We all know that new strategies and technologies such as the internet, social media, Smartphones, and major online retailers are rapidly disrupting organizations. However, financing and the financial industry have been very slow to adapt. The purpose of this article is to recommend a number of tactics to take advantage of new (and sometimes disruptive) financing opportunities. At the Startup Connection (www.startupconnection.net), we believe that a very important (but often overlooked) opportunity is that operating and marketing processes should also be viewed as financing tools.
We still mostly live with an old world of small business financing. Most financing (including institutions like banks and the SBA) are based on antiquated businesses, such as manufacturing and retailing. In the old business model, you quit your job, built a building, bought inventory, hired lots of people, paid high interest rates, gave away lots of equity, and then waited 1-2 years to make any money. This was financed through asset loans, guaranteeing debt with family assets and your own savings.
Fortunately, the reality today is very different. Most new business are service or technology businesses, and they require much less investment. Another very important factor is that you can now quit your job much closer to actually starting the business.
The biggest changes may be finding marketing opportunities to accelerate growth and using techniques to minimize financing needs. At the Startup Connection, we recommend a more comprehensive and flexible approach to the process. This approach puts a slightly different perspective on key issues, such as: How much money do you need? How and when will you pay it back? Why should someone invest or partner with you?
Many clients start the entrepreneurial process asking the age-old question, “How do I raise money?” I argue that is the old way to start, and this mindset needs to be changed to be more successful. Old style advisors often recommend raising as much money as possible. In contrast, I believe in minimizing to reduce costs and risk, and to keep equity and avoid excessive financing charges.
There are other new perspectives to financing your business. We live in an environment with low interest and inflation rates, and lots of capital to invest. This article identifies financing suggestions, organized into operational, marketing, new, and traditional methods.
Operational Financial Resources
The simplest source of funds is to reduce the need for funds through regular business tactics. This can be accomplished with strategies of outsourcing, contracting services, using sharing resources, and testing. While not all of these strategies may be appropriate for every business, consider the ones that have most potential to save cash:
Use services for internet management, warehousing, and programming,
Plan and manage inventory to maximize return: focus on the 80-20 % rule that 80 % of your sales will come from 20 % of your products. In addition, manage inventory and services for seasonal and market changes.
Minimize investment through strategies like renting or sharing. For example, warehouses, cooking facilities, and manufacturing can all be outsourced. One caution: doing things in of your home has long term, operational and frequently legal implications.
If asked, suppliers are frequently willing to help a business through things like financing, holding inventory, reducing production times, and shipping direct.
Consider direct shipping from your facilities, or organizations like Amazon.
Understand and minimize complexity. For example, there is a big difference between selling a shoe (with various sizes, colors, widths and styles) versus selling food products (that have a few ingredients that can made into a number of items.)
Analyze why you are really spending and what you will get from it.
If the business is profitable and growing, you can frequently finance the growth with working capital from profits. This also means giving up less equity.
Expanding Marketing Efforts
Don’t wait for business to come to you but consider the rule: you have to spend money to make money. Analytics, internet marketing, and outsourcing programs provide numerous opportunities to grow and make money faster:
A website and simple marketing statement provides basic information for potential customers. These can be inexpensive through programming tools like WordPress.
Amazon is the fastest growing retailer in the country and controls about 30-50% of most category internet sales. It is easy to set up and relatively inexpensive.
Paid search through organizations like Google and Facebook are underestimated. These options can be inexpensive and fast, and the results can be measured.
There is nothing as productive as Networking, Networking, Networking!
These tactics need to be tested and measured. Kill or modify the ones that fail and expand the ones that succeed.
Non-traditional Sources of Financing
Crowdfunding was initially used by “social entrepreneurs” to fund their projects, films, books, and social ventures. It consists of offering to small investors in your business, through organizations like KickStarter.
While credit card interest can accrue (at a high interest rate) if not paid off right away, some credit cards do offer a startup business a 30-day free program, or zero interest (for sometimes up to 18 months) with a new account.
Bartering, alliances and exchanges are viable methods to get both excellent services and save cash.
Community based lenders (such as non-profit, independently financed, or private organizations) often make loans to small businesses or entrepreneurs who do not qualify for traditional commercial bank loans.
Traditional Sources of Financing
Equity from yourself, friends and family. This is the amount of money you can put into the business on your own, and you don’t have to pay it back until you see profits. It can come from a variety of forms and can include sweat equity and contributed assets. It also provides other investors with more confidence in your commitment
Outside equity had the same properties, except it involves giving up at least some equity in the company. It can come from a variety of places like partners, venture capitalists, private equity dealers, private offerings, and private investors.
Traditional banks and loan institutions are focused on reducing risk and making certain they get paid back. These are usually asset-based loans or combined with equity contributions.
Raising financing is a two-way street that requires honesty, understanding and communication. Understand your needs and risks to find the right kind and type of investors. Don’t overestimate your potential or what is needed to meet your goals. Develop plans, measure results, and satisfy investor requirements.
Dr. Bert Shlensky has an MBA and a PhD from the Sloan School of Management at MIT. He is the President of the New York-based consulting firm The Startup Connection, where he uses his 30 years of high-level business experience to guide his clients towards maximum sales and profit. For a free consultation, please visit www.startupconnection.net.
If you want to be successful in your new venture, you should pay attention to the modern examples of achievement like Apple, Google, and Amazon and their business structure .
What are these companies doing differently? They have broken down the traditional norms of operation and flattened their business structure into a streamlined, distributed model. This type of system allows them to be faster, more flexible, and to evolve elegantly with changes to the market and their customer base.
Too Many Layers of Business Structure
What is stagnating many of the large, older, organizations is their tunnel vision. Within these companies, there still exists a lot of red tape, which kills innovation and expediency. This inefficient organization model creates a bottleneck for making decisions, requiring too many layers of sign-off before anything can happen.
In contrast, these modern, successful companies have done away with the hierarchy of too many levels of management, and have instead adopted a system of collaboration between departments, and even other organizations. The use of open-systems benefits everyone without the hassle of having to go through so many layers, just to get a quick answer or approval.
Such collaboration breeds diversity and allows for truly innovative options and solutions, which can make or break your success.
The Dinosaurs Have to Go
The big corporations like G.E., General Motors, IBM, and Procter & Gamble, are ancient dinosaurs, with outdated and inefficient decision-making business structure s that will most likely lead to their demise.
Whereas Apple, Google, and Amazon are thriving, due to their trust and reliance on open-systems, and a rejection of bureaucracy, authority, hierarchy, and closed decision-making processes of the past.
These young, vibrant companies are embracing new models of decision-making, and encouraging participation, diversity, new rules, and, to some extent, chaos.
Sometimes, Smaller is Better
Another way these companies are successful is that they operate much like a small business, instead of a large corporation. Real people handle customer service interactions, so that the customer walks away feeling valued and appreciated.
Small companies have to be more flexible, and, sometimes, staff wears multiple hats and are cross-trained for a variety of different tasks. This versatility benefits the entire organization, because there is less delineation between departments and management groups. No more waiting to move forward, because only one person or department can handle the issue; it can easily be re-routed and quickly solved by someone else.
Stop Talking & Listen
Large, outdated companies rarely pursue or put to use constructive criticism. The sad part is, being plugged into channels for feedback allows a company to respond much more quickly to adversity, media fuss, product support, delays or other operational issues. A direct connection to your customer base is key to staying on top of things and managing your brand reputation.
Apple, Google, and Amazon all actively encourage customer feedback, and they immediately put it to good use. Many of their ongoing upgrades, changes, and improvements come directly from customers.
They are using their customers as a huge pool of barnstormers and innovators. Just by listening, instead of dictating, they are benefiting in droves.
The Bottom Line
The bottom line is old, outdated organizational structures and hierarchies are past their expiration date. If you want to be successful and make the most of your new company, model your organization after these high-tech firms that have figured out the formula for big-time success.
By operating as a small company, you allow yourself to be flexible, more innovative, speedy, and collaborative, and this will result in a very positive bottom line for you!
Bert Shlensky Ph.D. is the President of StartupConnection.net. Bert has over 30 years of experience as a results-driven executive leader. A graduate of Sloan School of Management at M.I.T. He served as the President of West Point-Pepperell’s apparel fabrics for 10 years & President and CEO of Sure Fit Products for 14 years. Having provided counseling to over 2,0000 startup clients- he now focuses on working with select start up and small businesses.
Business risk happens to be a wolf in sheep’s clothing. However, if you give all the sheep hockey sticks and a puck like Wayne Gretzky, that wolf will likely hide behind the goal’s net. No one likes getting hit by the puck several dozen times! But we get it, though: we’re afraid of ticking off that wolf, and lo and behold: the wolf might come out from behind that net and start really nasty grunge fights with each sheep, and instead of a hockey game, we have a slaughter on our hands.
Honestly, Business Risk Is a Lot Like That: an Angry Wolf
But here we have the key to taming that wolf — we mentioned Wayne Gretzky.
It turned out he had quite the quote that makes perfect sense in hockey —
“You miss 100% of the shots you don’t take.”
When you think about it, that makes perfect sense! And there’s no way around it. Truthfully, if you’re running a business, you have to accept the fact that you’re always going to be facing risk. And if you run away from it, the risk is even greater.
The key to managing risk is to take those chances — and learn from the historical data. Part of the problem is that we think risk is a lot bigger than it actually is. That wolf does look a lot bigger on the ice rink — until you start chucking pucks at him.
Sadly we’re creatures of habit, and before the innovation of technology — the Internet, mobile, Google, Amazon — we didn’t have a lot of “pucks” to chuck at the wolf like Wayne Gretzky would. So we were stuck on the old methods and didn’t want to try something new. And it’s understandable! — after all, we can’t predict much results with new programs or methods, because there’s nothing as far as historical data for us to analyze.
Thankfully, I Have the Goods Here About How to “Take All the Shots” Like Wayne Gretzky and Manage Risk Without Failure:
Here are some tools to keep in mind as you manage risk head-on while moving forward in your small business:
Measure, Estimate, Prioritize, and Adapt — Testing and experimenting are the keys to taming that wolf. In fact, we once had a client simply focus on key inventory items, eliminating unproductive factors by just looking at the clicks and monitoring the Google Analytics data. It’s simple. That’s one slap shot you can take like Wayne Gretzky.
Follow the 80/20 and 90/30 Rules — Develop your business methodology down to these numbers, and it’ll be a lot easier to forecast results. The 80/20 rule is how you’ll expect 80% of your sales coming from 20% of the offerings you make. So do the math. Likewise, 90% of all perceptions of your product will be realized in your customers’ heads within 30 seconds. So, in other words — make enough shots at the goalie in a short period of time, and you’ll definitely expect a lot of scores.
Lastly…. You Will Make Some Mistakes, and That’s OKAY — Why? Because that gives you the opportunity to adapt. After all, the longer you keep making those shots, the more hits you’ll make over time.
In other words: the more business risk you take, the less risk there will be.
It’s Not Easy, and You Need to Exercise Caution, Obviously
Simply be strategic. Don’t go all out. But balance your efforts. After all, Wayne Gretzky didn’t win on sheer will and tenacity alone; he had the skill.
Dr. Bert Shlensky, President of The Startup Connection, directs all small business clients toward maximum sales and profit thanks to his 40 years of high-quality experience. He does this through technological, social, and online integration, supercharging your business success into the next level, so don’t hesitate to sign up for a free consultation RIGHT NOW.
There are lots of great tools, rules, and accountants to help businesses complete and analyze profits, sales, and costs. Unfortunately, this is an area where clients frequently throw out the baby with the bath water. They often fail to use Gross Margin Analysis. Most business people understand the basic rules surrounding Gross Margin. They just don’t execute them.
Gross profit calculations are best made by item, by category, by customer and many other variables, each of which may be critical to your success.
Gross profit—or “Gross Margin” is simply calculated by the following equation:
After counseling over 1,500 clients seeking to start new businesses, it’s troubling so many of them seem possessed with what can be called the Zuckerberg, venture capital, or hockey stick plan to starting a business.
I typically read 3 to 5 startup business plans a week. So many are simply outrageous just because of the projected growth curves.
Everyone thinks they are the next multi-million or billion dollar startup. They find the need to project $15-20 million of revenue in a couple of years to get funding. This was illustrated recently by the response of a client. I asked her the basis of her forecast which showed a sales growth rate of 15-20% per week. When asked about her assumptions she said,
“That’s what the venture capital firms say they want.”
In contrast, many studies of entrepreneurs from IDEO to Malcolm Gladwell contend that slow but steady, multiple product developments, experience, and testing are the best predictors of success. (more…)
When you want to stand out, reach out to Bert for the tools that will build your “sticky” brand. My focus is on understanding and analyzing your dilemmas and challenges, so your company becomes profitable faster.
Call (914) 632-6977 or email me at bshlensky@startupconnection.net. Don’t leave without signing up for our useful free eBook!
Feeling stumped or overwhelmed? Contact Bert at (914) 632-6977 or Email to start the process. Thanks!
We all know that new strategies and technologies such as the internet, social media, Smartphones, and major online retailers are rapidly disrupting organizations. However, financing and the financial industry have been very slow to adapt. The purpose of this article is to recommend a number of tactics to take advantage of new (and sometimes disruptive) financing opportunities. At the Startup Connection (www.startupconnection.net), we believe that a very important (but often overlooked) opportunity is that operating and marketing processes should also be viewed as financing tools.
Fortunately, the reality today is very different. Most new business are service or technology businesses, and they require much less investment. Another very important factor is that you can now quit your job much closer to actually starting the business.
Crowdfunding was initially used by “social entrepreneurs” to fund their projects, films, books, and social ventures. It consists of offering to small investors in your business, through organizations like KickStarter.
If you want to be successful in your new venture, you should pay attention to the modern examples of achievement like Apple, Google, and Amazon and their business structure .
There are lots of great tools, rules, and accountants to help businesses complete and analyze profits, sales, and costs. Unfortunately, this is an area where clients frequently throw out the baby with the bath water. They often fail to use Gross Margin Analysis. Most business people understand the basic rules surrounding Gross Margin. They just don’t execute them.
After counseling over 1,500 clients seeking to start new businesses, it’s troubling so many of them seem possessed with what can be called the Zuckerberg, venture capital, or hockey stick plan to starting a business.