Getting into Business – buy versus build

Both can be very challenging.

1. Know what you aim to achieve in the business (are you trying to change the world, are you out for lifestyle or determined to build a fast growth business, do you need total control or would you be interested in an MBO where you and a few other managers own a smaller but potentially very valuable stake, do you want to own it for life or exit in 5 years, etc.)
2. Know your personal objectives and make sure they fit with your business objectives (for example, its hard to run for council or other political office if you want to buy or build a fast growth business)

This is not exhaustive but they are extremely important in forming your decision.

Buying is probably going to cost you more upfront and there are risks such as losing key customers as pointed out by Scott.  Another key risk is the potential loss of key staff.  Is your style going to be the same as the prior owner?  If not, customers and staff may walk.

If you buy another company, you need to be careful to get appropriate representations and warranties about the business (and that they vendor can actually pay the damages if you sue for them – if they can’t, reps and warranties insurance is possible.

You will want to buy the business and its assets so you don’t get stuck with any legacy liabilities of the company (tax issues, legal, PI claims, etc.)

In summary, buying a business means careful due diligence upfront and careful planning to retain clients and staff and so forth after the acquisition.

Today, with private equity, its possible to buy very large businesses with the support of private equity sponsors.  If you are doing it alone on a smaller scale, make sure you don’t over pay, try to pay in instalments with some based on subsequent post-acquisition performance of the biz.

Building has its own set of difficulties.  You are starting from scratch.  No customers, no products/services.  It also takes funding but that is somewhat spreadout over time.  Of course it can be awhile until the first signs of revenue.  Cash flow forecasting will be key, as well a careful analysis of the customers and markets.  Get into their world.  Read what they read, do what they do, network where they network.

My number one tip for starting from scratch is “customer first, then product/service” – find the pain/need, then solve/fill it, fast!
Cheers
Tom

Forecasting Sales & Revenue

I strongly recommend building your revenue projections from the bottom up.

By this I mean estimating unit volumes and unit price to arrive at total sales by product/service line.

Forecasting at this grass roots level will enable you to perform rapid sanity checks on your assumptions against the market as a whole and against competitors.

Forecasting in this way also enables you to compute more accurately the resources and people required to deliver those sales so that you can make cost assumptions (operating expenses, capital expenditures, working capital needs, etc.).

If you are analyzing an investment opportunity, you should take the same approach.  Analyze the company’s projected units, unit prices and total sales and the trends relative to the history of the company and the market.

cheers

Tom

Wrist-watch mobile phones!

Dick Tracy has come to life.

These devices have been around for a while and they are pretty cool. 

They range from very expensive (Tag Heuer) designer versions costing thousands of dollars to cheaper versions out of China (AUD200 or so).

They are pretty cool.  You put your cell phone chip in the watch and off you go.  They come with blue tooth so you can have a wireless ear piece.

I am a ‘less is more’ person and if I can carry one less device, its definitely of interest.

Definitely worth considering, even if you just use when you are out for a walk, run, bike ride or something where you just don’t want to lug around even the smallest lightest mobile phone.

What’s your experience or view on these devices?

Turning your website into a selling machine!

Its very worth while to undertake Seach Engine Optimization and some search engine marketing.

The best way is to get some help – hopefully one of your own personal contacts can recommend on that has had great results.

Here is one in Australia but with the web, it does not really matter where you are!

I am going to use Chris soon because he has done amazing work with a client of mine. Chris Thomas , Search Engine Optimisation / Search Engine Marketing reseo – we’ll get you there. www.reseo.com Studio 2a, 108 Moor St p: +61 3 9415 2383 Fitzroy VIC, 3065 f: +61 3 9415 2399 Australia Ethical growth through ethical work. e: christ@reseo.com Reseo Blog: The light and dark side of SEO – a must read for the absolute cutting edge in online traffic building techniques, in easy to understand language http://blogs.reseo.com

Do I need to put my own money into my start up?

You almost always have to.

If you don’t put up a significant part of your personal networth in the business, no one else will invest.

If you won’t bet the farm on the idea, no one else will.

But once started, you don’t need to do it all yourself.

But investors, and even bankers, want to see substantial personal commitment by the founder at the seed and start up stage.

With your own money, you show the world you believe.

With your own money, keep the equity yours and you keep control.

But to grow fast, eventually you will need outside capital. When that time comes, don’t be too greedy about control and ownership. It is better to own 50% of something worth $50m than 100% of something worth $5m.

What it takes for a start up to survive

Its got to be customer/market need first, then product/technology. Make sure your product is highly differentiated and solves the customer/market need/pain.

Many start ups fail because they think there is a customer/market need, so they build the product only to find out they were wrong or the benefit is only incremental and not enough to make people switch.

Being adaptable and persevering are also key.

I know of a very successful entrepreneur who built a tool for scientists but found out scientists 1) didn’t have a lot of money and 2) strangely didn’t like to use software as much as she thought. So, they adapted and sold the product to the education sector, which is now 99% of sales. It got backed by a life sciences VC (it was related to brain function) so it was not easy to change the target customer market to education but they did and it worked!

So be adaptable (but it also proves you must really know your target market before building the product – they just didn’t know scientists as well as they thought they did)

Watch the cash too.

But remember, its customer/market need first (and this must be confirmed through real knowledge of your customers).

Is business 99% luck or planning?

I believe preparation and planning are the key to success.

A lot of what looks like luck is actually the result of planning and persistence and rational risk taking.

You should not rule out your gut instincts nor should one be caught up in ‘analysis paralysis’.

Following gut instinct is not luck – its actually finely tuned having absorbed all your life experiences.

So go out there and make your own luck!!
Cheers Tom

Bootstrapping vs. VC & Angel Funding

What should one do with their start up business?

You may be able to boot strap unless you need a large team of product developers. Boot strapping is a more likely prospect if your products are complete or near so or you can build the product yourself.

The attractiveness of the business to outside investors will depend on:

1) Size and growth rate of your target market

2) Your differentiation & competitive advantage

3) How big can the company become? Many angels & VC’s will want a business that is worth $50m to $100m at exit

4) Can it deliver the returns required for the risk involved? Many VC’s and Angels will seek 5x to 10x their money in 5 to 6 years. To deliver that you need a pretty large market and to grow pretty rapidly and to have a clear exit strategy.

If you have a strong track record, it will help you to attract investors.

If not, you’d benefit from having some advisors/directors or a CEO who has strong track record.

The best teams usually win! Good luck to all you entrepreneurs out there!

Best Books on Investing

I have read many and highly recommend:

The Intelligent Investor, Benjamin Graham

A Random Walk Down Wall Street

Beating the Street

One Up on Wall Street

These will give you a good start!

What to demand of your investment advisor!

Independence

Understanding of your profile, risk appetite and circumstances

A problem solver, not a product pusher.