15/04/2015
Can my business withstand the sharks?
To be a successful entrepreneur you must learn the art of creating an investment portfolio within the business with the intention of creating sustainable profit, reducing business risk and increasing the levels of income in the business. The sole purpose of investing through a business is to reduce risk and increase income. Growth of the business can only be achieved through executing a focused investment plan. One of the biggest question I come across during my consultancy is how do I package my business to attract the right investor?
Credibility: This is having some experience under your belt. An investor would want to see the blood, sweat and tears that you have poured into your business. These include having substantially spent your own money into your idea, setup the right systems to support growth (finance, operations and people) and finally you have been able to build a credible brand in the market place that people trust. Credibility takes time and character to establish and in my opinion, you will need a least a minimum of five years because your business would have gone through a number of seasons including an election year. In the first five years of your business, you need to spend all your energy, money and time in getting your product right and setting up systems that will ensure stability.
Customers: If don’t have a product that a group of people are willing to pay at your desired price, you don’t have a business yet. Contrary to putting the emphasis on the team or the revenue numbers, a lot of attention is needed on the customer. It is crucial for you to be able to answer the following questions for your business before you can approach a suitable investor:
• What compels them to buy this product or service?
• What problems does this product or service solve? Why is it better than the alternatives?
• Why is it worth the price?
• Is what you are selling compelling your customers to tell others about their experience?
• Are your customers asking if they can invest in your company?
Team: The team is still an important part of the equation, but the entrepreneur is just as important. Here's what the investors are looking for in both:
• Passion: The entrepreneur must demonstrate a contagious excitement about their vision for the company.
• Tenacity: The entrepreneur must prove they have the stamina and willpower to stay with their vision through thick and thin.
• Flexibility: The entrepreneur must be willing to re-evaluate and refocus their plans when things don't work out as anticipated.
• Commitment: The entrepreneur must be willing to invest enough of their own money into the project to convince investors they're serious.
• Teamwork: The entrepreneur's team must prove they can work effectively together.
• Coachability: The entrepreneur and their team must be coachable. No team knows everything they need to know to succeed.
• Knowledge: Investors prefer to back teams that really know their market by having backgrounds that are rich and impressive in the market niche for which the company is engaged.
Timing and Opportunity: Investors want big ideas, ideas that can change the world, Ideas that change our behaviour, culture or way of thinking. Anything less is too speculative. The risks of investing in a company are so great and the chances of a reward are so small that investors can't afford to bet on opportunities that won't surely have huge payoffs. And one of the biggest problems when addressing opportunity is "Am I too early?" Investing in a huge opportunity five years before the market will recognize and embrace it is a very frustrating thing. Not only will you lose your investment, you'll have to suffer the extreme frustration of watching someone else make a lot of money on the foundation you helped build. Take time to think through your big idea and do the necessary research and market study before you launch out. This can protect you from flogging a dead horse.
Business Model: Will the numbers map out? In other words, once someone takes a sharp pencil and starts tracing where every shilling comes from and then seriously challenges every expense it will take to generate profit, will you have:
1. A profitable model?
2. A repeatable model?
3. An expandable model?
4. A predictable model?
5. A defensible model?
Many entrepreneurs fail because they don't know how to do this type of exercise with a "real world" view. Going through this process, will also give you a good indication of what the value of your business is. Getting the right value is critical because you will be able to determine what the correct price an investor should pay, for a stake in your business. If it is debt capital that you are looking for, then you are able to assess what interest cost your business can withstand.
Well, there you have it. How do you and your company match up? If you were to be honest and found areas that are lacking, please look for us, we will help you fix them before you approach anyone to invest. Your extra investment of time and money will significantly improve your chances for funding.
Ari Capital
Laiboni Centre 4th Floor Lenana Road
Office 0730 112 146 OR 0722 355 984
Email [email protected]
