The start-up game is a risky business, and for many entrepreneurs navigating the competitive landscape and securing the funding needed to survive is a significant hurdle that isn’t easily overcome.
The truth is, there is a limited amount of funding available to start-up founders and innumerable new ventures born every day that will be competing for it.
Investors simply can’t open their wallets for every good idea that walks through their door. (Frankly, those are a dime a dozen.) The ones that do secure funding, are the ones that have demonstrated how that good idea will actually come to fruition.
Consider the three most common mistakes your peers have probably already made when looking for investment and how you can be prepared to avoid the same fate as so many founders before you.
1. Not understanding your financial situation.
Experienced investors know there are few legitimate overnight successes and that realistically they will be lucky to see a return on their investment in the next decade.
Many newbie entrepreneurs, eager to prove the merits of their great idea, make the mistake of entering the discussion with an unrealistic value of their company.
Not being realistic about the financial situation of your start-up from the beginning shows a lack of understanding and frankly maturity, in regards to your ability to lead a company to a successful return down the line.
Ideally, an investor is looking for a company with a clear and scalable business model they can get behind and help grow. I suggest taking advantage of the various online-evaluation tools out there that can help you determine a reliable and defensible value of your start-up’s worth before you even enter into the discussion.
2. Under-utilising the management team.
Great leaders aren’t successful solely on their own. They surround themselves with people that add value to their business, and you need to do the same.
Investors need to feel confident that your team is the right one to take your company from a small, great idea and turn it into a high-yielding investment for them. The goal here is to convince an investor that your team is prepared to face all the challenges and criticisms that come with running a business. You can’t do that if you haven’t fully vetted your management team.
It’s important to prep your team before an investor meeting and ask them about their past experiences and failures, understand how that might benefit your business in the long run and use this information when speaking with investors.
3. Lacking a clear go-to market strategy.
Entrepreneurs just starting out often make the mistake of not understanding where their idea fits in the current marketplace. (If you aren’t targeting the right market the chances of a successful exit will be small.)
Having a clear go-to market strategy that demonstrates the potential for your company’s sustainable competitive advantage is of the utmost importance to an investor. That said, some entrepreneurs have a difficult time articulating a clear plan to reach a target audience and how to scale it over time.
If you failed to secure funding after an initial round of investor meetings, consider reevaluating where your idea fits or the marketplace all together. Perhaps the original market is too small or too crowded, but with a slight adjustment, your product could work in a different market.
The competition for start-up funding is likely to only get more intense as we see more and more of these billion-dollar exits and high-profile IPOs in the news.
The necessity of learning from past failures and adjusting your investor pitch to avoid the mistakes that have led many other start-ups down the road to failure has never been more important. While there are many reasons a start-up doesn’t secure the funding they need, it usually boils down to some combination of the three discussed here.
If you can prepare for those challenges before entering the negotiation room you will be in the best position to make a positive impression on an investor and walk away with the funds needed to stay in the game.
How To Run Your Business Better Without The Bad Debt
Manage your debt, increase your cash flow and build a healthy, growing business with these three key steps.
Our cars run on petrol. Our bodies run on oxygen. Our businesses run on cash flow.
You can bridge cash flow gaps with smart financing, but that’s a reactive approach. This article is about making sure you never need to think about bridge financing in the first place. It’s about how to run your business better. The most common, and avoidable, reason that businesses starve without cash is simply because their customers are not paying them. In a slow economy, this becomes an even bigger problem and is a huge challenge faced by entrepreneurs.
Here are three critical areas you need to address to manage your debt better, and some actionable items to implement right now.
1. Create a payment rulebook
If you want your clients to play by the rules, and to be able to deal with rule-breakers, you first need to decide what those rules are. No, it doesn’t need to be a 300-page document, just draw up the criteria that suit your business best. By doing this, and sticking to them, you can actually create good clients, and everybody wins.
Here are the important things you (yes, you) need to decide:
Will I sell on credit?
If you can avoid credit altogether, and have a 100% cash on delivery business, then that is definitely the way to go. If you’ll lose out on business by not offering any credit whatsoever, only then does credit become an option. This seems really obvious, but many SMEs just assume that they have to operate on buy-now/pay-later. They do not.
When will someone qualify for credit?
Giving credit is all about managing risk. It’s a horrible idea to extend credit to everyone, so who will qualify for yours? Will you do formal credit assessments by checking their credit score, or calling references? The more careful you are with credit now, the less likely you are to end up in a fight later. Rather lose the client than lose the work, the money and then the client. (A suggestion: Make all new customers strictly COD for three months, after which they can get credit.)
How long will I allow customers to pay?
What is your limit. 30 days? 60 days? You need to consider if you can cover monthly expenses, buy stock and pay staff while you wait for invoices to be paid, or if late payment will hinder your ability to do more work for different clients. This will help you work out how flexible you can (literally) afford to be. Also, make sure this is clearly communicated to your clients, please.
Will I ask for a deposit?
A deposit can minimise your exposure drastically, because you are never going to lose everything in the case of a bad payer. Most businesses don’t mind paying a deposit and it’s fairly standard practice these days to insist on one prior to commencement of work.
This is a good policy to have in place for brand new customers or those with a bad credit history. Actually, it’s just a good policy.
What payment method(s) will I accept?
If you’re a retainer or service business, getting customers to sign debit orders will drastically improve your collection process. It’s automated! But if customers aren’t willing to sign debit orders, ensure that you support as many payment options as possible (like EFT, Credit Card, Zapper or GeoPayments) — the more choices they have, the higher your chances are.
Once you know the answers to these, write them down, print them out and make sure your entire business sticks to them at all times. ALL times.
2. Paperwork and systems
Systems create efficiency
Efficiency gets you paid. Below are a few basic, but critically important aspects to consider putting in place, if you haven’t already. If done correctly they should feel more like a lifeline than a noose, holding your business up, rather than holding it back. In my experience most businesses will implement these reactively, as a way of ‘not getting burned like that again!’. But, I ask, why wait?
On the ‘same page’
Will you have a simple agreement, clearly setting out the terms for your engagement, that you get signed before taking on a new client? Or are you happy to rely on emails, orders or even WhatsApps for every order? Whatever you decide, make sure it’s enough to protect you if things turn sour. You can’t prove a telephone conversation, in which you agreed terms, in court… The additional benefit of a more formal agreement is that it creates (in black and white) a platform of mutual understanding between you and your clients, and will help avoid heaps of grey-area issues down the line.
A system of accounting
Who owes you money? When do they owe it by? Who is late? Who is really, really late? These are questions you should be able to answer daily, and the only way to do that is to put a decent accounting system into place so you can convert invoices into cash. I recommend Cloud systems like Xero, Sage One or QuickBooks Online.
Related: Dealing With Debt As An Entrepreneur
Get it signed off
If you can get your customers to sign a delivery note when the goods are delivered, you will have a much stronger case if they decide not to pay… This works just as well for service businesses, where the client (via their signature) agrees that all the terms of the agreement were met, and they’re happy with the end result.
Invoice efficiently, and often
If invoicing depends on you, the SME owner, then you have to make sure you have the time to do so. I would recommend putting aside 30 minutes twice a week to recon the completed work, and send out the associated invoices. In fact, why not invoice as soon as the delivery note or approval form has been initialled? Do you have something more important to do? The quicker you invoice, the faster you will get paid and the sooner your cash flow will stop being a ‘cash slow’.
The ‘delayed payment’ is often in the details, guys… If your invoices are incomplete or inaccurate, your payment will be delayed until you rectify it — especially when dealing with bigger, more fastidious clients. Take the time and ensure that your invoice complies with the minimum requirements as set out by SARS, and your client. In most cases this includes VAT number (yours and theirs), banking details, due date and business address. If you’re not sure, ask your client what they require on their invoices (they will change from business to business). Something as simple as getting these details right could shave weeks off the payment time.
The more persistent you are (within reason), the more likely you are to get paid. With today’s technology you can do this automatically, reminding your clients to pay their bill with a text message, email or alert. Heck, even a phone call a day or two before the invoice is due can ensure they don’t forget, and your due is front of mind. When payment day rolls around the supplier who is on top of their collections will probably be paid first. It would be nice if that was you.
3. And then if they don’t pay…
When customers’ accounts fall into arrears, it’s your job to do something about it. It’s also a good idea to do that something as soon as humanly possible. It’s not annoying. It’s not nagging. It’s business, and you are not their bank. It’s the fulfilment of the contract into which you and your client entered.
Until you get a specific payment date, follow up every day. Trust me, if they get annoyed with you chasing the money that they owe you, you do not want them as a client any longer, so there’s nothing to lose. When you get a resolution date, make sure you remind them via a call or an email the day before it’s due. Help them to help themselves.
And if all your attempts fail, then sometimes a little lawyer’s letter is all you’ll need to open their wallets. If you don’t, you’re letting them steal from you. If you do, you’ll thank your lucky stars for all the systems and processes you put in place.
It doesn’t matter how much money you have on paper. What matters is how much you have in the bank. It doesn’t matter who owes you, it matters who pays you. You can’t run a business on promises. Ask anyone who’s ever tried.
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Alan Answers: Do You Understand The Basics Of Attracting Attention?
Whether you want to be a public speaker, find an investor or land a big sponsorship deal, the secret lies in how well you can tell your story.
I have always wanted to be a public speaker yet I’m very anxious about crowds and my public speaking is rudimentary at best. What should I do? — Lwazi
I was a terrible public speaker. I sometimes still am terrible. But I’m much better than I used to be. The way I got better was twofold. First, I’ve done hundreds of speeches, many of which were very embarrassing. The result is that I’ve overcome my fear of embarrassment (I’m still alive, turns out public humiliation is not fatal), and I developed confidence in speaking to crowds. Second, I read lots of books on speaking, including Thank You for Arguing by Jay Heinrichs.
My main takeaways from books are as follows:
- Tell a story. People love a story.
- Don’t read it. The easiest way to lose the crowd is to read your speech.
- Keep slides to a minimum.
- Have a memorable start and end. The middle is not so important.
- Dress the part. Act the part. Don’t sabotage your speech by dressing sloppily. Put your shoulders back. Look confident.
- Have a rational argument. Appeal to the logic of a situation.
- Give background on yourself to establish your credibility. The medium is the message (read Marshall McLuhan)
- Pull on the heart strings. Appeal to the audience’s emotions. Make folks laugh. They may forget what you said; they’ll never forget how you made them feel.
Public speaking is like swimming. Knowing the theory won’t stop you from drowning. You have to practice, practice, practice. You have to embarrass yourself regularly so you can overcome the fear of embarrassment. I’m told that Toastmasters is a brilliant organisation for practising in a safe environment.
On a side note, all of the above tips are important for entrepreneurs and sales people as well: After all, selling your business as a start-up is selling yourself, and the best way to do that is with a great story.
How do I convince someone to invest in my business? — Anonymous
The first thing an investor wants to know is how you’re going to make money. Theories are not really useful. Ideally, you need to show a proven revenue model that can believably be scaled to ensure that you generate more money than you spend.
The second thing most investors want is to know that you’re on a rising tide. Photo shops are not on a rising tide. No matter how well you run your photo shop, you are doomed to be taken out to sea where you will drown and/or be eaten by sharks along with everyone else.
The third thing that most investors want to know is that you’ve already made mistakes with other people’s money. Better you earn your school fees on someone else’s dime. Don’t shy away from the setbacks you’ve had. Admit to mistakes, elaborate on lessons learnt. You can be forgiven for almost any business failure, as long as your integrity is not questioned.
How do I find sponsors for an event? — Stephanie
Before you approach sponsors, first define your event’s audience. Make a list of potential sponsors who share that audience. For example, if you are hosting an entrepreneur event, think of companies that target entrepreneurs.
Once you have written down all the company names, start mining your personal network for anyone who works in one of those companies. You need to get to the CEO.
Sometimes a marketing director or executive is sufficient, but most times, especially if speed is essential, the CEO is the only person that won’t waste your time.
Be sure to use LinkedIn to explore relationships that people you know have in the companies. Maybe a friend of yours knows the CEO. The quality of an introduction via a mutually trusted friend is not far removed from a personal direct relationship.
Related: How do I start an events company?
Create a simple pitch deck. Be sure to include in the deck the benefits for the sponsor. No one really cares about the benefits for the audience, or for you, the organiser. Think about who is writing the cheque, that’s who you’re selling to.
Always give potential customers three options. People want options. Not too many to confuse, three is the magic number. The middle option should be the package you prefer the sponsor to choose. Most people choose the middle option.
Once that’s all done, start pitching. Do whatever it takes to get in front of the CEO. Then sell your dream. Don’t stress if you’re rejected. ‘No’ is better than ‘maybe.’ It saves you wasted time. Keep moving until someone bites, then stop moving and close the deal.
Listen to this
Alan’s audible book Be a Hero: Make Life an Adventure is now available on amazon.com and Audible.com
Read by Alan himself, Be a Hero is a collection of stories on how to make your life an adventure by changing your mindset and tackling adversity.
Go to amazon.com or audible.com to download your copy. Be a Hero is also available in Kindle and paperback through Amazon.com.
Read ‘Be A Hero’ today
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