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Product Details
| ISBN-13: | 9781477286166 |
|---|---|
| Publisher: | AuthorHouse |
| Publication date: | 11/05/2012 |
| Pages: | 278 |
| Product dimensions: | 6.00(w) x 9.00(h) x 0.58(d) |
Read an Excerpt
CONNECT THE DOTS
A PLAYBOOK TO HELP YOU CONNECT TO YOUR CUSTOMERS AND PROFITSBy JOHN LINCOLN
AuthorHouse
Copyright © 2012 John LincolnAll right reserved.
ISBN: 978-1-4772-8616-6
Chapter One
KNOW YOUR EXIT BEFORE YOU TAKE THE BULL BY THE HORNSThe strategy of successful start-up (and exit)
As a business owner or investor, you will have started out with your business for any number of reasons. These could range from a need to follow your dreams, to seek financial or career independence, to pursue your hobby or passion in life, or to fulfill an ambition to make it into the big league of the business titans – the ones who adorn the covers of well-known business magazines!
Amid all the stress and excitement of getting a business up and running, one of the last things on your mind will be an exit strategy. In fact, the very notion of an exit, just as you are taking the 'bull by the horns', may seem utterly counterproductive. Who in their right mind would be contemplating an exit, when they have hardly got going?
Needless to say, there are some very good reasons for every business owner or investor to consider their exit strategy – it needs be done at the very earliest of stages, and even before the company opens its door for business! Before we consider the various exit strategies, just why is an exit strategy one of the most important factors to plan for, when there are seemingly many more important issues to tackle when starting and running a start-up?
Seven reasons why you must have an exit plan ready
There are many reasons, beyond any wished-for windfall, why an exit strategy is needed – life is full of twists and turns, some of which are avoidable and some inevitable and in every case, the timing is anything but predictable.
Divorce Most business relationships do not end on a positive note, so there is a need for a plan and a view as to why, when and how you will exit – if and when there is an irreconcilable breakdown between you and your business partners. You should plan for this to be a virtual certainty, as most relationships evolve over a period of time and you and your partners will be influenced by a myriad of people and business factors, and people and relationships change accordingly.
Death Other than the certainty of paying taxes (in most countries!), death is a certainty that needs to be planned for, beyond the obvious critical-man life insurance policies that need be put in place by the business. A concrete plan is called for, which includes a view on how dependent the business is on each of the partners, how their families will survive, and how the remaining partners will be able to conduct the business.
Disability What happens if you or a fellow director is disabled through an accident or due to ill health? Who is going to take care of them, their family, their investments and the business?
Departure When and how do you want to exit the business? How are you going to recoup your investment and tenure in a business that you have started and nurtured, for a period of time?What are your plans to ride into the sunset?
Detour How would you exit your business, if and when a new investment or business opportunity comes your way?
Deceit How would you exit your business if you found out a key stake- holder like a partner, was colluding with a customer or supplier or was being deceitful or defaulting on dues to you?
Decline in growth What are your plans if/when business growth stalls? Do you just wait, bide your time and exit gracefully, forgoing all your hard work, risk and money invested in your business?
Why planning for an exit is important for every start-up
Having established the need for an exit strategy, we should tick off a few essentials that need be taken care of when planning that exit strategy. Most entrepreneurs ignore these to their own detriment. It's unclear if they see them as an unnecessary expense or a waste of time, but if things go wrong or absurdly right, then it is this very set of actions that is going to cover you:
1 Have rigorous, fool-proof financial accounting methods, policies and procedures in place, from day one.
2 Have a shareholders' agreement that clearly spells out the rights of each founding partner.
3 Create a tiered (preferred) class of shares that enable you to pay out higher dividends and share of profits, and one which will ensure that you have higher voting rights.
4 Get power of attorney documents signed by all partners giving you the right to run your business (legally), without undue interference or limitations by other partners.
5 In the case of a limited company with a board of directors, get blank board resolution documents signed by all board members.
6 Get an appointment letter attested to and signed by all partners clearly stipulating your role as the 'Chief Executive Officer' of the company, your salary and tenure.
So what are some of the likely exit strategies?
While these suggestions seem over cautious, when an opportunity arises for an exit, or when something goes wrong with the business partnership, everyone will really appreciate that you went through the arduous task of getting the accounting and legal due diligence work done. When things go so well or so bad, inevitably cracks will appear in any partnership. The legal protection wrapped around you will pay off big time!
INITIAL PUBLIC OFFERING (IPO)
IPOs are a rarity nowadays. Of the millions of businesses in the world, only perhaps one in a thousand ever makes it to an IPO. Unless the business has the backing of well-known and solid venture funds with a track record of taking companies public, this is not an option that will touch many start-ups or small businesses.
The process of getting prepared for an IPO is expensive and cumbersome. It involves lawyers, auditors, investment bankers and consultants who are all out for their fair share of meat. During an IPO process the business and its executives are under the spotlight and subject to various regulatory compliance obligations and audits that you probably never knew existed!
You start off the process by being the ultimate salesman, convincing investors during road shows with investment bankers that your business is worth much more than it is. By the time the business becomes a candidate for an IPO, your equity will have been well diluted, after the 'vulture' funds had agreed to invest in you and your business!
Although IPOs are glamorous and populist of exit strategies, they should not be the first option. Most entrepreneurs are still enamoured by the dot.com bubble at the beginning of this century, but don't be fooled by these and other IPO stories! That said, for a business which has a unique technology that is well protected by patents, and is funded by well known venture funds, there truly is potential to win the lottery aka IPO!
MERGER OR ACQUISITION
Getting another entity to acquire your company is one of the most common ways to exit from a business. The principle is simple – find another business that is ready, willing and able to buy your business, sell it and keep the money and occasionally get paid an earn-out or bonus of some kind, for remaining with the business and helping the new owners run the business that you have started.
Most successful small businesses are acquired by much larger public companies. What this can mean in essence is that you are in a better position than the buyer is. This is so because the folks negotiating and making the acquisition decisions are not vested on their own money but are investing other people's money. So whereas you will be negotiating a value for all your blood, sweat and tears they are often just 'employees' with little to lose.
The recommendation is to get to know as much as possible in advance about the potential acquirer. Then craft the proposition in a manner which suits the potential acquiring company, and is designed to be complimentary to its existing business portfolio. The trick is not to limit the exit to one or two suitors. Have an array of suitors and evolve your propositions over a period of time. This way, you have the potential of ratcheting a bidding war among multiple suitors, or at the very least to create a high level of perceived strategic value to a single acquirer.
DISPOSAL, DIVESTMENT OR BUY-OUT TO EMPLOYEES, FAMILY OR FRIENDS If you are a true believer (in your business) and if you are emotionally connected to your business, then selling it to a friendly buyer might be the best option. A friendly buyer could include your family, friends and/or employees who are prepared to invest their own or borrow money for a management buy-out.
Businesses that take this path will not necessarily be doing this for an outrageous monetary exit, but rather to ensure that the quality, integrity and continuity of the business is assured.
BLEED TO DEATH There are a few business owners who bleed their company dry almost on a daily basis and pay themselves a chunk of salary and bonus, irrespective of their company's performance. Some of them give themselves five to ten times the dividends that other shareholders receive. Although these activities are illegal in public companies, they are perfectly legal in private companies.
Cash is king in such companies, and the owners do not reinvest it in their business nor do they consider growing their business. They keep investments down to a minimum and withdraw cash to live off the income of these businesses.
For most businesses, cash that is taken out for personal use is no longer available to the business for reinvesting. Where the business plan deems that the company must invest to grow, then of course, this is not a viable option. There are other ways that a 'cash is king' exit could work. You could get your family to loan the business money and pay a high level of interest for the loan. This way the cash is kept in the family, safe from the taxman and away from any creditors and your preferred shareholders.
No matter what exit strategy is preferred or chosen, it is important to note that the valuation of your company is primarily driven by two factors:
• The cash flow derived from the revenue that the business generates.
• The growth that is being demonstrated year on year.
In this context it is vital to time and pace any exit to a period when cash flow is maximized (therefore your revenue) and when growth is poised to peak. This is a truism that is applicable in any professional career or business: always exit on a high note! Look around: great business leaders remain great because they exited at the peak of their company's growth!
Chapter Two
PLAN! PLAN! PLAN BEFORE YOU SEEK ANY FUNDINGPlanning, funding and managing cash flow
In business as in personal life, cash is the lifeline for everything we do. Managing cash flow can be a major challenge, and stands as a critical success factor for every business. Even before opening for business, one of the chief criteria a lender or investor will most closely scrutinise is your ability to generate and manage cash.
So it is important to understand some of the fundamentals that any funder, lender or investor will consider before dishing out their hard earned money to you.
First and foremost, they will examine the quality and robustness of your business plan. So get a friend to help finesse it, or better still pay a professional to write one for you: it is a vital first step that needs to be taken if you are to start out on the right footing with a new venture. A good plan will not only provide investors with the level of confidence they are seeking, it will give you the direction you will need and will help shape good decisions. The business plan needs to be organic, rather than a forgotten piece of shelfware. It is something that will need to be regularly shared and presented, reviewed and revised with your potential investors and business associates.
You cannot be all things to all people indefinitely so it is vital that the business plan is focused and time bound. If it is not, in all likelihood, is not a realistic plan! Remember these words of wisdom on business planning:
Without a plan, you cannot raise funds, let alone act or respond to changes in the whitewater environment of business. Therefore, plan! plan! plan!
The twenty questions of business funding
Key factors that lenders and investors will consider before backing a business
1 Owner credibility – Do you have references to attest to your character and professional and/or entrepreneurial capabilities? People invest in people first!
2 Business plan – Do you have a well documented business plan?
3 Vision and mission – Do you have a clearly articulated vision and mission statement of the venture?
4 Is the idea marketable? – Do you have a business plan with a marketable idea? Is your market reachable? Can your proposition be marketed?
5 Target market – Do you have a clear view as to who your target market would be and whether the market potential is realistic or unrealistic, too narrow or has high potential for growth?
6 Commercial model – Do you have an absolute understanding of cash flow and how money is flowing to your business? Is it easy to explain or is it as complex as Enron? Will the other players in the industry value chain tolerate your existence and let you 'eat their lunch'?
7 Operating model – Do you have a well articulated process as to how your business would be run? This includes the processes on hiring, accounting, product development, sales and marketing, supply chain management and all the other processes that are required to operate your business.
8 Business strategy – Do you have a business strategy to execute on the plan? Is the strategy realistic?
9 Risk mitigation – Do you have a clear view of the potential market, technological, legal and human capital risks for your new venture? If risks have been identified, do you have a view and a plan as to how you will mitigate these risks?
10 Profit potential - Do you have a business plan that reflects realistic profit potential in a reasonable period of time? The annual rate of returns should be high enough to compensate the risk that a potential investor is making.
11 Unique value proposition – Do you know how to differentiate the business proposition in the market vis-a-vis your competitors? Are you a 'me too' player? If you are a 'me too', you do not have much of a chance to get funding from established sources. You have to clearly articulate as to how and why you will have an edge over your competition. What are the entry barriers for others to replicate your business model? What is the window of opportunity to get scale before other imitators follow your model?
12 Go to market model – Do you have a clear view as how you will take your proposition to market? Do you have a view on how you will promote the business? What channels would you engage to take the product to market? How would you compensate them?
13 Sales and marketing capability – Do you have the right folks to market and sell your proposition? This is one of the most important functions critical for the success of your business. Having a bunch of talented technology folks alone is not going to cut it for you. Likewise, having all the marketing and sales superstars, without the relevant technology talents, is not a viable proposition.
14 Technology – Is the technology unique? Is it patentable? Do you have the right folks to develop the proposition? Is it easily copied or imitated?
15 Supplier and partner commitments – Have you secured commitment to supply from your vendors and suppliers? Are your vendors and partners reliable and dependable?
16 Execution capability – Are you able to execute and deliver a superb quality proposition with a high degree of probability? What are the weak points in your execution? How are you going to mitigate this weak area? (Continues...)
Excerpted from CONNECT THE DOTS by JOHN LINCOLN Copyright © 2012 by John Lincoln. Excerpted by permission of AuthorHouse. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Contents
Chapter 1: Know your exit before you take the bull by the horns....................19Chapter 2: PLAN! PLAN! PLAN before you seek any funding....................27
Chapter 3: Traditional and alternate sources of funding for your small business....................35
Chapter 4: Managing the lifeline of your business – Cash flow and working capital management....................45
Chapter 5: Human capital management: Secrets of hiring and firing....................55
Chapter 6: Markets, pricing and competitive positioning....................65
Chapter 7: The proposition is the experience!....................71
Chapter 8: The experience forms the brand....................79
Chapter 9: Pricing strategies and tactics for your business....................91
Chapter 10: How do you engage in a price war....................99
Chapter 11: The art of sales leadership and management....................113
Chapter 12: Sales and marketing, battles and wars....................121
Chapter 13: The art of direct marketing – Why direct marketing matters....................127
Chapter 14: How to identify, choose and apply the right direct marketing tactics....................135
Chapter 15: Not all customers are created equal – the art of segmentation....................143
Chapter 16: Enticing and tempting your customers to sin....................151
Chapter 17: Why should SMEs market to women?....................161
Chapter 18: Respectful marketing strategies and tactics targeted at women....................167
Chapter 19: A simple framework for less complex business decision-making....................177
Chapter 20: ICT Investment for business value creation....................185
Chapter 21: Managing your business operations....................195
Chapter 22: The art of focus: Fundamental math for business....................207
Chapter 23: The making of a good manager....................213
Chapter 24: A simple framework for a smarter everyday business management....................219
Chapter 25: Why women should get into business....................225
Chapter 26: Leadership matters!....................233
Chapter 27: Big picture management....................241
Chapter 28: The power of virtuous and vicious cycles in business....................249
Chapter 29: How much is your business worth?....................259
Chapter 30: 7th Heaven – Sustaining and growing your business....................267
Acknowledgments....................274
How to use this playbook....................276