When raising money, think like a venture capital. For many entrepreneurs, success begins with a great idea. However, how do you get this idea off the ground? Raising money is needed for your company, but how do you attract investors?
Many young, emerging growth companies, understand that venture capital serves as an alternative. Often, venture capital provides cash funding in raising money, which is exchanged for shares in the business and an active role in the enterprise’s future.
In January the National Venture Capital Association, one of the trade associations representing the U.S. venture capital industry announced the results of its industry paper, MoneyTree Report, on venture funding for fiscal year 2012. The Association with PriceWaterhouseCoopers reported that venture capitalists invested about $26.5 billion in 3,698 deals last year. The report showed declines in both dollar and deal transactions down about 10% and 6%, respectively, from 2011. Fiscal year 2012 was the first drop off in venture capital activities in three years.
Economic uncertainty hindered the growth in new investments. As a result, many venture capital funds shrunk during the year. Venture capital firms have increased fund reserves to support funding of current investments and have become more discriminating in assessing new deals.
Understand that before a venture capitalist takes on higher risk the firm will determine the upside pay off. What this means is that the entrepreneur must do his or her homework to meet the expectations of the venture capital firm in raising money. This is a two-way street.
Venture capital funding comes with a price. Some of the considerations the venture capital firm will review in raising money when assessing a potential investment include:
Venture capitalist want to mitigate or manage their risk. Entrepreneurs, on the other hand, can assemble a strong management team, provide a well-written business plan, and show a leadership team that can execute the plan in raising money.
For a free online video course on how to raise money go to: http://garyrushin.com/raising-money-mini-course/
“Corporate failure is never the results of a random set of events. It is normally a reflection of deep-seated corporate shortcomings.”
(Chartered Institute of Management Accountants, 2012)
We have all heard about the stories of companies that once dominated industry but later fell into business decline. There are many reasons for this. The usual suspects for business decline include becoming to dependent on existing customers, the inability to adapt business models to deal with destructive technologies, the lack of leadership, and focusing on short-term financial performance all have led to business demise. One reason not often mentioned for business decline is the hindrance of learning at both the individual and organizational levels about the true causes of business success. Success can breed failure (Edmondson, 2011). Learning enhances your capacity to face and respond to situations. However, from the business success perspective:
When companies catch the upward draft of success, the arrogance of the enthusiasm kicks in. Not surprisingly, the virus of success can become fatal in five or ten years (Kolind, 2006). Think of Research In Motion (RIM) and AVON, companies in decline. The downdraft winds of business decline are a factor of the business life cycle. The death cycle of business decline encompasses three factors: company size, company age, and company success. One of these three factors can result in increase in:
A problem is when the company loses its mojo. Success blinds management and causes lose touch with its customers. Bureaucracy grows, information gets filtered and delayed, and arrogance breeds. Unfortunately, management will begin blaming others for performance slippage when the company begins to slide due to the downdraft of business failure.
Recommended actions include:
Chartered Institute of Management Accounting. (2012, February 15). Understanding the causes of corporate failure. Retrieved December 15, 2012, from Financial Management: http://www.fm-magazine.com/feature/depth/understanding-causes-corporate-failure
Edmondson, A. C. (2011). Strategies for learning from failure. Harvard Business Review , 89 (4), 48-55.
Kolind, L. (209). The second cycle: winning the war against bureaucracy. New York, NY: Pearson Prentice Hall.
Bootstrapping… bootstrapping… bootstrapping, it can be said that the purest form of entrepreneurship is bootstrapping. During the prelaunch phase of a company and at times when access to business capital is difficult, bootstrapping is the way to go. To compete with existing businesses entrepreneurial firms face two major disadvantages: the burden of smallness and the disadvantage of newness. The reality means that the majority of start-up businesses and small businesses lack available resources to effectively compete (Winborg, 2009). Access to capital is a major issue for entrepreneurs. Inexperience of many entrepreneurs has made it extremely difficult to obtain debt and equity when lack of a track record, reputation, or collateral for loans exists. Starting with personal savings, followed by funding through family and friends, have been the main sources of finance for the vast majority of entrepreneurs. Engaging in “bootstrapping activities” is the way to go in operating the business.
Do not be discouraged with the thought of bootstrapping. There exist many great American bootstrapping success stories. A snippet include (Sherman, 2005):
Apple Computer. In 1976, Steve Jobs and Steve Wozniak sold a Hewlett-Packard programmable calculator and a Volkswagen van to raise $1,350. Through bootstrapping, the partners built the first Apple I personal computer in Job’s garage.
Hewlett-Packard Co. Starting with $538 in 1938, Hewlett-Packards first client was fellow bootstrapper Walt Disney, who required sound equipment for the production of Fantasia in 1940.
Microsoft Company. With is high school sidekick (Paul Allan) and dropping out of Harvard University, Bill Gates moved into an Albuquerque hotel room in 1975 to start the company and write the programming language for the first commercially available microcomputer.
Nike Inc. William Bowerman and Philip Knight in the early 1960s sold imported Japanese sneakers from the trunk of a station wagon with startup costs of $1,000.
Lillian Vernon Corp. With her brainstorming idea of selling monogrammed purses and belts through the mail, Lillian Vernon established a mail-order company in 1951. As a recent bride and four months pregnant, Lillian needed to earn extra money to support her new family. Society in the 1950s dictated that she stay at home for the duration of the pregnancy. A home-based business was her answer. Lillian took $2,000 that her husband and she received as wedding gifts and designed a bag and belt set targeted at high school girls. She manufactured the set through her father’s leather goods company. Than placing a $495, one-six-of-a-page ad in the September 1951 issue of magazine Seventeen the company generated $32,000 in orders by the end of the year.
The use of bootstrapping requires imaginative and parsimonious strategies for marshaling and controlling necessary resources. Think of bootstrapping from two perspectives:
1. Raising money without the use of banks or investors.
2. Gaining access to resources without the need for money.
First, entrepreneurs can raise money through the use of personal credit cards, cross-subsidizing from other businesses owned or through employment, reducing the time for invoicing seeking advanced payments and loans from friends and family. Entrepreneurs can hire temporary employees, share premises and/or employees with other entities, share or borrow the use of equipment, and obtain emotional support, skills, and knowledge from friends and family.
A key question that should be asked, “Do I need it or want it?” In the event the entrepreneur needs a resource, try to use a bootstrapping technique to get it. If the entrepreneur wants a resource, defer the purchase. Preservation of cash is important. This means controlling cost too.
Based on the writing of Oswald Jones and Dilani Jayawarna (2010) some bootstrapping techniques include:
• Customer related
• Delay payment
• Owner related
• Joint use
Simply put, bootstrapping is “entrepreneurship in its purest form” (Salimath & Jone, 2011). Overcoming resource constraints enables business operations to continue with the aid of external financial resources. Bootstrapping transforms human capital into financial capital also known as sweat equity that converts into bankable equity. It is about creating value that includes the idea of “meeting the need for resources without depending on long-term financing (debt or equity). Bootstrapping is the strategy of necessity for entrepreneurs and not of choice.
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Jones, O., & Jayanwarna, D. (2010). Resourcing new businesses: social networks, bootstrapping and firm performance. Venture Capital , 12 (2), 127-157.
Salimath, M. S., & Jone, R. J. (2011). Scientific entrepreneurial management: bricolage, bootstrapping, and the quest for efficiencies (Vol. 17). Orange, CA: Journal of Business & Management.
Sherman, A. J. (2005). Raising Capital (Vol. 2). New York, NY: AMCOM, 2. 30-33.
Winborg, J. (2009). Use of financial bootstrapping in new businesses: A question of last resort? Venture Capital, 11 (1), 71-83.
Niche marketing is about focusing your marketing efforts on a particular market segment, or niche and creating a product and/or service that speaks directly to that niche. Niches must be a part of your competitive strategy. As an Entrepreneur, niche marketing is a must.
For example, the pet market is quite large. It includes all types of animals from mammals to amphibians. So, a segment of the pet market might be horses. But a niche takes it one step further. A niche would be something more specific, like polo ponies or riding ponies.
Another example might be the food market. A segment of that market is fruits and vegetables and a niche would be organic fruits.
The list goes on and on and once you truly understand what a niche is, you can then begin to decide which niche is right for you. Niche marketing is all about doing what you love. That’s right! You get to make money by focusing your efforts on something you enjoy. Whether it’s hiking, cooking, painting or fishing, you can create your niche marketing business on just about anything in the world.
This line of questioning will help you hone in on your likes, dislikes, and what really stands out as a topic or area of interest for you. Once you realize what that is, make that your niche! So simple…..
Aspiring entrepreneurs must select a market to go after. Selecting a market niche is crucial. You cannot be all things to all people. Focus must be you mantra. So you must utilize niche-marketing tactics. This must be a part of your competitive strategy. While there are many things you can do right with your niche marketing business, there are also many things you will want to avoid doing wrong. Through the don’ts, you will, most likely, develop a bad strategy.
Here are some classic don’ts of niche marketing that you should avoid:
Make sure not to invest time, money or other resources until you fully understand your niche, have a plan in place and know what it will take to go after it successfully.
Once you decide on which niche to go after, and have taken the proper time and course of action to ensure it is a good one (namely profitable) then go for it! You don’t want to wait too long only to have someone else beat you to the punch.
You can sell your products online, but you can also use good, old-fashioned word of mouth. Tell everyone you meet and know about who you are, what you do and how you can help him or her.
There will always be critics and those who bring negativity to the table. But don’t let them rain on your niche marketing parade! Be confident in the work you have done to ensure this is a good idea, that this will work and that you do know what you are talking about!
Just like with anything else, you will want to avoid potential downfalls with your business. That being said, bring your common sense to the table and you will have a good chance at success. Remember, choose a niche that you enjoy, are knowledgeable in and can fulfill a need for. If you do, the rest will fall into place.
Most entrepreneurs get involved in niche marketing for one reason and one reason only–to make money! Well, you can too. All you have to do is be sure to pick a niche you are interested in and go from there. This is all about leveraging the web in your competitive strategy.
To get started with your new niche marketing business, you will need to create a website that is professional looking, easy to use, and fully functional for a complete and positive user experience. Things to consider include visual representation of your niche through captivating design; easy to follow navigation; user friendly e-commerce solution; and the ability to optimize content and code for search engines and linking campaigns.
There exist a number of helpful software products available that will help you create an effective and successful niche marketing website. Products such as WordPress not only help you design and build your website, but they show you how to optimize your pages to maximize your efforts and your business.
However, when selecting your site software, be aware of scams and imposters. There are a lot of so-called cheap and easy software products out there, but many are less than desirable when looking to create a truly great website that looks professional and actually works well.
The website building software you choose should be:
* Affordable within your budget
* Have readily available, positive reviews
* Provide support from set-up through launch and maintenance
* Offer downloadable updates to ensure seamless integration and use moving forward.
If you are unsure of which software to use, ask around. Visit other niche marketing sites and try to find out what they use. If all else fails, go with more popular software because although it may come with a higher price tag than some others, it is often tried, tested and approved by users across the globe.
2 Essential elements of a niche marketing strategy must be considered:
Ask yourself does niche marketing match up with the resources, capabilities and preferences?
Strategic Management to Avoid Distress
The negative impact of the 2008 financial market decline and the 2008 and 2009 recession pushed many entrepreneurial controlled companies’ into the “zone of insolvency.” Although no clear test exists to establish when any company has entered the state of distress, the determination involves a combination of legal and financial tests. Let us not quibble over when a company entered the zone, a violation or close to violation of financial default covenants clearly indicates the company is in trouble.
For many entrepreneurs, access to working capital and permanent capital through traditional channels is extremely difficult, such as commercial loans, asset-based lending facilities, leasing, or private equity. The challenge is the ability to finance investments in new technology, facility infrastructure, and new products and/or services, which are essential to thrive even in difficult times. The restoration of the balance sheets will be required. This will be neither an easy nor quick journey. To source new investments, other companies whose financial conditions are much stronger may face similar difficulties in raising fresh capital.
The response to this slow economic recovery depends on the specific financial circumstances of each company, basically the organization’s financial position (the balance sheet). While many entrepreneurs are embarking on a journey to restore their company’s balance sheets, others—including many who are enjoying their best financial performance in recent years—are playing offense by opportunistically acquiring distressed assets and investing in markets where competitors are struggling to keep pace on access, service and quality. Still others are attempting to follow a “sustainable bet” strategy by leveraging areas of excellence that positions their companies for long-term financial viability.
Leveraging turnaround strategies are more important than ever to consider. While the sense of urgency is greatest among those companies operating in the distress turnaround strategies are applicable to all entrepreneurs irrespective of their current financial condition. Following the status quo of all business models must be challenged and companies, whether small or large, should reassess their strategies for continuing relevance and likelihood of facilitating sustainable financial performance.
Implementing dramatic changes in operations, financing, service and product lines, and people will be essential, including innovation, to sustaining financial performance and mission-driven success.
The Entrepreneur Distress Avoidance Journey
Business owners should start the task of accelerating their financial recovery by assessing their companies’ situation and objectively answering some tough questions:
Once these answers are explored and known will the entrepreneur, the management team and the employees understand the magnitude of the change required to position the company for sustainable financial success. Clarity on the requirements for success will begin to form and a picture should emerge about the level and manner of change needed in the way the enterprise operates.
Financial restructuring mandates rethinking the usual turnaround strategies. Taking a comprehensive perspective and approach to creating and implementing turnaround solutions should be done, beyond just concentrating on financial tactics i.e., debt modifications. Know that not all turnaround strategies fit all, however each strategy has its own merits for consideration. Keep an open mind and willingness to reject the status quo. For a company’s financial position to be restructured to levels expected by creditors, a serious evaluation of the turnaround strategy should be undertaken. The following are some potential turnaround strategies for consideration. Some are tested while others may not be frequently implemented and as you shall see others may be more innovative and emerging.
While the restructuring should not be limited to financing tactics, companies should vigorously pursue certain financing strategies. In a turnaround, all areas of the business should be evaluated as a potential source of capital. One area is working capital. Reviewing the payroll cycle. If the company is on a weekly payroll cycle change it to a bi-monthly cycle. This lessens the financial burden of financing payroll. Leverage certain assets as sources of capital such as receivables, inventories, and other unencumbered assets. Keep in mind fixed and certain intangible assets such as patents and trademarks. Historical precedent should not hamper the search for unencumbered resources.
Think “outside of the box”. Value exists all around the company. Recognize its existence and capitalize on its potential. The emerging Capital can be sourced from all assets, both tangible and intangible. Stated otherwise, all assets should be in play as a potential source of generating fresh capital.
The Way Forward
The financially distressed or at-risk companies must consider a planning process that will achieve consensus on the company’s baseline financial performance given current environmental factors and strategic priorities. This baseline should identify capital deficits and gaps in performance compared with credit market financial benchmarks.
Next, the company must develop a set of tactical options, encompassing the vital strategies to work toward achieving sustainable financial performance. Utilizing scenario planning with a combinations of options as well as varying assumptions responsive to key planning variables will enhance the decision making process.
Finally, a strategy map, based on the results of the scenarios, should be developed to return the company to sustainable financial performance. The strategy map must address the risks, related critical success factors and key performance indices (KPIs) to achieving the improved financial performance. This will form the basis for the development of change management strategies, including a communication plan.
Sustaining for the Future
Question the sustainability of a strategy is always critical. Action is most important:
Crisis or Opportunity
While the financial crisis and recession impaired the financial condition of many entrepreneurial controlled companies, it created the opportunity to step back and rethink the business model. The disruption in the financial markets and bank’s unwillingness to lend also made it imperative to be able to access credit on the strength of the organization’s own creditworthiness. This is the time to embark on a journey of financial restructuring. Unfortunately this will take time and patience, but the turnaround can be accomplished. The old saying of “no margin, no mission” is now “no financial strength, no access to capital.” These strategies can help achieve the financial strength necessary to be able to access to fresh capital, which will make it possible to fund investments as a means of achieving sustainable financial performance.
For free online accounting mini course “Cracking the Accounting Code” designed for entrepreneurs go to http://AccountingMiniCourse.com
For further information about strategic management for entrepreneurs to avoid distress, go to http://GaryRushin.com
The Entrepreneurial-Based Business
The competitive dominance of entrepreneurial driven companies have historically forged the path of economic growth. Now at the time when such dominance is needed with a vengeance for prosperity and employment, such owners are working hard to stay afloat and survive especially after the recent financial meltdown and the great recession. The fundamental issue is that tools and the conceptual frameworks that work for traditional businesses must be modified to meet the challenges, operations, and new business models of today’s entrepreneurial-based companies.
When dealing with an entrepreneurial-based business, when the company is in trouble, recognizing this fact will give the owner more options for dealing with the problem to save the business. However, by waiting too long, being in a state of denial, not taking decisive action will leave the entrepreneur with little options other than shutting down the business or bankruptcy. Furthermore, the longer the owner waits, the likelihood that the owner’s personal finances will be affected, in the event that the owner’s are personally liable for the business debts. This can leave the entrepreneur filing for personal bankruptcy protection.
Signs of Distress
Every business is different. So the signs that the business is in trouble may not be the same for one company compared to another. However, certain warning signals are clear. The business may be in trouble if:
Bad to Worse
With symptoms like the above, conditions can transform from bad to worse. For example
Options that may be to the entrepreneur include:
When the business is heading towards the “zone of insolvency,” the entrepreneur needs to first decide whether or not to stay in business. This is an important decision. Deciding on whether to cut off a cancerous limb to stop the infections or to treat it must be made.
For an entrepreneur, emotions and egos must be set aside. Issues to be considered must include the welfare of the family and self. Moreover, reflections must be made questioning:
Not all distressed businesses can be saved. Knowing if the company can be salvaged and which ones have little or no chance of survival is important. The sooner that decision is made; the sooner steps can be taken to either begin the process of business turnaround or winding down the company.
Turnaround Basic Questions
Basic questions or requirements that are needed for a successful turnaround must have four characteristics:
(1) Does one or more viable core businesses exist within the enterprise?
(2) Can adequate bridge financing be obtained?
(3) Does the company have sufficient organizational resources and skills
(4) Can the company secured a turnaround manager (leader) to facilitate the daunting restructuring task?
Having poured their hearts and souls in to the business, the entrepreneur must try to be objective about the prospects for the future. Although emotional attachment is there, they should seek professional advice from other entrepreneurs, lawyers, and accountants for recommendations of turnaround professionals. As a start, the membership of the Turnaround Management Association comprises of specialist (Certified Turnaround Professionals) in the area of business turnarounds.
For a free online accounting mini course “Cracking the Accounting Code” designed for entrepreneurs go to http://AccountingMiniCourse.com