In the first part of this article I spoke about the beginning stages of what it takes to become a successful entrepreneur. In this second part I begin to discuss the relevance of investment procurement, operational management, and advertising.
So you have started your business, came up with a plan for your product or service, and you are passionate you have a winner. You have gotten you business cards and some basic marketing materials (as covered by part 1 of this article) and you are ready to proceed. Are you ready to walk the walk?
It should be noted that depending if you are selling a service or product often determines the direction that follows. For example if you are an owner of a service you may not need much capital (if any) to proceed. Now it’s time for your sales process to begin, while if you started a product you need investment for a complete prototype. Regardless, today is the day you become a sales person. Remember that even though the venue is different, the tasks remains the same weather its a pitch to a prospective client (buyer) or a venture capital company. You must be eloquent, knowledgeable, and confident about your venture.
Let’s for the time being consider that you will need capital. There are many ways to get it. Be careful here as this is a tricky business, and you can give away a large chunk of your business for little money. Another possibility is at least 1 person on the board of your company. Here is what you need to know, they aren’t just going to give you money and cross their fingers. VC denies 98% of applicants, their job generally is to find the sure thing. They try to find business that would yield a 20x-30x return. You are faced with 3 ways of getting funding, VC, angel investors, or public (IPO). For most businesses the public option is not even doable in the first 5 years.
1) Budgeting – Now that your business has picked up pace and the ups and downs are no longer as drastic, you can begin a balanced walk. As mentioned earlier your first task is operational funding. This can come as a big headache to most unless your field of expertise is private equity. To better understand the monies needed you will need a comprehensive budget. Aside from operational expenses such as employees, and marketing budget, you must decide your pay. This can be quite difficult. Most new business owners tend to want to pay them selves exorbitant amount. They feel like they have spent a better part of the year struggling to build the business and want to see a return on their efforts. Keep in mind that investors are in essence lending you money, and the more you ask for the more you will have to give up. The cost of the money borrowed is immense, so ask for only what is needed for you to become profitable. Take a salary of 50K the first year, if you are single, 80K if you have kids. Its not a lot but you will be rewarded 10x when revenue comes in and you can begin repaying human capital based on revenue. Doing this right will exponentially increase your businesses longevity. Also it is the responsible thing to do.
2) Human resources – Now you know your employment needs and its time to hire folks. For most this may be your first time, and it can be overwhelming to find great workers for cheap. This is an art (boot-starpping) that you will perfect as you go along, but don’t despair, and certainly don’t try to do things you have no idea about. Businesses with experienced employees that care are always first to succeed. Knowing peoples worth is critical. The best way to proceed is by knowing what the people do and account for their talents is key. For example look at Google. They started with 5 employees. They all make millions now, but they didn’t always. At one point the principles had told their key employees the situation and made them realize that this is a human capital situation. What this means is that they will be paid by the companies growth. Explaining this is vital as your employees will work better if they feel comfortable with their pay structure. Set a vision that the whole team can get behind, and explain that the growth of the company and in turn them selves is derived by the work the entire group produces. Also its important to understand the market you are in. For example in a slow economy like now labor is cheaper, just don’t go too low or you can trigger resentment in the group which will affect your business, now or later.
3) Marketing – so now your budget is almost complete except for marketing. This is not a time for being frugal. Marketing will ultimately define your share of the market. Do not book a super bowl ad (too pricey). Stick to proven methods and ones you can get concrete KPI’s ( key performance indicators) on and really measure campaign success. Stay away from big agencies, they will charge a huge retainer and do the same work smaller agencies can do. In fact pick an agency that will not charge a retainer if you can. Good agencies will help with demographics as well. Although you should know your key demographic at this point.
Knowing your exact investment required will lend to a higher chance of securing private equity.
The Run (around):
This is the time of “no”, you will go from investor to investor pitching an getting a lot of no’s. The rule of thumb is you will get 20 no’s before you get a “yes”. Do not stress this terrible lack of interest. The fact is no matter how good the idea, new business owners need those rejection to better their pitch and the general idea. Every time you pitch someone you become a better presenter (especially if you analyze each pitch with out being defensive). This is no time for an ego, this is the time you will learn the most about your skills and your idea.
I personally suggest to try Angel investors first before VC, they will provide a lot less money but will not always ask to have the majority control the company. They make high risk investments and they usually do this for different reasons then venture capitalist. See last note below for comparison of different kind of investors and their goals, and reasons for investment in the first place.
This is now your growth phase. It is not a simple phase, but the thing to keep in mind is that your success will be measured by your groups productivity, and your relentless “go-getter” attitude, the economy and many other fundamental business principles that often are out of your control. Understand what is under your powers of influence and make those processes better every day, and you will do well. Do not give up on your self or the business and the learning process. Much of the future of the company depends on how you run the company. Be nimble, flexible and strong and your rewards can be endless.
The result of following these steps will allow you to never have to work a day in your life.
Please stay tuned for next article on comprehensive analysis of the different investment strategies companies use.