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Inventing the Wheel vs Investing in It

Sometimes you have to take a risk to reap mega rewards.

Arun Sangwan

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Tom Monaghan, the founder of Domino’s had borrowed R2 000 for his first outlet. Dan and Frank Carney borrowed R2 400 from their mother for the first Pizza Hut outlet. While most microenterprises may not have a Tom or Dan and Frank at helm, it is not unusual for such businesses to grow multifold rapidly. How do you spot one for investing?

Say you have R40 000 to invest. What if your R40 000 could grow to say R200 000 in seven years or so?

If you seek such growth, investing in an established and or a large business will not serve your goal. Why? One, large businesses do not grow as rapidly. Second, a stake in an established business comes at a huge premium. So it does not leave much room for large gains.

What you seek can come from investing in small businesses poised for stupendous growth. You may ask if such an opportunity is an exception (rather than a rule).

No. Most large businesses started as microenterprises or small businesses. Walmart started as a single store. Pizza Hut with one outlet. At that stage their founders too were desperately trying to raise funds. Sure, you need to be incredibly blessed to spot an early stage Walmart, Pizza Hut, Domino’s or Thawte.

However the point is that it is not unusual for microenterprises to grow multifold rapidly. Thawte was founded in Mark Shuttleworth’s parent’s garage, Dropifi in a campus in Ghana and Facebook in a Harvard dormitory.

Spotting a promising small business

Watch out for small businesses that have customers excited about their offerings and are able to sustain such customer response. It is a credible evidence of (or at least a proxy) for superior planning, processes, customer responsiveness, commitment to quality etc.

It may seem like using examination scores as a proxy for predicting success. However at this stage, all you need is to separate the wheat from the chaff.

Related: The Deadly Sins of Investing

Be aware of potential issues

  1. A business may not be able to sustain the level of customer excitement (usage of this term is deliberate as opposed to customer engagement or intimacy) as it grows.
  2. It may not be able to manage rapid growth.
  3. It may not grow profitably.

Remember that no business can grow without resolving the first two issues. Thereafter as economies of scale substantially lower the cost structure, the third gets resolved as a consequence.

Time to talk to the promoters

Imagine yourself talking to a young Tom Monaghan of Domino’s. Tom had borrowed R2 000 for first outlet. He is likely to be interested. So would Dan and Frank Carney who borrowed R2 400 from their mother for the first Pizza Hut.

There is a lot more to a business than a product. So, at this stage it is critical to understand the vision of promoters and seek evidence of their leadership, innovation and problem solving skills. These are fundamental to growth.

Thereafter a well drafted legal agreement will seal the deal.

Never place all your eggs in one basket

Something could go wrong. Should you pick up smaller stakes in multiple businesses instead? The answer is yes. It is likely that as you gain experience over time, you may spot a young Shuttleworth or a Tom Monaghan.

Related: What You Need to Know About Precious Metal Investments

Finally, the skills to organise capital

In this business you need to be skillful in organising and coordinating. Assume the mantle of a leader and form a consortium (inviting the public is not permitted in many countries) of investors.

Think again, do you need to invent the wheel? Or just invest in it?

Professor Arun Sangwan teaches strategy and entrepreneurship for the MBA programme at the School of Business, Alliance University, Bangalore. He is a consultant to leading companies in the financial markets for the development of newer trading strategies and algorithmic trading. His last corporate assignment was as the country manager - India & SAARC for Sanrad. Previously he managed strategic alliances for companies as Hewlett-Packard and Silicon Graphics in India. He has also worked for the Tata group and HCL. Connect with him on LinkedIn or email to arunsanguine@gmail.com for more information.

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26 Comments

26 Comments

  1. Aswathi Nair

    Aug 26, 2013 at 13:27

    A great insight for SME’S across the world.Article is relevant,clear ,address the issues of start ups and written without beating around the bush.A good read of course.Dr.Aswathi Nair.

  2. uday

    Aug 26, 2013 at 15:40

    good one sir..

  3. monami mandal

    Sep 2, 2013 at 16:40

    intriguing insight, well written….

  4. Pooja Patil

    Sep 6, 2013 at 11:02

    To become successful we may not start something, a proper investment in something could also lead us to succeed, thank you sir

    • Arun Sangwan

      Sep 10, 2013 at 06:15

      Perfect. Starting a venture may not be for everyone. we may have different priorities at that point in life or may not have those entrepreneurial competencies, but to make your money grow what is important is to spot a talent (like Tom, Dan and Frank etc) and invest in their ventures. There are so many passionate people who are extremely good in what they do, but need capital. However you should participate only after (remember this) the entrepreneur is in a position to show you an evidence of success, howsoever small it may be.

  5. Akash Gupta

    Sep 11, 2013 at 16:08

    truly said we should never put all the eggs in one basket, we should always try to diversify our portfolio, and should try to buy those stocks which are not correlated with each other.
    Thanks,Prof. Arun Sangwan for such a valuable insight..

  6. Sayan

    Sep 25, 2013 at 20:02

    Perfect Sir… Price is what we pay, value is what we get…

  7. Sipra

    Sep 26, 2013 at 14:58

    Very well written Sir… If we can’t go great things then we should do small things in a great way.

  8. uday

    Oct 1, 2013 at 16:54

    As i read again & again…lots of thoughts are ruling my mind.
    Becoming restless in search of new businesses/opportunities
    Thank you for this.

    • Arun Sangwan

      Oct 9, 2013 at 12:06

      If it can inspire you to start thinking and act differently … !!

      • Arijit ghosh

        Nov 25, 2013 at 14:41

        Congratulations sir, its is an extremely unique and interesting concept!
        – Pritha ghosh

  9. Tanaya

    Oct 9, 2013 at 21:35

    Awesome article…

  10. Ruparna Saikia

    Oct 17, 2013 at 16:22

    Your point about spotting a promising small business has really intrigued me. Although its not going to be easy to assess the potential success of a business in its initial days, after reading this article I am definitely going to be more alert and open minded towards the business opportunities that comes my way.

  11. Hema

    Oct 20, 2013 at 10:32

    A very insightful article sir, though it’s a tough call to make for many –Inventing the wheel or Investing in it. I’d rather keep my opinion embracing the investment part. You have clearly educated us by incorporating the elements of how to play it safe (not ignoring the inevitable concept of Risk Aversion) given the strength of capital, willingness to invest and aspiring an enhanced quantifiable return with the knowledge the investor should acquire regarding the Business type, Stage,Industry, Geography and Capital needs before he starts his venture with that particular business.

  12. vikranth

    Oct 21, 2013 at 05:29

    provides lots of new ideas and new ways…lucky to come across..waitin for few more like this to come..

  13. Mohit Singal

    Oct 26, 2013 at 08:05

    Sir, the article is very thought provoking.Firstly,it highlights how people who want to make it big in life can do so not just by starting something but actually by investing in start ups. Secondly, since it is difficult to spot the potential of start ups , it brings into light the importance of investing smaller amount of capital in businesses of different kinds or from multiple industries .Thirdly, it explains growth potential of small companies. Since most radical innovations come from small companies while large companies mostly provide incremental innovations, smaller companies are more likely to develop products and services that progresses human lives by solving some real life problems and fulfilling customers latent demands and hence more likely to experience supernormal growth or get acquired by a large company. And finally , since starting something new requires lots of painstaking work , time and effort , learning to understand businesses better and becoming able to spot and invest in start ups with stupendous growth potential will actually help us achieve greater things in life at much smaller time frame by enabling us to think more strategically and work less clerically… Thank u so much sir , for such a wonderful article !

  14. Lal Bahadur Singh Rajput

    Nov 19, 2013 at 22:47

    Very well written Sir…provides a lot of insights on value investing rather
    than growth investing. Identification of core competencies of an individual or
    a company would greatly drive investment decision…

  15. Arvin

    Nov 20, 2013 at 15:39

    Sir, your thoughts of finding a small enterprise which has a greater growth potential and investing in it for higher returns instead of investing in a bigger enterprise who has already reached its peak so gains might not be good enough is a great insight indeed. Thinking in such a different manner is really a learning for us..

  16. Riyas

    Nov 20, 2013 at 16:26

    Having customers excited about your offerings through a start up is the result of
    innovative thinking and hard working nature which motivates him to perform
    better, Even then it is difficult for many to get financial aid at this point
    in time, Without resolving this issue no business can grow. Whereas this
    article has given a road map to move ahead and provided me many more
    diversified ways of thinking about business opportunities around.

  17. Lal Bahadur Singh Rajput

    Nov 20, 2013 at 18:39

    Very well written Sir…provides a lot of insights on value investing rather
    than growth investing. Identification of core competencies of an individual or
    a company would greatly drive investment decision…

  18. Upasana D Chugani

    Nov 30, 2013 at 19:14

    Beautifully written!!

    For success it is really important for an individual to be an active manager rather than an passive one. He should be open to every visible and hidden opportunity have an holistic approach to Explore and Expand his business methodologically and achieve success.

  19. Sanjay Chugani

    Dec 2, 2013 at 14:51

    A very well written and thought provoking article, there is
    no investment strategy – be it active, passive, value, growth, long-short,
    arbitrage, mean reversion, trend-following, stock picking etc – that will always
    work in all environments.

    But in this competitive and fears environment the ideas
    suggested in this article might be the key blueprints one must follow to make
    the right choices.

  20. Rohit Jaju

    Dec 5, 2013 at 17:21

    Hi sir, article is wonderfully written and I totally agree with you on value investing and diversification of portfolio.

    Stock investing is very risky as we see the volatility and break down off good companies stock. One of the most important issue in stock investing is investments of retail investors are totally based on recommendations by friends, family members, research report and some tips given in news channel or newspaper this can be taken into account but investors should do some basic analysis before investing in stocks or any security. Investor must choose those stocks which are underpriced in market and has good fundamentals. Every investor is not financially savvy to do all kind of analysis it need lot of effort, knowledge and skills which a common man may not have so, before investing investor must see companies debt, EPS, Dividend paid, Sales growth, future prospect and its brand.

  21. Pramit

    Dec 6, 2013 at 06:38

    Beautifully constructed pieces of information that inspires you…

  22. Sunil Bhougal

    Dec 13, 2013 at 13:00

    This article is an eye-opener for all employees to truly grow their wealth exponentially. Also, they would be contributing to nation building by encouraging entrepreneurship and hence providing employment at a large scale.

  23. Jagan Gaur

    Jan 11, 2014 at 19:19

    Nice article sir…crisp and effective….thanks for inspiring again….:)

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(Infographic) The 10 Things You Should Cover In Every Investment Pitch

If you want to wow potential investors, you need to cover your bases.

Matthew McCreary

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If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.

Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.

You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.

This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:

  1. The vision, where you concisely explain your idea.
  2. The problem. Why is your vision necessary or helpful?
  3. The opportunity. What is the market size, and how can you position yourself to earn a share of it?

Related: How To Pitch Your Business, Product Or Idea To Industry Experts

This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.

1541174287_investment-pitch-infographic

This article was originally posted here on Entrepreneur.com.

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‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous

Is your business worthy of fame? If so, pay attention to what the Sharks have to say …

Eric 'ERock' Christopher

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Shark Tank

Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.

The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.

I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:

  • Charles Barkley, Hall of Fame NBA star and TV analyst
  • Alex Rodriguez, legendary baseball player and businessman
  • Rohan Oza, an iconic brand builder and marketing expert
  • Sara Blakely, founder and owner of SPANX brand
  • Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
  • Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
  • Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.

My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.

I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.

1. Create an ingenious product

When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”

Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.

Related: 6 Great Tips For A Successful Shark Tank Pitch

2. Leverage social media marketing

barbara-corcoran

During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”

Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”

Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”

No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.

3. Build a community

Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”

John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.

If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.

4. Devise a publicity hook to win earned media coverage

Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”

Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.

Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.

Related: Shark Tank Funded Start-up Native Decor’s Founder on Investment, Mentorship And Dreaming Big

5. Know your strengths and stay focused

When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”

These are wise words from one of the world’s few billionaires.

This article was originally posted here on Entrepreneur.com.

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The Best Way To Get Your Teenager To Start Investing Right Now

Jeff Rose advises a young fan on where to start his investment journey.

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In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.

Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.

In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.

As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.

Related: Making International Investing Simple And Transparent – CybiWealth Digital Platform

Click on the video to hear more tips for a younger investor.

This article was originally posted here on Entrepreneur.com.

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