The Entrepreneur's Mentor

Where Do I Get My Funding?

I don't really get involved with the funding of businesses, even clients. But I do try to help clients think through their strategy for coming up with necessary funds.

Every source of funding wants to see the entrepreneur have some "skin in the game." That means that the entrepreneur is putting some of his/her own money at risk in the deal and therefore has more motivation to spend well and keep a close eye on things.

So, don't expect anyone to give you all of the money you need. You or your business have to put up a chunk.

Secondly, you have to show how the money is going to be paid back within a reasonable period of time. If you want to borrow $100,000, you realistically have to show that you can afford, out of cash flow, to pay back $20,000 per year plus interest; or to pay interest only, with a huge balloon at the end; or something in between. Will your cash flow support that?

Thirdly, you need collateral. To get that same $100,000, the lender will want to see collateral of at least that amount. That can come from fixed assets, inventory, real estate, accounts receivable or a personal guarantee. Lenders don't like risk.  They want to be covered. They will take your assets if you cannot repay the loan.

Fourth, you need to convince the lender that you and your management team have the experience and the expertise to run the business well.

If you come up well on all fronts, straight bank financing is a real possibility. If you can't get bank financing, then you can look to private investment bankers or venture capital funds. Their rates will be higher (higher risk, higher rates) and they will probably want equity in your business as well. Some entrepreneurs find this hard to swallow. But owning a smaller piece of a bigger pie should be palatable, especially if it is the only way to get funding. They are still not the easiest people to convince. They get to look at lots of potential deals, so there is lots of competition for their money.

If you have not yet succeeded, you can look for high net worth individuals who are "angels" for small companies. There may be someone who knows your business area and is attracted to investing in companies such as yours without the same regard for the fundamentals as banks and VC funds may have.

Some entrepreneurs try to put together a "private placement", trying to sell shares in their business to a number of individuals to raise the desired funds. This effort is expensive and takes a long time, but may be fruitful.

If all else fails, it may pay to just put your nose to the grindstone and knock out a couple years of improved results and then go back and try it all again. You may need to take a hard look at your company, particularly at those areas that caused potential investors to turn up their noses, and do some cutting or put in some operating efficiencies.

You can use your search for funds as a learning experience. You are getting advice from objective professionals on what is wrong with your business. Take the advice, fix your business and go back to the lenders showing them what you learned.

Patience can be a virtue. In most cases, windows of opportunity will always be there.Listen to the experts and make your business better. The growth will come.

What Do You Want?

In the initial thrill of a new idea, we sometimes forget to begin to think about the long range strategy that needs to operate in the background behind it.

Short term thinking is "This is a great idea. I can start a business around it and make some money and it will get me out of my dead end job."

Then the next level of thought kicks in. "How much money will I need to get started? Where will I locate? How will I operate? When can I leave my job?"

All of those questions get answered, and certainly a bunch more as well. The entrepreneur is satisfied with the "plan" and goes for it. And it may work out or it may not. I have seen many businesses come and go over the years and they all seemed like good ideas to someone. I had a few of those myself.

What other questions can you ask to give yourself the best chance of success? I am sure that the readers can list dozens that are important.  Here are a few.

• Is anybody else doing this? If not, why not? If so, where? How are they doing? Would they be competitors and if so, what are their relative strengths? Do they have an advantage by being in the market already? What are they doing right? What are they doing wrong?

• How big is the current market? What is the size of the potential market?

• Do I know how to tap into the potential market?

• Do I have a plan for grabbing market share from my competitors?

• Do I know what competencies are needed to operate this business? Do I have them? If not, where or how can I get them?

• Do I know what all of my expenses will be? Do I know what it will cost to operate for one year? Two years?

• How long can I afford to live without income?

• How much risk am I willing to assume?

• How much do I really know about the industry or profession in which I am entering?

• Do I have credibility as an individual? Subject matter expert? Business person?

• Do I know where to go from here?

• Do I have ideas for more products or services? A bigger geographic market? Or am I a one trick pony? Am I putting all of my eggs in one basket?

• Do I envision this for a career? A stepping stone? Do I have an exit strategy?

• What do you want the result to be from having entered this business? Do you know what the steps are from start to finish?

Boy, so much to think about, and we haven't even gotten started. Being entrepreneurial doesn't mean we just wing it. Ask the questions, at least try to answer them and be aware of what you don't know. It won't hurt your entrepreneurial image to do some planning. In fact, it just may enhance it.

The Five Most Important Questions

Peter Drucker, perhaps the greatest business consultant of all time, lived from 1909-2005. He is responsible for much of the management theory that came into being in the 20th century.

Well, we are now in the 21st century, and one might think that many of his concepts have become outdated. In fact, in a previous post, I cited a book by Gary Hamel, called The Future of Management in which the author calls for a whole new management model for the future.

Nonetheless, Drucker is still relevant. He wrote The Five Most Important Questions, which has recently been re-released. He says the five most important questions an organizational leader can ask himself/herself are:

• What is our mission?

• Who is our customer?

• What does our customer value?

• What are our results?

• What is our plan?

So, do you agree with Drucker? Should there be other choices in the top 5?

I wonder about the future. What type of innovation do we need to foster to succeed in the years ahead?  How will we fill our personnel needs? What skills and competencies will we require?

I suppose if each of the 5 questions is the heading of a section of an outline and we can ask more and more questions under each one, we can cover most of what we need.

What is it critical for you to focus on in your business or organization? What do you NEED to know on an ongoing basis?  Can you top Drucker?

Growing by Acquisition

Organic growth is not the only way to build a company. Some entrepreneurs, seeing opportunity for more rapid growth, look to make acquisitions. Typically, this is done to expand a geographic or a product market. Let's look at a couple of examples.

A bagel store/restaurant owner (Moe) has been in business for five years. His sales have grown quickly in the first three years and then pretty much leveled off during the next two.He doesn't want to change his product mix too much because he doesn't want to try to be too many things to too many people.

Moe surveys his customers and finds that 85% of them live within 5 miles of his store. Looking 10 miles east, which is an area similar to that in which his shop is, he finds no bagel shops. Looking 10 miles west he finds a shop very similar to his. He speaks to the owner of that shop who might be willing to sell.

Thus, he has a decision to make. What would it could to start a new operation from scratch as compared to buying an existing operation? All things considered, Moe decides to buy rather than build.

Meeting Madness

Most employees of the average business feel that they are forced to attend too many meetings, and that most of the meeting time is a waste of time. In many instances, they are not wrong. Those calling meetings need to follow some simple rules.

Every meeting should have an agenda and every attendee should have the agenda in advance.

Every meeting should have set rules regarding behavior and expectations.

Every attendee should be prepared for the contribution required of him or her.

The purpose of the meeting should be clear to all who are asked to attend.

Every meeting should have at least one clear outcome, and responsibilities and accountability should be assigned.

Time is money, and entrepreneurs do not have time to waste. While it is important for all to have their say over issue involving their interests, that does not mean that everyone "gets the floor" for an unlimited amount of time.  Clear and fair limits on discussion need to be enforced.

Meetings are a big part of my day. Some are with potential clients or prospects. Others are with clients to discuss next steps. Still others are for brainstorming. It doesn't matter what the subject is. Meetings need to be efficient and effective uses of time.

Every once in a while, just sit back and listen to others in meetings. See who gets to the point, who doesn't. Determine who just loves the sound of his/her voice and who only speaks when they have something valuable to add to the discussion. Track how much time is wasted when a meeting is unstructured and unregulated.

Do you know how you are in a meeting? Are you aware when you go on and on without saying anything? Are you aware when you cut people too short, either by interrupting them or by body language or non-verbal communication?

Before we attempt to influence the "meeting behavior" of others, we should be aware of our own. We should work to become the role model before we try to impose rules on the rest of our team.

Meetings are tools to impart information, share ideas, motivate others. Don't let them morph into something negative! Keep them no longer than they need to be; keep them positive; keep them on task; and get results.