Situation: A CEO wants to raise money to expand the company. Target investors will be private equity investors with a minimum investment threshold of $10 million. What are the key points to make in an investor presentation?
Advice from the CEOs:
To demonstrate the company valuation, and the potential increase in value to investors, calculate the EBITDA trend for the last 3-4 years and project it out for the next 5 years.
The valuation is the whole company – not just the investment piece.
Show the increase in exit valuation with and without the target investment. Show impact.
Show revenue and EBITDA on the company’s current trend and what this will become with the investment.
An alternate view: Don’t focus on valuation. The company is profitable and growing. Pitch the plan and the financials associated with the plan. Let the potential investor come back with an investment proposal and terms. KISS – Keep It Simple Silly – take all the risk out.
There are periodic Shake the Money Tree events in Silicon Valley, sponsored by SVASE – Silicon Valley Association of Startup Entrepreneurs. Start attending these.
Ask for advice – not money. There is an adage in Silicon Valley is that if you ask for money you get advice; whereas if you ask for advice you get money.
There’s a subtle difference between the two asks. The point is that potential investors don’t just want to invest money. They want to be involved in the decisions as to how the company spends that money. By asking for advice, a potential investee demonstrates that they respect the opinions and input of potential investors and will listen to them.
Situation: A CEO has a staffing issue. The company has four product areas but only three strong leads. There are no back-ups for these leads. The CEO feels that the company can’t afford full-time back-ups and is concerned that the presence of back-ups may threaten the leads. How do you create an effective staff back-up system?
Advice from the CEOs:
There are two problems, not one.
The leads may not be great managers and may not even like managerial responsibility.
The company has one administrator with support from the leads.
The company’s vulnerability is having an effective lead leave and taking their key core team members with them. This would create a significant hole in the company’s offering.
Change the structure – put manager administrators at top and let the leads do what they love to do. Fit the jobs of the leads to their skills and talents.
Hire the best #2s that can be found to back up the effective leads. Replace the less effective lead with a new lead.
Replace current team members who aren’t as good with new staff. This will provide the funding for the new people.
Then separate managers from architects in terms of role. This does not mean a change of compensation, or necessarily even titles. It means aligning roles with talents. It will also mean that individuals will be happier in their roles and will be less likely to leave.
Don’t do this all at once, but in gradual stages to avoid panic and allow individuals the time to adapt to their new roles. Act as a coach adjusting the whole team to a new playbook.
Consider adjusting the compensation structure to retain the key leads.
Situation: The CEO of a small company is concerned that the loss of a key individual could seriously impact operations. Alternatives include adding an assistant to the affected department or cross training another individual who could serve as a short-term back-up in case of an absence of 2 weeks or more. How do you mitigate temporary loss of personnel?
Advice from the CEOs:
In cases like the current pandemic, planning for multi-week personnel absences is essential. Though systems are documented, subtleties of key jobs may not be documented. This is where cross-training becomes an important alternative.
Train another employee as a backup for the person in question and refresh the training every 2-3 months. If the company runs into an emergency due to short or longer-term loss of an individual, hire a replacement for the individual and have the individual who is cross-trained train the replacement.
Have the key individual and the individual who is cross training refine the ISO 9000 documentation as the key employee trains the back-up individual. This will assure that ISO 9000 documentation is being updated regularly.
Establish a plan with appropriate procedures that all positions must have a back-up. Include this within the company’s personnel procedures.
Rewarding the key individual with a bonus for selecting and training his or her back-up is the wrong thing to do. It’s both the wrong incentive and the wrong reward. Training a back-up is an essential part of each key employee’s job, not a special task that deserves separate recognition or reward.
Situation: A company has a technology that was developed by but not of interest to a major corporation. The company continues to have significant business ties with the corporation, but the corporation wants to be assured that they are never connected to the technology in question. How do you create a Chinese wall around a product?
Advice from the CEOs:
The challenge facing the company is this: representatives of the large corporation don’t and can’t sell the services offered by the company, however exclusive clients of the corporation represent 25% of the available market for the services provided by the company. To date the large corporation has been unwilling either to reward the company for selling to these clients or to assist them in the sales process.
A solution: show the large corporation that the company provides a higher value or potential value to them than they receive on their existing products.
Show them the potential financial value to them of a symbiotic relationship.
Does the company develop the capabilities and value of the technology on their own, or do they partner with client companies in the market?
Many the potential clients in the market appreciate the technology and want to work with the company in some form so a partnership is possible.
The issue is that an open partnership might offend the large corporation who may then perceive the company as taking advantage of their clients.
How does the company establish a Chinese wall so that neither the large corporation nor the clients who purchase the company’s product are concerned about any activity that the company undertakes in the market?
Set up a separate entity and license the technology to this entity. The company would be an investor and would do some of the work but through a client/service relationship with the separate entity.
Get independent M&A advice on how to structure this entity.
Investigate other companies that have set up similar structures. Determine how they have addressed concerns such as conflict of interest, and what structures they have set up to avoid this.
Situation: A CEO has an opportunity to combine with another business to expand their market geographically. A lead to work with the current owner to manage the transition has been identified. A second option is to bring in a new manager from the outside to manage the transition and the expanded business. How do you construct a deal to expand?
Advice from the CEOs:
Basics that are needed prior to initiating negotiations:
Define what the seller wants – both financially from the sale and in terms of ongoing involvement in and support of the business.
Without a lengthy transition period, the value of the business is not significant. The value is in the current owner’s relationships – both with clients and his team. It is critical to retain both.
The other big question is what the seller wants personally.
Is it legacy? Is it the opportunity to transfer knowledge?
The seller knows the CEO’s company and approached them about a sale. Play on this.
Are there potential complications to the deal?
Do any non-compete clauses exist with other companies?
Do other agreements exist that impact the value of the acquisition?
What other aspects of the deal does the group recommend?
Within the new organization, put the current owner under the recommended lead. This gives the lead more prestige and demonstrates trust. It also raises the bar for the lead.
A bonus is that the current owner and the lead get along. This will facilitate the current owner’s mentoring of the lead – like the child that he wishes would have taken over the business.
The current owner is a savvy businessperson, and the existing relationship between the seller and the lead will facilitate his ability to pass this knowledge on to the lead.
The current owner’s key assets are his connections and knowledge of the business. This will include subtle aspects to the business of which only the current owner is aware.
The option to bring in an outside office manager potentially complicates the situation.
Bringing in an outside office manager to manage both the lead and the current owner is the worst case – the most likely to blow up.
This arrangement puts the current owner two reports away from the CEO.
With an additional person involved, the personal dynamics become more complex. Keep it simple.
Situation: A founder has created a new social media offering. The concept is to attract individuals with complimentary interests and have them engage each other for mutual benefit as a better source of information and connections. Implied trust is an important component of these connections. How do you engage people in a new offering?
Advice from the CEOs:
People are willing to experiment with a new social media offering – in this case because they like to help others. It makes them feel good and they like the role of helping others.
People are always seeking good talent. If this does a better job helping them to find good talent, they will try it out.
Hiring managers prefer to pass on a resume of someone known to them because a bad referral could reflect badly on them. Strengthen this aspect of the offering through information gathered from participants.
A small pool is a negative. Broaden the pool to include those who are looking to step up their careers. Think of this as people-to-people direct hiring and use a social approach with broad appeal. This will increase the number of people willing to play.
Be the place where people can come to help others. Add additional tags – help to build confidence and get inspiration. Getting a job happens as a consequence.
The element of trust and relationship is important to many – 40% of early users of the current network express this. Assure that the value proposition is also attractive to the 60% who are not concerned about this.
The network will build on the energy from the emotional play.
Expand the options for how people can help. Investigate allowing trusted referral relationships within the system. Allow people to refer trusted people in their own networks. This can include people who “I would trust to refer good people.”
Situation: A CEO is reviewing options for introducing a new offering. The target customers are small companies or projects within larger companies. The offering includes both an initial product and follow-on services. Education or training will be a component of the offering. What is the best way to roll out a business opportunity?
Advice from the CEOs:
It is best to position the offering as a straightforward proposition at launch and develop proof of concept. This will provide experience and an income stream to fund more complex offerings based on the initial model.
It will also provide insight on how to sell the product and service in different markets – manufacturing, service, and software.
Leverage this experience to pursue more complex models.
Build a portfolio of case studies before pitching to paying companies.
Use companies with whom relationships already exist as the proving base. These will become references for new clients.
Develop data to show actual cost savings from the use of the product and services.
Establish a relationship with an existing company for which the offering is complimentary and cross-offer products and services on an ad hoc basis.
Trial the product and service with one of their clients in return for a royalty or share of the profit.
Ask that company to make the introduction.
Target start-ups – offer an initial package for a low price. Offer the product to start-ups for free and get them hooked as long-term customers.
What would be needed to roll the offering through growth equity firms or venture capitalists?
This will require some proof that the offering increases the ROI to growth equity and VC portfolio companies and funds.
Note that the portfolio companies of growth equity firms are larger and farther up the growth curve
In current economy the key message to prospects may be that the offering will help them to “right size” their company.
Take a closer look at the offering and determine whether it is configured appropriately for the current environment.
Situation: A company currently has inside and outside sales teams, and coordinates efforts with SalesForce.com software. Their strategic initiatives are to double inbound leads, create a triage approach to new leads and to lower the cost of sales. How do you optimize your sales organization?
Advice from the CEOs:
When outside sales claims that they have limited band width, it is necessary to find how they are spending their time.
If they are not spending most of their time developing and closing sales, adjust the system so that they are concentrating their efforts in these two areas.
Decide what the sales teams are selling – set up the organization so that it complements the sales goals and objectives. Below are alternatives used by others.
One company has evolved “product managers” who are like sales engineers but more experienced. They are highly paid and highly skilled. They are business oriented, with good communication skills, well rounded, and have successfully closed sales.
In contrast, the role of this company’s “salespeople” is to follow up. Lower level salespeople are tasked with generating leads for the product managers
Another CEO observed that what the company has done up until now all has worked well. The question now is how to mature their system?
This company’s solution has been to use outsourced Inside Sales Support (ISS) based abroad to find prospects.
ISS personnel are teamed with and managed by the company’s salespeople. Salespeople develop their own system. The ratio is 1/1, but outside personnel are ½ time for each salesperson.
This allows the company to reduce services quickly if they become overwhelmed.
A third company uses a 3-tier system:
Inside sales for lead evaluation.
Outside sales – get hot leads from inside sales, develop, close.
Consider this alternative: instead of a shotgun approach, target three accounts – Elephants. One company did this with an intense 6-month focus. The President and CEO drive these sales. The result: they have closed one, one is pending, and a third is likely to close.
Another CEO observed that the essential issue appears to be an efficiency problem.
Too much of the outside sales time adds limited value to marketing or the company.
Redirect their efforts to hunting.
Once an account is closed, sales is out of the picture. The customer transitions to the customer service organization for additional sales and service.
Situation: A company has grown through its expertise consulting for other companies. For its next growth step the CEO and Board want to shift to a project basis. This entails several changes, from compensation to organization and focus. How do you shift culture as the company grows?
Advice from the CEOs:
Risks & Challenges
Biggest risk – dissatisfied employees who see less billable income per hour and may not see the “more hours” part of the picture.
The biggest personnel challenge will be those who have been with the company for many years, and who will see the most change – maybe not to their specific practices if they can bring in business, but on the project side.
Communication is a critical challenge, and also the best way to avoid landmines. Put a velvet glove on the presentation of the opportunity: “This is good news – we know that the low hanging fruit is now mostly gone, and that the remaining fruit is higher; to counter this we now have more options.” Carefully prepare communications to both management and consultant team members.
Another potential landmine – the impact on the company’s reputation if it blows up after a year. Set appropriate expectations – the company is introducing a new program rather than a wholesale rebranding.
Countermeasures to Mitigate the Risks
Maintain a structural option that preserves the old model for those who can bring in new projects and who prefer this model. For them, the new model is just an option that can help tide them over if there are gaps between the projects that they bring in.
Present the project option as new opportunity. Give more senior and experienced consultants priority in choosing whether to participate or not in new project work.
Plan and create the ability to assess the old consultancy model vs. the new project model. This will be especially important when individuals are spending part of their time in each area.
Create a set of metrics for each business – the consulting and project businesses – to measure whether they are on track. Identify and monitor the drivers for each business.
Keep the title Consultant on consultants’ business cards – Consultant, Sr. Consultant, etc. Allow them to continue to take pride in their role.
Move to the new model through a planned phase-in but retain the option to adjust the speed of transition between the old and new models. This will allow sensitivity to changes in the environment.
Don’t consider an immediate and complete rebranding – think in terms of introducing a new product under the company’s well-known brand. Plan a gradual transition of business to the new model. Introduce the new product as a new offering. As it picks up steam, gradually move brand identification and promise to the new model.
For the new project model, create incentives for project performance. Show team members that while the hourly rate may be less, if they perform as a team they will share the upside through project bonuses.
Situation: The CEO of a specialty company that is a leader in their market asked the group to review the company presentation. The members of the group were asked to put themselves in the place of a potential customer or investor. How do you improve your company presentation?
Advice from the CEOs:
Don’t assume that the audience has a sophisticated understanding either of the company’s market or its technology. In any pitch either to a new prospect or for funding there will be individuals in the audience who are not experts. The pitch needs to deliver a message that any listener can easily translate to any colleague.
Give brief examples from the experience of current customers to make the technology and its advantages concrete.
What is the problem that the company solves?
State up front: What is the pain – why is it there? How does the company’s solution address this pain? What’s the impact?
Show market potential and explain why the company’s solution will be a home run.
What makes the company’s solution unique and gives it a sustainable advantage?
Assume Ignorance – KISS – Keep It Simple Silly!
The presentation should be high level, easy to understand, and crystal clear in 5 minutes.
Establish credibility by summarizing current success and list the names of current customers.
For presentations to investors have ready answers for the following questions:
How the funding sought accelerate development, and what is the expected return that this will produce?
Assure that timelines are realistic, particularly for a ground-breaking technology.
Do not be vague in answers to questions like “what is your market share?” Answers must be crisp and believable. If additional documentation is required to validate company estimates have a back-up slide in the presentation to address this. Keep the explanation in the back-up slide simple, even if the analysis is complex.
Add an expectation of return on investment. What equity will the company give for an investment of $X. State the company’s pre-money valuation as a believable number. Then give an estimated 3-year post money valuation with $X investment. Investors will discount anything number given but will not want a range.