Tag Archives: Energy

How Do You Finance Growth? Three Options

Situation: A mid-sized company faces challenges financing their growth. Investment of time, energy and resources precedes the reward of future revenue. It can be difficult to balance the cash needs of current operations with new growth opportunities. How do you finance growth?

Advice from the CEOs:

  • Have you analyzed growth opportunities and evaluated which could increase your cash flow? For example, if you increase manufacturing efficiency, can the savings help to finance growth?
  • If you produce parts or products for start-ups, can you structure the relationship so that if the start-up become successful and is subsequently purchased by a larger company there is a bonus payoff for the work that you’ve done?
    • Analyze – by project, not company – the jobs you’ve done that have eventually become large volume opportunities. Try segmenting your analysis based on the source of the original project: jobs for start-ups, mid-sized and large companies. This may provide insight on where to focus future efforts.
  • Another company performs clinical services for both big pharmaceutical companies and start-ups. To take advantage of the upside from working with start-ups they take payment both in cash and in stock.
    • One option is to set up a separate Investment LLC – not tied to the operating company but owned by the same people – that takes the stock position and can, at its option, provide limited venture funding to start-ups.
    • Start-ups are not yet threats to your large customers but are potential future acquisition targets. Because the stock financing is done outside of the operating company, it is more difficult to trace back to the operating company. Further, competing large companies have not tended to see these investments as threatening the way that they would view direct investment by the company in a competitor. At the time of acquisition by the larger company, the member’s ownership position in the start-up is liquidated.

Do You Merge, Sell or Revive a Business? Four Areas of Focus

Situation: A company is at a crossroads. They are no longer growing as they have in past years. The CEO is assessing alternatives including a merger, selling the company or restructuring. What are the essential questions to determine whether you merge, sell or revive a business?

Advice from the CEOs:

  • Do you really have the information to determine whether it makes sense to merge, sell or revive the business? The questions to ask are:
    • Is your core competency important?
    • Do you have the talent required to revive the business?
    • How much of your business is from repeat customers?
    • Is your platform still being used by a significant number of companies, and are they likely to shift their software soon?
    • If the answers are favorable, then the only remaining question is whether you have the energy and inclination to continue.
  • Having developed a profitable business model, why would you give up control or ownership?
    • Tighten up the business by focusing on the basics and turn the company around.
    • Identify where you can make money, and
    • Determine which portions of the business need to be restructured or eliminated.
    • Essential questions are:
      • Do you have a clear picture of where the profitability lies within the business?
      • Do you have a clear statement of your key competitive advantage – your “Main Thing”?
      • Can you establish a pricing strategy that pays you fairly for the value you provide?
  • Look at bench time among current employees.
    • Identify, and fully utilize the most important contributors, perhaps by giving them additional responsibilities in other areas.
    • See that all retained employees are fully utilized.
    • Eliminate those who are on the bench the most, or transform them into contractors so that you only pay for active time.
    • Utilize contractors to fill the “full service” slots that are important to your service offering but which do not contribute significantly to your bottom line.
  • Most importantly, reformat your role so that you are doing that which you truly enjoy. Your own enthusiasm and passion are the most important long-term drivers for your business, and will be the most important motivators to your staff.