By Lance Wiggs,
We're looking for an investor, but our conversations always end up obsessing over EBITDA, which is not a great tale. We want to talk about our potential—a much more interesting proposition. How can we change the topic? My potential, your passion Auckland
To talk about your potential you need to be able to demonstrate that you can get from where you are to where you say you can be. Frankly, investors are weary of starryeyed pitches about great potential—they need the evidence of results. The best evidence is a history of growth that can be projected forward to provide a solid valuation. The worst evidence is a one-page chart that starts with something like “number of cellphones” or “number of museums”. It sounds like you’re somewhere in the middle—a track record of revenue but lacking the growth and profitability required to make a compelling case. You can’t expect investors to look too far beyond your current figures—after all, if you could do better then why haven't you already? But to change the conversation you need to demonstrate that an investment will get great returns. You need to convince the investor that their money will be spent on delivering the potential, and that the trajectory of the company will change sharply. But above all, you need to convince yourself. What’s stopping you from changing the trajectory right now? What small steps can you take to tweak costs and increase revenue? So build your forecast, and base it on testable assumptions. Start with the sales, and show what you will do to get the first few. Show as much evidence as you can that your assumptions are valid. If you can't, show how you will test them for the smallest price possible (one quick way to test a new product idea is to place a Google advertisement for it.) Show how it will grow from there. Finally, make sure you are not overvaluing your company. Even if it has incredible potential it is a risk for the investor, one that could see them lose all their money. Make the price compelling enough so you get enough money to achieve your goals—and make sure you’re getting great advice along with it.
We don't really know how to plan for growth. Whenever by sheer luck we get some new clients we hire a few more people as a knee-jerk reaction, but no one knows who's in charge of what and there's no structure. What should a 'plan for growth' look like? Running wild Wellington
Plans are methodical, built up from sales forecasts that are built up from sales activity. You should know how your sales pipeline works (phone calls, visits, conferences, tenders, beauty contests) and be prepared to invest in the activities that drive sales. You should track your progress each month against targets, and change the assumptions as you learn. But the real issue here is perhaps that you are too unstructured. While growing businesses need fluidity, they also need increasing certainty and direction. Give individuals responsibility for sections of the business, and as you grow assign people to sections of those sections. Hold regular meetings at different levels (overall, within sections and so on) with consistent agendas so you can plan for and track progress on sales, operations and finance. It sounds like you need to get a little more corporate, which means hiring a finance person, having a real board that meets each month, communicating regularly— say, each week—with staff through email and being consistent in your way of operating. As you grow, you need to continue to change your organisation to cope. The key is to recognise when you are getting too big for your current structure and to do something about it early. Seek help from outside experts, such as board members or expensive consultants. Hire staff that are more ‘grown up' (and expensive), who can help you become more professional in your approach. Write down your mission and values, and use them to help guide recruiting and to keep the essential elements of the culture intact.
My mate and I make an awesome creative team and we'd love to go into business for ourselves. But we both have mortgages and young families and are terrified of ditching our extremely highpaying jobs for the unknown. How do we make the leap? Trapped by our pay packets Newmarket
Nothing beats the financial security of your own business, where ongoing income is a function of how you sell and the quality of your work rather than the whim of a corporation. Working for others may give you a good salary, but creating your own business can create genuine wealth as well. But it's a hard leap for some to make, and you need to decide whether you will be comfortable with the uncertainty of working away from the comforts of the corporation. The short answer is simply to decide. Decide to make the leap, and then, after the initial panic has faded, make and execute a plan to systematically address each thing you need to do before you launch. If you were unencumbered, that plan could be to quit today and start finding work tomorrow. Given that you are not, mitigate the risks of starting up as much as you can. As you work through the process, try to maintain an excellent relationship with your current employer and with the industry. If everything fails, you want to be able to go back to those highpaying jobs. With that in mind, the first thing you should do is try to line up some work before you leave. This may be tough if you are under a restraint of trade clause in your employment contract, but you should search for new clients that can support the early stages of your foray into the unknown. Your current employer may even help you—giving you clients that are too small or inappropriate for the firm. You can start doing work part-time—using the downtime after the children are asleep or during weekends to start delivering some results to those outside clients. You'll do this not only to demonstrate that you can earn money, but more importantly to ensure that working together will be fun and to understand what you need to do to go full time. When your work expands sufficiently or if you are unable to work part-time, take leave or even a leave of absence and work full-time on the business. If your current company is not so understanding, consider quitting one at a time with the first person hunting down clients and delivering some work and the other person quietly helping out part-time. Examine your employment contracts first, however—and be very careful about chasing your employer's clients, especially while you are still employed. Do find out what you are worth before you jump. I think you'll be pleasantly surprised at the difference between market rates and the salaries you are currently earning. Keep in mind that an hourly rate does not multiply to an annual salary, as you have to sell your time first and you'll have real costs to pay. As you launch, be sure to keep those costs down. If you must have an office, see what you can borrow for the short term even if it’s a garage. Don't sign any longterm leases, and sublease if you can—there is plenty of cheap office space right now. Consider all expenditure you make as if you’re spending your own money, because, this time, you actually are. Finally—sell your expensive cars, scale down your personal spending and slow those mortgage payments. Do that now so you can understand how little you can live on, and to save money for that rainy launch day. But most of all—just do it.