5 Keys to Angel Investment
With this post I’d like to give my personal answer to the frequent question, “What do angel investors look for in a business plan?” I can’t promise that what I think applies to anybody else. But I’ve been in an angel investment group for five years now, and I’ve seen a lot of businesses evaluated. Here are five things I say matter.
1. A believable market definition
It’s not just the numbers. Especially not huge numbers that lack definition. Too many of the several dozen business plans I’ve read this year lack a good market-defining story. Market numbers are useful, yes, but they don’t stand alone. Investors want to believe the story first, then get the numbers.
The story is about the use case, also called “why to buy,” and market need.
I like the business pitches that put a picture on a slide and explain how that person has a problem that this business solved. For example, one recent pitch starts with a picture of a middle-aged woman and explained how this new business creates a channel for her to sell her craft goods effectively. Another pitch I saw showed a picture of the garbage area behind a restaurant to pitch a system to save unused food and make it available to people who need it. Then they go to the numbers, after explaining the need.
2. Believable growth plan
Startups become good for the early stage investors by growing. While there are some extremely rare cases where traffic and position alone created value (such as Amazon in its early days, Facebook, Twitter, Instagram, etc.), for most of us it takes sales growth.
Investors want to see and believe the growth plan. For example, if it’s a physical product to be sold in retail stores, there should be a plan for getting the product into distribution, and a sales forecast based on sales per store and stores’ growth by year. Or if it’s a mobile app, then sales growth based on potential user base and ways to drive traffic to the app via the various download stores.
Sales forecasts based on details are more credible. I liked a plan I saw recently that presented a forecast of sales of a product related to bars by showing actual sales in the first four bars and extrapolating those to all bars in the U.S. The methodology made sense.
Defensibility is whatever quality keeps a startup from being overwhelmed by competition that stunts its growth. Most investors look for proprietary technology, such as patents — when they are good patents that experts say will be reasonably defensible — or trade secrets. This is also called “barriers to entry.” There’s limited value to an idea that any other business can just copy.
The lack of scalability in most service businesses is why investors generally prefer product businesses and why the classic service businesses aren’t as attractive. The test is whether it can double sales without doubling fixed costs and employees. Most service businesses don’t scale: the classic consulting business, for example, or attorneys, graphic design, programming for hire… these service businesses are hard to scale.
With product businesses, when a widget starts selling in most cases you can make more widgets with automation.
And there are some service businesses that are scalable. Generally, they relate to software services over the web. The travel buyer sites are services, but they scale.
5. Potential exit
Angel investors make money by investing money in a business today and getting money back from that business in a few years when it grows, increases its value and sells out to a larger company or registers its stock for sale on a public market.
What many people don’t realize is that outside investors don’t make money just from owning a small portion of stock in a successful business. Theoretically, there could be dividends eventually, but growing companies don’t normally generate dividends. Angel investment assumes that the businesses create some way for the investors to sell their shares.
Having a minority share in a healthy, happy company – one that doesn’t need any more outside investment and has no reason to invite a larger company to purchase it – offers no return on investment for the early investors who aren’t employees.
About the Author:
Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.
Franchise Ownership Success Starts With Great Training
When you buy a franchise, you’re paying for the right to use the franchisors proprietary systems. Some of these include their marketing systems, computer and software systems, inventory management systems and more.
But, you won’t be able to use any of their business systems unless you know how to use them. That’s where the franchisors formal training program comes in. It’s part of what you’re paying for when you purchase a franchise.
Are Franchise Training Programs Good?
I can’t think of one occasion in which a client of mine told me the training they received from their franchisor was disappointing. But, since this is your money we’re talking about…it’s you that will be buying the franchise, it’s important for you to make sure the training you’ll receive from franchise headquarters will be good. Here’s how:
Call existing franchisees of the franchise concept you’re thinking of buying and ask them to share their views on the training they received. It should be part of your due diligence.
Types of Franchise Training
These days, technology plays a major part of company training programs. Expect the franchisor to utilize technology in their training program.
One way franchisors use technology to train their franchisees is to have some setup online. That’s right: Part of your training may be online. I’ve seen franchisors do what’s called pre-training online. Pre-training takes place a few weeks before you arrive at franchise headquarters for in-person training. I’ve found pre-training to be a great way for new franchisees to get their feet wet and have a head start on what’s to come when they arrive at headquarters for more intensive formal training.
The formal, in-headquarters training will end up having the biggest impact on you. The training that takes place at headquarters is pretty intensive. It’s designed to prepare you for all of your day-to-day activities as a franchise owner. You’ll go through the entire operations manual. You’ll be trained on things like:
· Computer systems
· Inventory systems
· Point of sale systems
· Payroll management
· Customer service *
You’ll learn a lot in a short period of time. (Training programs at franchise headquarters are usually 3-5 days in length)
If the thought of learning everything about running your new franchise business in a few short days sounds overwhelming, you’re not alone. Every franchisee before you thought the same exact thing, and their businesses are up and running. Yours will be too.
You could always ask some of the existing franchisees if the training they received prepared them to open and run their businesses adequately. The answers you get will give you a good idea of the quality of the franchisors training program. And, you’ll get a good idea of what to expect as a new franchise owner early on in your business.
Franchisors want you to be successful. They know you’ll be apprehensive in the weeks and days before you actually open. Their training programs are designed to make sure you’re ready.
*Non-US Government link.
About the Author:
Crowdfunding Sites: Top 3 Tips to Get Funding Once and For All
The internet has fundamentally changed the way we do business on a national and global scale. With over 2 billion internet users and growing, the speed and the way in which we communicate, share ideas, and even invest in businesses have changed forever.
Now anyone with a computer or mobile device and an internet connection can research, review and become an investor in a business with a push of a button. With the growing popularity of crowdfunding sites, it's clear the idea of advertising to the general public through a crowdfunding platform is far more effective at drawing in investors as opposed to finding traditional investors the old fashion way.
To put it bluntly, crowdfunding empowers entrepreneurs.
It offers them the ability to raise capital without giving up equity or accumulating debt. Instead, these rewards-based crowdfunding platforms allow entrepreneurs to raise capital from the public in exchange for tangible products or other relative rewards.
It’s simply one of the best ways to cast a huge net for attracting investors to a business. However, with all the hype and popularity buzzing around the internet, many entrepreneurial hopefuls need to be aware that just because launching a crowdfunding campaign is simple doesn’t mean it’s easy.
There is a big misconception on what it really takes to reach a funding goal and achieve success in crowdfunding. It’s not as simple as creating a campaign and clicking the submit button and waiting for an idea to go viral. The set it and forget it attitude is the number one reason why crowdfunding campaigns fail.
Did you know of the roughly 60,000 unsuccessful crowdfunding campaigns launched, about 40,000 failed to reach even 20% of their funding goal? The good news is you can succeed in crowdfunding, you just need to know how to prepare for it.
Here are three key tips for crowdfunding success:
1) Perfect Your Pitch – An incredible pitch is crucial for crowdfunding and can make or break landing an investor. People have to be sold on you, your idea and your vision before they will ever invest in your business.
For starters, write up your preliminary draft, include pictures and record a video explaining your vision, the offer and why you should get business funding. Let your passion shine through!
Send your pitch to family and friends so you can get feedback and make any necessary changes. Once you perfected the pitch, start locating initial backers before launching your campaign.
Remember, you don’t have to swim with the sharks; in crowdfunding, you get to swim with the goldfish.
2) Test Your Rewards – Every successful campaign started with a dedicated following. The obvious rewards would be to provide backers with a digital copy, physical product, souvenirs, combined rewards, etc. depending on your business idea.
Start by testing your reward ideas with your personal network, make necessary adjustments and perfect your rewards package so it is unique, eye-catching and memorable.
3) Get Pre-Pledges – Pre-pledges are commitments from those people who fully support your business idea and will be there to invest on day one when you launch your campaign. Since the majority of crowdfunding sites provide a 30-90 day time frame for each campaign, it’s vital to launch with momentum.
Did you know the most successful crowdfunding campaigns had their campaigns go live only after they had 20-30% of their business funding secured by initial backers? Let's face it; nobody wants to be the first person to fund money into a newcomer's campaign.
Once you perfect the pitch, test your rewards, get pre-pledges and choose a reputable crowdfunding platform, you will need to establish a marketing strategy to reach your target audience so you can advance the momentum of your campaign once you go live.
Crowdfunding sites are a strong stepping-stone for acquiring investors for a business. While for some it can be a viable option, entrepreneurs do need to conduct their due diligence to decide if this business funding option is best for them.
About the Author:
How to Use Business Books To Grow Yourself, Your Team, Your Business
Business books are valuable in that they do more than simply teach you how to run your business more smartly. They’re conversation starters, continuing education tools for your staff and more.
The primary benefit of business books is, naturally, that they help you achieve better results in business. Don’t know a thing about social media marketing? Pick up a book and teach yourself. Curious about the latest leadership technique? A book can help you with that too.
Books only help if you commit to reading them. You’re busy. We all are. But if you set a goal for yourself to leverage the knowledge inside books, you end up a smarter business owner.
It’s not necessary to fly across country or spend lots of money on expensive conferences to glean information from business experts. Instead, budget about $150 a year to buy a book each month on Kindle and get all that knowledge (probably more) from the convenience of your favorite easy chair. Don’t have a budget for books? Then don’t forget your local library. Many even offer digital books these days.
Share Your Knowledge
If you blog for your business, books provide great subject fodder. Writing about what you learn is also a wonderful way to process that information and really understand it. As you read, take notes or bookmark pages (yes, you can digitally bookmark as well) so you can come back to pull quotes for your content.
As you continue to master your industry as an expert, you’ll end up imparting what you’ve learned. So that book knowledge can be translated into content for speaking engagements, webinars, social media updates ... even data for your own authored book!
Give It as a Gift
Business books also make fantastic business presents. When you run across a great book, buy copies for key members of your team who you think would benefit and give the books as gifts to each. You could even start a mini book club within your organization and discuss the principles in a book. Not only does this make your team smarter, but it also helps you bond.
Clients appreciate good books too. Send a book you've read to a favorite client along with a note about what you've enjoyed in it (e.g., "I especially loved Chapter 7!") Doing so will build relationships with your clients, and they will appreciate your ongoing investment in your business expertise.
Pay attention when talking to clients or contacts to get clues about what topics they’re interested in. For example, if a long-time client mentions he struggles with analytics, that’s the perfect cue for you to send him your favorite book on the subject. People notice when you pick up on their interests, and it makes for a more personalized gift.
Thirst for More
There will never, ever be a shortage of books. Every day, new ones are published, especially with the surge of self-published authors. It can be a challenge to know which ones are worth reading, and which aren’t. At the next Chamber of Commerce meeting or industry mixer you attend, ask others if they've read any good business books recently. Get recommendations from friends and colleagues. Ask your social network what to read. Join GoodReads and see what your friends are reading. And check out the Small Business Book Awards to see what the community believes are top books for entrepreneurs and small business people.
Make time for reading business books, just like you make time for marketing, sales, and other components of your business. While the results may not be directly obvious, books do help you succeed as a business owner.
About the Author:
My name is Anita Campbell. I run online communities and information websites reaching over 6 million small business owners, stakeholders and entrepreneurs annually, including Small Business Trends, a daily publication about small business issues, and BizSugar.com, a small business social media site.