LostJobStartBusiness

This blog helps people who have lost their job to start a business. It contains hints, tips, templates, and ebooks on how to start a business in the current economic situation.



11 January 2010 3 Comments

Meeting With a Potential Investor

The Entrepreneur has just finished their presentation. They are feeling good. It came off without a flaw. They think the hard part is over – or is it?

Investor: Ok, nice presentation you didn’t bore me as much as I was expecting when I saw you walking in the door. You seem to have a natural flair for presenting things. That’s well and good, but now let’s get down to business. I have a few questions.

Entrepreneur: Fire away.

Investor: How do I know that your product is as awesome as you suggest? Are there users that I can call up to get their opinion?

Entrepreneur: Well we have an Alpha version. There’s a few bugs but if you use it and can see past the bugs I’m sure you will see how this product can be a success.

Investor: I’m not your target market. I would like to hear what your target market has to say about your product. If you had some reviews or testimonials I would have a much better idea about your product.

Entrepreneur: I understand. Unfortunately we are not at that stage just yet.

Investor: Moving on, are you sure that you looked at your competition hard enough? It seems hard to believe that only two other businesses are currently involved in what you believe is a lucrative niche. It makes me think that either you haven’t done enough research or your niche isn’t as lucrative as you believe.

Entrepreneur: We searched Google for the main keywords of the niche. Those two companies are all that showed up.

Investor: Hmmmm. I have another meeting in 25 minutes so I am going to move quickly on. Let’s take a look at your financial projections, they seem a bit far fetched to me. How did you come up with your sales figures?

Entrepreneur: We looked at the overall market and estimated that it was worth a total of $200 million per year. We estimate that we can get 1% of this market in year 2. We have used this as a base for out sales assumptions.

Investor: Do you know how many businesses I have seen that project a 1% market share by year two or three? Let’s move on.

Entrepreneur: Okay.

Investor: Looking at your expenses. It seems to me that you have completely missed the mark on how much you need to spend on marketing. Those sales figures are unobtainable based on your marketing spend. Look, I’ve been in this game a long time and you are trying to get water from a stone with these projections.

Entrepreneur: Thanks for the advice. We thought that our marketing expenses were okay. Our Accountant produced the figures and that’s what he believed would be sufficient to generate the sales in the plan.
Investor: I’ll tell you straight up. I don’t like your founding team. You guy’s don’t have the level of experience that can take your idea and turn it into a business that I would be prepared to invest in. Right now, I’m not going to invest. You need to work on your business more.

Entrepreneur: Wow, err, well thanks for your time

This scenario plays out countless times all over the world. First time entrepreneurs do not realize what they need to do in order to construct a viable investment proposal to Business Angels and Venture Capitalists. If entrepreneurs understood what was required to get investment from the very start, they would be able to structure their business model in such a way that would make it easier for them to get funding to scale.

It’s not complicated. In fact, it’s much simpler than many first time entrepreneurs believe. Get traction, become cash flow positive and make profits. Experienced investors will be able to judge the benefits of their investment to your business and get a more realistic appraisal of the potential returns.

Sadly, many entrepreneurs don’t put themselves in an investor’s shoes. However, if they investigate what makes a good investment for a Business Angel or Venture Capitalist they will be able to fit their business model into this criteria. It’s like looking down the sight instead of just firing wildly from the hip.

In order to avoid the above scenario, entrepreneurs need to focus on creating a sustainable business model that will generate returns for investors. There is no need for window dressing. Remember, investors don’t invest in an idea they invest in a business. So, build a business.

Check out this free Ebook called “Target Series A: From Idea to Investment” that shows first time entrepreneurs how to position their business for investment.

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7 January 2010 2 Comments

How to Formulate the Sales Figures in Your Business Plan

Ok, many entrepreneurs get this very wrong. Some do not apply any methodology to obtaining their sales figures. In the vast majority of business plans, the sales assumptions are simply plucked out of thin air. As a result, the vast majority of business pans are worthless and are a waste of time, energy and natural resources.

Would you build a house on quick sand? Then why would you build a business plan on unvalidated sales assumptions?

There are many different ways to estimate your sales figures. One way is to use key performance indicators for your industry sector. That’s what most accountants would suggest. However, this in unrealistic for a new business. Firstly, these figures are an average of the industry. So therefore, they naturally reflect businesses that have spent years building a client base and solidifying their market position. As a start-up,  you have none of the above. Also, in start-up mode your business model will most likely be different to established businesses in your sector. As a result, I believe that Key Performance Indicators are a lazy way to compile your financial projections.

The best way to build your sales assumptions is to use a bottom up approach. This does not require any financial wizardry. It only requires a cold hard dose of common sense. In order to do this, you must understand your business model. In particular, you need to understand each step of your sales funnel.

What will the conversion rates be for each stage of your sale funnel? However, all of this is still speculation until you actually start selling. The reality is that nobody is going to believe your estimates, especially hardened business angels or VCs, without real world evidence of them being achieved.

This leads us to what could seem like a chicken and egg situation. However, it’s not. As an entrepreneur, you need to bootstrap to early stage sales and then use your results as back up to advocate your future projections when you are looking for funding to scale your business.

At the very start, you need to make assumptions for your own use. Once you start selling, monitor your conversion rates. Refine your assumptions then show them to potential investors. When they start asking questions, you will be in a great position because your assumptions are backed up by conversion rates that you are actually achieving.

Another point is that you should show each stage of your sales funnel in your projections. Have a separate assumptions page where each figure is broken down into it component parts. It’s like a story laid out in figures. The story is about how somebody is going to buy from you. Remember, when trying to get investment it’s not about science fiction it’s about science fact.

If you are looking to produce financial projections for your start-up you may find this template and how to guide useful.

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5 January 2010 0 Comments

It’s a Marathon

Starting up is like running a marathon. It’s not a sprint. The success of your new business depends on what happens in the long term. This is critically important to how you make decisions. It’s always tempting to sprint. To take the shortest route. To make choices that will benefit you now but have negative repercussions the future. Sustainability is key. Investors will recognize if your decisions can be sustained into the future and therefore keep producing worthwhile returns.

Look, the value of your business is what it can achieve in the future. This potential is an asset. By making decisions that benefit your business in the long term you are building this asset. If you make decisions that only benefit in the short term, then when it comes to company valuation you are not going to gain.

Remember, be sensible and avoid temptation. Don’t corrupt your start-up’s business model for short term gain.

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28 December 2009 1 Comment

What is Your Objective?

Why have you decided to start-up? What is the underlying reason? What inspires you and gives you motivation? Before you think about your business model, before you draft the founders agreement, before you imagine what your product will look like finished, try to answer those questions.

See, the answers are the light at the end of the tunnel. They will point you in the right direction. Your path will become clear. It’s important to be honest with yourself. Be greedy with your dreams. Don’t dilute them. Remember, there is only one you. Other peoples expectations of you do not matter. However, your expectations of you matters immensely. It’s like cracking a safe. When you find the right combination the door will open.

Look, entrepreneurship is difficult. But having a good understanding about why you are in the game will help you stay in the game long enough to make a difference.

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28 December 2009 1 Comment

Outlook for Venture Capital in 2010

Lets face it, 2009 was a bad year for start-ups. This has been reflected in the capitulation of the number of IPOs in 2009. When exits are down it makes it harder for new businesses to attract VC investment. Look, when it comes to Venture Capital and Business Angel investment it’s all about the exit. That’s life, so entrepreneurs like us must deal with it.

NVCA president Mark Heesen is concerned about the lack of early stage investments. However, it is predicted that there will be a slight increase in overall VC investment. The NVCA predicts between $21 billion and $25 billion will be invested in 2010. Clean tech and e-commerce are predicted to receive the most money. Forty eight percent of the 325 venture capitalists surveyed by the NVCA believe that more foreign limited partners will invest in US firms. However, the semi-conductor and wireless sectors are flagged as possibly seeing the biggest decline in investment.

Although an increase on 2009. These figures show that the bootstrapping skill is still an extremely important ability for entrepreneurs. However, there is always opportunity. Get your fundamentals right and you will get the funding you need. When it comes to Venture Capital and start-ups the US leads the world by a long way. Those of us outside the US should pay attention because a recovery in US start-up funding will spread across the globe.

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18 December 2009 0 Comments

Praise the Early Adopters

Everybody knows that the early adopter is a start-ups best friend. The relationship between an early adopter and a new start-up is possibly the most important relationship that business will ever have. Like in Bushcraft, the early adopters are the tinder to the fire. Without it there is no fire.

Think about this, how many times has someone told you that your idea would never work. That they couldn’t see themselves ever using it. If they do not have a record of being an early adopter then there advice is irrelevant. They are followers, they base their decisions on being socially acceptable. The objective is to fit in. Unfortunately, this does not lend itself to trying new things. The reality is that the average person will not attempt to truly understand your product until they see others use it. Here’s where the early adopters come in.

They are the opposite of the average person. They like trying new things. In many cases, they want you to succeed. Also, they are the type of person to blog about things. They are they ones that their friends always ask before buying something. More importantly for you, they are the ones that could embrace and advocate your product.

The more advocates you have, the more you will succeed. It’s that simple. So remember, treat your early adopters well and they may hang in there long enough for you to make something remarkable.

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15 December 2009 0 Comments

Business Angels And Your Start-up

Too many entrepreneurs ignore common sense and abandon their reason when they are chasing angel investment. The right angel investor can skyrocket a start-up. Conversely, the wrong angel investor will lead to problems down the line and may jeopardize the start-up’s chances of success.

I have recently read this fantastic article on business angels by Dr. Earl R. Smith II. It’s essential reading for first time entrepreneurs. You must be smart when dealing with business angels. Define the type of angel that’s best for you before you start with meetings.

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10 December 2009 0 Comments

New Ebook – Target Series A: From Idea To Investment

I have just published a new ebook that focuses on the first round of funding for start-ups. It’s called “Target Series A: From Idea To Investment”. Series A investment is a term for the first investment a start-up gets. It contains some very useful pointers on how to get to that that elusive first funding round. If you or one of your friends are starting or thinking about starting a business then you will find this ebook extremely useful.

It shatters some of the myths that many first time entrepreneurs believe and shows them the true route to obtaining Series A investment.

Target Series A: From Idea To Investment

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9 December 2009 0 Comments

It’s Up To You

Who is going to save the economy? Who is going to create jobs? Who will make society better?

The answer is you. As an entrepreneur, you are the true economic superhero. Be creative, be innovative and figure out a business model that works in the modern economy. You have the power. Sitting around and waiting for others to do something is not enough. You have got to act. There has never been a better time to start a business. Costs have come down. Highly skilled workers who have lost their jobs in multinationals are now available to growing start-ups.

Remember, keep motivated because everyone needs you to succeed. Even if they don’t know it. Start-ups are the true spark for economic recovery.

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25 November 2009 0 Comments

A New Perspective on Business Plans

I remember being in business school. One of the modules was business planning whereby we had to write a business plan for a fictitious company. Of course, we all produced a cliched 70 page behemoth of a document. We made sure that it ticked all the boxes so we could get the most marks. When I finished and entered the real world, I firmly believed that I should write a similar plan for my start up. How wrong I was.

This approach to teaching business planning is common place. Most people who leave a business school have a distorted view of the business planning reality.

Some people recommend that people write a detailed business plan just for their own management use. I agree with this. However, I believe that they should only use one A4 page and a pen. They should write their internal business plan in the form of a scorecard and they should regularly check their progress.

With regard to a business plan for investors, since then, I have seen the light, and now advocate a more practical approach to writing one. Now, I view a business plan as a story. It’s a story about your business so far, and a best guess on what is going to happen in the future, based on your current conversion rates etc. It should be presented in the quickest to read format. Potential investors should understand your business model within five minutes of picking up the plan. In general, I agree with the new consensus that you should write your business plan on a 10-15 slide deck with notes.

The more you can back up your assumptions with hard evidence of actual conversion rates, cost per customer acquisition, positive product reviews by industry experts and glowing customer testimonials the better your business plan will be. In other words, if your plan is packed with real world evidence, you have a great chance of getting investment.

However, the same amount of background work goes into a plan in this format. The difference is that you don’t have to spend two weeks writing, formatting and proofing a massive document that will never be read in it’s entirety. See, as a start-up entrepreneur who requires investment to scale, your job is to make investing in your business a no brainer.

Think about it, the easier you make it for investors to understand your business the better the chance that they will invest. It has been proven that business plans are not as important as they are made out to be. Research from University of Maryland’s business school shows this. Your business plan is not an investment tool, it’s a communication tool and just one component of many a potential investors will consider.

In conclusion, if you tell an interesting story about your business that points to future success you are onto a winner. On the other hand, If you produce a 70+ page document, potential investors will have another cure for insomnia and your message will be lost. Remember, the work isn’t in the writing, it’s in the building of a business model that gets results.

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