Pretty soon, your business picture is painted with a brush you never held.
It’s time to over-communicate. Use whatever means of communication you have to your employees:
- Frequent all hands meetings
- Management meetings with stress on getting information to employees
- Newsletters to all employees
- Make a point of walking around every day, talking to everyone you meet
Most employees can deal with any news you give them, as long as it is the truth and you are realistic. When employees know the truth and the ramifications of it, they will work hard to achieve the company’s goals.
Get the best from the best
Take the time to realign everybody’s roles and responsibilities with the company’s goals. Everybody needs to understand what they have to do and why they are doing it. This will turn out to be a giant productivity improvement by getting everybody on the same page, and being able to clearly see how everybody’s job fits into the strategic plan for the company. It will help eliminate unnecessary work that is not important to achieving their goals.
It’s also time to put more discipline into managing the performance of people. This means setting realistic expectations, working with employees to meet them, and rigorously assessing their performance. This will bring the best forward as they rise to the challenge and will weed out those that are not been performing.
Just as in most start-up companies, you need all “A” players, because everyone has to be an outstanding performer to get you through the tough times.
Look to the future
In a way, this is all getting you repositioned for the good times. You business will come out of the downturn being stronger, more focused, more productive and with excellent people. Take the time also to look at new business areas you might attack when you are ready to spend some of your cash reserve.
Do the market research that will lead you to new opportunities. You are looking for the next great deal in which to invest your hard earned cash. You may find an acquisition or new partner that you never expected. Your new found strength may be just what they need at a price that is very attractive to you.
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Successful VC’s “Stay Fresh”
Bill Warner Thursday, January 28, 2010
I just read an amazingly refreshing perspective by Greg Gretsch in PE HUB. It’s all about what it takes to be a successful VC. It is counter-intuitive, but makes a lot of sense.
A Fresh View of a Successful VC
With only ten years as a venture capitalist, with some very successful investments and lucrative exits, Gretsch is worried about becoming stale and out of date. Heck, most VC’s with his record of success would be riding high, living the good life, and pontificating to the venture community about his formula for success.
But no! Gretsch doesn’t think that the longer you’re a VC, the more skilled you become in picking winners. Instead, he theorizes that if you’re a VC for more than 10 years, you’re likely to grow worse at your job over time. And, he has some data that point out that this may very well be true. Even with spotty verification, Gretsch takes this seriously. Here’s why:
- The older a VC becomes, the further out of touch with new technologies they become
- As they move up the professional pyramid, their network actually shrinks because they are working with fewer and fewer people
- They are not meeting the new people that are really bringing innovation to the market; as a result they miss trend setting ideas
- They are stuck in looking at existing market sectors for new opportunities, missing new and significant market changes
- Family demands increase as they get married and have children
How Do VC’s “Freshen Up?”
Gretsch’s simple advice is to “remain humble, keep your attitude in check, and stay hungry.” The hard part is to remember how that all feels. Here’s his formual, which might apply to many of us in lots of different lines of work:
- Increase the number of relevant technologies with which you are familiar
- Follow the leading industry analysts to learn what they are thinking
- Build relationships with the next-generation of successful investors and technologists
- Reach out to the younger entrepreneur and learn from their fresh ideas
- Always be better at what you do
I think Gretsch really believes this and will remain on top in the VC community for another decade.
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VC Investment Outstrips Fund Raising
Bill Warner Wednesday, January 27, 2010
In 2009, the venture capital industry experienced the biggest gap between investment and fund raising in the last six year. In a recent Wall Street Journal Venture Capital Dispatch blog, it was reported that investment was down nearly $10 billion, from $30 billion to $20 billion, while fund raising declined $17 billion, from $30 billion to $13 billion. This $6 billion plus difference is the amount more invested than was raised by VC’s.
Bad news for companies
The implication is that although venture firms still have a lot of money, it is still going to be increasingly hard to get funding because they are running low on available funds and it is still very difficult for them to raise further funds from their limited partners. Their limited partners are still suffering from the economic downturn and have not opened this investment class for funding.
Corporate and other private equity investment is also suffering, further reducing the number of options for equity financing.
Is IPO the answer?
Another source of funds could be successful IPO’s, which could breathe more money into the VC firms. We have recently read about an emergence of IPO filings, including Motricity, a former RTP darling. However, many analysts are quite skeptical that 2010 will bring much hope in this arena either.
What companies need to do
2010 is not going to be much different than 2009; perhaps worse, with respect to your chances of getting new VC investment. It is still a game of the “best of the best” getting due consideration. It means that you need to have a very compelling business, with meaningful and growing customer traction, having the potential for large and rapid growth, to a level that will provide a handsome return.
Due diligence will be treacherous, filled with disappointment for many, but there is still gold in “them there hills.” You will have to mine it with a focused laser.
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You Sell To More People Than You Think
Bill Warner Tuesday, January 26, 2010
“Let’s get some good sales people. We need those hungry ones that know a lot of customers. That’s all we have to do. Right?” These are famous beginning and last words. You are selling your product to almost everyone you meet as your business matures. And, everybody in the company sells in one form or another; it’s not just the sales team’s role. You certainly have to identify and sell to potential customers. But, there are many other interested parties that you have to sell to as your company evolves. The sales process begins on day one and lasts for the life of your company.
Selling in the market research phase
Even before you have a product, you have to sell your ideas to contacts you make while doing your market research. This phase is not just filled with reading and finding numbers that support your business strategy. You will have to sell your idea to industry analysts, market consultants, companies providing similar products and potential customers in your chosen markets. Seeking out the opinions of analysts and consultants makes a lot of sense. They know your markets in detail. You present your product or service idea, supported by your business rationale, looking for further insight that they can provide. In a way, you are selling by trying out what you think the value proposition is and how you will take it to market. Understanding that you may not have it quite right, they will provide you feedback that helps you to further refine your business plan.
Contacting companies that are within your market segment is also smart. If they are a potential competitor, you may have to get information from a third party, but you are essentially trying to figure out how your product fits into the market. You are prepared to sell your ideas, but also have questions like:
- Are you complementary?
- Will you need their help?
- Do you add value to their products?
- Are they a competitor?
- How will we fit?
- Why are they succeeding or failing?
Of course, the best piece of research is to approach a potential customer and get their feedback. You sell your product or service, but really want to know:
- Do they really have the need you think they have?
- Will your product solve their problem?
- Do they see the value of your product or service?
- How do they become aware of and buy products?
- Are they in a position to buy?
Getting funded
Once you have a well formed business plan, your next sales call will be on an investor or potential strategic partner from whom you need money to get your business started. This is a critical sales call which has to be successful. In this case you are selling a lot more than your product or service. You are selling the value of your company, and trying to create a long lasting partnership that will give the funds to launch your company and your vision. The business plan story has to:
- Be complete
- Represent a compelling business idea
- Be attractive in a large market of needy buyers
- Reflect a rich financial model
- Have a truly competitive and differentiated product
- Be managed by a superior management team
- Provide strong financial performance
This sales call is made by the top executives of the company, who have to be very well prepared to explain all aspects of the business and create excitement with the potential partner.
Selling to your channel partners
If you are going to use indirect channels, you will need to have a sophisticated process to sell to the channel partners through which your product will reach the ultimate buyer. The value proposition has to be specifically tailored for this audience to show them how they are going to make money in a relationship with your company. The partnerships could be with wholesalers, distributors, integrators, value added resellers and dealers. All of these partnerships have to established, and in addition to your product or service, will require you to sell some combination of:
- Training
- Product information
- Sales support
- Problem support
- Warranty management
- Inventory
- Discounts that make them profitable
Your sales efforts are to close a channel partner agreement that will result in financial success for them and an increase in revenue for your company.
What about alliance partners? If your product requires that you have to go to market jointly with another company, you have to make sales calls to them too. For example, if your product is integrated with another company’s product, then you may have to have an agreement where you are jointly marketing and selling. You may be integrating some other company’s product into your solution, so an agreement is needed for you to market and sell their product along with yours. The value proposition here has to bring a share of the overall revenue to the partner to recover the expense that they incurred plus a reasonable profit.
Sell to the influencers
When your product is ready to be taken to market, it is important to make sure all of those that influence your customer are aware of it. Industry consultants, partners and early customers need to know of your plans to launch your product. During the time when the product is first being introduced, you want potential customers to be able to call their outside consultant and get advice on your product. You also want your customers to be able to contact your early customers as a reference for your product. So, you need to make sales calls on all these influencers and make sure they have the most important facts and messages about your product or service. You will look very smart if a potential customer contacts one of them and learns the truth about your product. That is, the truth that you taught them.
Oh, the media too
Who would ever give up on some free visibility? Another important influencer is the media. They represent trade magazines, local newspapers, business press, television specials and radio news programs. When you launch your product, they too will need to know about your product or service. You want your customers to read the right messages, and from the media source that makes them aware of new products and services. The media will want to get quotes from consultants, analysts, customers and partners. They make the story come to life with the reality that it’s not just your company talking about the new product or service. Always make the media aware of positive news and use them as a way to get effective marketing information to customers.
So, selling is a process that involves much more than sending the hungry sales people after potential customers. Selling involves approaching the whole set of stakeholders in your market segments. You need to make sure that your company properly fits and that your customers know all the right things about your product or service.
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Outlook for 2010
Bill Warner Sunday, January 03, 2010
Boy, I want to be optimistic, but I have too many doubts. It’s not just me either. The subject of a lot of holiday party talk has been about the economy. Much of that is centered on the subject of job growth and the state of the US dollar.
At the heart of it all
Job growth now is stagnant at best. Unemployment is actually increasing when you discount the growth in short term government jobs that produce no economic growth and count the people who are no longer on the unemployment ledger. There are a lot of moving parts that are needed to put velocity back into the small business engine.
- Banks have to start loaning money again; companies need working capital
- Government has to reduce regulation on small businesses; too much is spent on responding to new regulations and it stifles businesses
- Removing the capital gains tax will fuel investment in small businesses; bringing more private equity to entrepreneurs
- Lowering the income tax on businesses will accelerate investment in company growth; increasing profitability
- State and local government resources are needed to support entrepreneurship; creating a community in support of entrepreneurship
- Reduction of the individual income tax will put more money back into people’s pockets; firing up affordable spending
Until we get legislators in place that understand what we need, entrepreneurs will be fighting an uphill battle again in 2010.
The unknown about our dollar
I am no expert on monetary policy, but what I do see still frightens me.
- The debt is higher than ever in our history
- The growth our debt has never been higher in our history
- Other nations are visibly looking to move off of the dollar
- We are getting a lot of pushback on purchasing any further government securities
If we were to have a balance sheet for the United States Company, it would show that we are bankrupt and have negative cash flow. These are all signs that lead me to continue to worry about a coming inflation, especially if we really put the TARP money into circulation.
So what do entrepreneurs do?
The growth of our economy will come from the small business arena getting back on track. For 2010, entrepreneurs are going to have to continue to fight through the lack of effective legislative and administration support. Staying with the basics of survival is first and foremost:
- Execute well thought out marketing and sales plans; the fewest mistakes as possible
- Keep nearly a year’s worth of cash burn in place as a buffer on further economic decline
- Hire only what will be needed in the long term; outsource the rest of your personnel needs
- Invest in cost cutting measures that pay back in a few months
- Continue to establish and nurture a lasting credit line
The pros will tell you that this is the time to look for great investments at low prices. That is still true, but I suggest that you don’t go too far out on that limb with so much uncertainty and volatility in the economy.
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Find the Right Investor
Bill Warner Tuesday, August 11, 2009
So you have completed your business plan, determined how much money you need, practiced your presentation, and are now ready to approach angel investors to raise the capital needed to launch your business. But, you don’t know any. You have heard about the angel organizations in the area. You have read about the venture capital firms as well. Where do you start looking? Here are some tips to finding angel investors:
- First decide what you want from an investor with respect to industry experience, management experience and scope of influence. Your first investors are going to be your business partners and are people who can help you get your company started with their contacts and advice. When you have a good understanding of the kind of help you need from your investors, you will be able to easily qualify them. Not every investor you meet is one that you need on your team. Don’t make the mistake of engaging an investor who is going to ultimately be a bad partner. It could kill your company.
- Right now you probably know more investors than you think you do. Establish a list of people that you know that you think could be an investor in your company. They should be accredited investors if at all possible. Think through all your business associates, friendships and family members, identifying those that could be investors, or those who might be able to introduce you to investors. This approach is often described as a “friends and family” round of investors. The reason it make sense is that you are dealing with people who know you and trust you, and therefore are more likely to agree to become an investor in your company. Of course, the downside of this approach is that you your friends and family may lose their money if your business is not successful.
- The sophisticated angels are territorial and many of them roam in packs. Go to the Angel Capital Association website to find the names and contact information for the angel investor organizations in your area. Many also roam alone or in small private groups. They are hard to find. You need to make a habit of doing a lot of business networking. The more business people that you meet at networking events the better are your chances of finding angel investors. Let people know you are raising angel money to maximize your chances of getting a referral to them.
There is no silver bullet approach to this. Finding angel investors takes a lot of hard work and months to accomplish. You will need to attend a lot of events, meet a lot of people, shake a lot of hands and give your elevator pitch hundreds of times to find just a handful of people that are willing to invest in your company.
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Lessons From The Shark Tank
Bill Warner Monday, August 10, 2009
The new television show, Shark Tank, is more than a little hyped up and not terribly realistic about the process of raising angel or venture capital. A lot more preparation goes into getting a company ready to present to investors than is portrayed in the show. The investors looked much more arrogant and cut throat than they really are, and most of the entrepreneurs were substantially unprepared to make the presentations at this level of investing.
Lessons learned
However, there were a lot of lessons that should be learned by entrepreneurs. Some good things were done and some terrible mistakes were illustrated.
- You must present a business story, not a story about an idea. Emmy the Elephant and Ionic Ear were the cases in point. Both were explaining what their product is and how it works. They never explained why they had attractive businesses. When you are presenting to any group of investors, you need to explain what the business model is, describing how you are going to make money. Then, in turn, explain how the investors will make money as well.
- A start-up business has to have a laser like focus and not try to approach too many markets at once. The Pie Factory had a great business going in wholesaling sweet potato pies. His major selling point to investors, a deal with McDonalds, almost had to be dragged out of him. He wanted money to expand his business, and was making thirty other varieties of pies, taking attention away from his core business in sweet potato pies. They got their investment, but at a valuation that was substantially less than their revenue. If he had been more focused on wholesaling and had a confirmed deal with McDonalds, he could have gotten a much higher valuation.
- Unrealistic valuations are common place, but are usually worked out prior to a major presentation like we saw. However, the lesson learned here is that entrepreneurs really have to spend the time to understand what their business is worth right now and offer the investor an appropriate share for the money they will be putting into the company. The Pie Factory was valuing an $850K business at $4 million plus. Poor Kevin Flannery was valuing his business at $10 million plus, with no revenue. Iconic Ear’s valuation was over $6 million at the prototype phase of development. These are not even close to being reasonable and show that these entrepreneurs did little research into the investor market.
- The heart breaker was WiSpot. Kevin Flannery showed a failing business in which he has personally invested his family’s life savings. The investors did him a big favor by telling him that his business model was not attractive and never would be. Their advice was all about knowing when to quit. Entrepreneurs should be listening for good advice from seasoned entrepreneurs and investors. When a lot of people are telling you that the dog is not going to hunt, then you need to move on to something else. It’s a shame that Kevin had to get that news in front of millions of people.
- Entrepreneurs really need to be prepared to negotiate. Emmy the Elephant was raising $50 thousand and was selling 15% of her company. The company is at the prototype phase. She was offered the money, but at 55% of her company. She took the deal, probably not knowing that she just dropped her pre-money value to about $40 thousand and gave up control of her company. Not a great deal, but maybe it was right for her. Nevertheless, entrepreneurs need to know their numbers and come into such a negotiation with clear reasons for their valuation and knowing what they are willing to give on as well as their walk-away point.
- Arrogance and a bad attitude is not a good thing to display in front of investors. The College Foxes Packing Company got hammered because they were not willing to share their current company with investors. Instead, they insisted on trying to sell a spin-out services company that has no revenue for $250 thousand and a 25% share. The negotiation got heated and the entrepreneurs insulted the investors and ultimately turned down a sweet heart deal because they were unwilling to share any piece at all of their current business. In reality, these entrepreneurs should have known that the negotiation would go the way it did and been prepared with a clear position and counter offer.
Once you peel away all the dramatic showmanship, this program has some valuable lessons for entrepreneurs. These mistakes are made every day, and can be avoided by good research, preparation and getting solid advice from experienced entrepreneurs.
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Business Transitions for Growing Companies - Taking the “Y” in the Road
Bill Warner Tuesday, August 04, 2009
Yogi Berra is often attributed to this saying about life. “If you come to a Y in the road, take it.” In business, there are lots of Y’s in the road, and you indeed have to move beyond them. These Y’s are business transition points. But, how do you know you are at a Y in road, if it is important or not, and how to choose which way to go?
Business transitions
Every company goes through transitions as they grow. It goes with the territory of being a successful company. No matter how good you are, these transitions will have to be dealt with. Successfully navigating these transitions is critical to the success of all small businesses. But how do you know you are at one. There are road signs; for example:
- Your people are complaining about their jobs
- Sales are not growing
- Customers are complaining
People tell all
One of the most obvious, but most denied, road signs is how your employees are responding to their job and work environment. It takes a pretty insightful leader and manager to be in touch with the state of mind of their employees. Often, what employees say is not really what they mean. The most convenient complaint is about compensation and the grass being greener at another company. If management has not been communicating well, employees will simply make up all sorts of stories about their dissatisfaction based on what they perceive to be true. Yup, they lie to themselves, and their management. Then, they decide to leave your company because they are not paid well enough. In reality, people are not motivated by money. They are motivated by having a challenging job and a great place to work. If they don’t get that, they will eventually leave for the greener pastures. If management has not created an environment of open communications and business process, along with clear roles, responsibilities and accountabilities, there is going to be trouble.
But, what is the Y in the road. In this situation, the Y has to do with the selection of experienced management that really knows how to lead and manage an organization of the size and complexity of your company and where it is headed. The choice is taking the road with current management and ending up in the ditch, or taking the road of enhanced management and keeping the company on the road to success.
Sales road blocks
Most small companies run into the dilemma of not appropriately getting their product or service into the market. The road sign is easily seen. Sales volumes are flat or down. But you would be surprised as to how many companies don’t respond to what the sign is saying. Hope takes over. Denial and excuses are pervasive. New forecasts ignore the past results. Extenuating factors explain what is going on. This Y in the road is decisive. If the wrong road is taken, the company runs into a brick wall and fails.
When faced with this choice, honest and objective evaluation of sales results is needed.
- Is it a market understanding problem?
- Are competitors winning?
- Is the price an objection?
- Are you selling to the wrong buyer?
- Is your solution not a priority for the buyer?
- Are your sales people ineffective?
To determine what direction to take at this junction, a detailed analysis of the reasons your company has not made its sales goals is critical. If you truly understand the reasons why you are not winning, you are on the road to adjusting your sales strategy to go down the right leg of the road.
Customers put up the signs
The most important sign to read is what your customers are telling you. If you do not have your eyes on this road sign, you are driving blind. All companies have a vision of what the value of their product or service is. And, they are proud of it. However, there is another viewpoint that the customer has. From the very beginning of your company’s history, you must be in touch with the customer’s view. If they are not satisfied, continually, they will eventually move on to other choices.
What you should be looking for is customer reaction to things like:
- Functionality and capability
- Support and maintenance
- Ease of installation and use
- Pricing structure
- Responsiveness to their needs
You need to watch for any dissatisfaction expressed in these areas. As companies increase the number of customers, it gets progressively harder to provide top notch customer care. If you miss this road sign, you will find that customers will abandon your solution for your competitor’s.
Your choice at this cross road is to make sure you are continually adjusting your customer care support structure so that you maintain customer satisfaction. If satisfaction erodes, you will be traveling down the path to disaster in the form of lost future sales and high support costs.
Watch the signs
When you decided to run a company, you automatically got your drivers license, and it is assumed you know how to read the road signs. Tune up those antennas that read what is going on with employees and customers and you will become an expert driver. Better yet, bring people into your company that are expert drivers that know how to make the turns easier to navigate.
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Read the Health Care Bill Yourself
Bill Warner Monday, August 03, 2009
Boy, did I get a lot of feedback on my blog post on the health care bill. I am not a political activist or even an expert on health care, but this bill gets me out of my chair and wanting to scream at somebody. This bill is 1,018 pages that spell out how the government is going to take total control of the health care system. Given that they have not run Social Security, Medicare and Medicaid too swiftly, what makes us have confidence in them running the whole health care show?
The bill itself
Here’s a link to the health call bill itself. It is hard to read and is not very straight forward. Serious readers will need a lawyer to interpret this thing. Here is a link to a controversial analysis of the bill, along with equally controversial rebuttals. Somewhere in this is the truth and I am concerned that it is not pretty for both individuals and businesses.
Now what
First, I suggest everyone use the analysis as a guide to go to specific section of the bill and read for yourself. Come to your own conclusion. Write down what you are still not sure about. Then, contact your US Congressman and ask them to clarify it for you. Go have a meeting with them, or attend one of their public meetings. My congressman is Brad Miller, who I have already emailed my concerns, and I will be going to his public meetings to ask further questions.
You have to understand, I don’t do this kind of thing normally. But I am now. I suggest you do the same, because this bill could change your lives significantly. Go to this link to find your US Congressman. Call them and tell them what you think and ask them for clarification. First, ask them if they have read the bill and understand its implications for people in his or her district. If they haven’t read it, or cannot answer your questions, then start asking when they are going to start representing your interests in Congress. This has to be one of the most important pieces of legislation in a long time. Your life may depend on the outcome of this.
