Tag Archives: Investment

How Do You Evaluate A New Business Opportunity? Six Questions

Situation: A company has been presented with a new business opportunity. The opportunity is compatible with the company’s current business, but also involves skills and markets with which the company is not familiar. How do you evaluate a new business opportunity?

Advice from the CEOs:

  • There are at least four critical questions to assess as you evaluate any new businesses opportunity:
    • What is the total available market, and what is the immediately convertible market for the product or service?
    • Can you acquire expertise in the new markets that this will open to you?
    • Do you have a track record starting and nurturing new business within your company?
    • Is there sufficient seed money available – through company funds or outside investment – to keep the effort going for at least a couple of years as you develop the core team that will operate this business and gain traction?
  • If there is an offer of outside investment, consider how many months this funding will support the salaries of the team that will build this business, plus operating and overhead costs. You want to be sure to give yourself an adequate runway.
  • New business development opportunities typically require huge energy, creativity and focus for the first few years. Key management will have to devote all of their effort during the start-up period. Can the company afford to lose the services of key personnel for the time that you estimate this effort will take?
  • Before deciding to pursue this opportunity, take the time to investigate the market for this opportunity.
    • In particular, look for other companies that have tried to enter this market, and learn from their experience.
    • Develop a network of advisors who understand this market and can help you understand both the workings of the market and why companies may have struggled trying to enter the market.

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What Leading Sales Indicators Are Effective? Four Suggestions

Situation: A company has experienced low sales early in its peak season due to bad weather. The CEO wants to develop additional leading indicators that will help predict whether sales will recover prior to the end of the peak season. What leading indicators have you found effective in predicting seasonal sales?

Advice from the CEOs:

  • Access to benchmarked research can be helpful, especially industry reports that cite growth indicators. Some industry report producers can generate drill-down reports of their base data for a fee. This allows you to tailor your own study based on their data.
  • Depending upon whether you set revenue projections by brand or product line, look for indicators within brands or lines that will provide you with clarity on sales projections. An example is product reviews in relevant newsletters, provided that these have effectively benchmarked to sales results in the past.
  • In addition to new leading indicators for existing products, there are a number of ways that you can reduce the impact of seasonality on your cash flow. These include: investments that will lead to future income streams; new product placements to compliment or extend current lines; new key customers or outlets through which you can expand your market; and increasing sales calls to create new demand. Also, use the current season to establish additional benchmarks that will be useful in future years.
  • Other tactics include evaluating in-house versus contract production of your products to improve your margins, and strategies to improve up-sales from medium to premium products where margins are better. You can also focus on smaller independent outlets rather than national chains which are dominated by national brands, and also regional explore private label opportunities.

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What is Your Opinion of Maintenance Agreement Models? Four Thoughts

Situation: A plumbing company wants to broaden their market and is intrigued by building maintenance agreement models. They have looked at one franchise offering that would cost $120K in purchase and monthly fees the first year. The up-front investment per new customer would be $10-50K with no guarantee of closing a maintenance contract with the customer. What are the pros and cons of maintenance agreement models

Advice from the CEOs:

  • Don’t look at just one company’s maintenance agreement model. Investigate companies that provide similar services.
    • Ask the company who their principal competitors are, and what companies have similar or differing models.
    • Investigate each of the competitors. One of them may be more appealing for a company your size.
    • If the company is unwilling to share this information, be VERY careful.
  • You should be able to talk to the franchisees since you would not be competing in their territories. Tell them you are evaluating the company and its model and want to learn about their experience. Ask about training, processes and procedures, and any upside or downside that the current franchisees have experienced.
  • As you evaluate this and other offerings, calculate worst case scenario in terms of risk and expense. Is this something that you can afford? If not, the model doesn’t look good.
    • Can you write in exclusions to your maintenance agreements to limit your liability for large ticket items?
    • Analyze the potential of your market. Conservatively estimate the number of clients that you could generate, and what you would earn. Do a cash flow analysis of your upfront expenses, risks and revenue.
  • Watch for red flags in the agreement models. For example, in one model the vendor is responsible for the maintenance of a building; however, they can’t require any tenant to use their services. This means that they would effectively be guaranteeing the work of other companies, or the impact of this work on the building’s services, with no control over the quality of the other companies’ work. This could expose them to significant potential losses.

Key Words: Maintenance Agreement, Franchise, Investment, Pros, Cons, Red Flag, Due Diligence, Worst Case, Scenario, Market Potential

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How Can Business Contribute to the Future of Technology Education?

Interview with Muhammed Chaudhry, CEO, Silicon Valley Education Foundation

Situation: A critical component for the future of technology in the US is a workforce trained in math and the sciences. In Santa Clara County, California – the heart of Silicon Valley – only 49% of high school students complete University of California/CSU qualifying courses, and only 26% of Hispanic students. How can private industry contribute to the improvement of education and the training of future workers?

Advice from Muhammed Chaudhry:

  • Silicon Valley Education Foundation’s objective is to make Silicon Valley the number one region in California in student readiness for college and careers. It has been shown that the top predictor of college success is the completion of Algebra II in high school.  Our primary program – Stepping Up to Algebra – focuses on students and teachers to increase the number of students who are ready for Algebra I in 8th Grade. To date 2,500 kids have gone through our program.
  • We actively encourage private industry to get involved in our programs and to invest in solutions that work. We call this involvement Work, Wealth and Wisdom.
  • Let’s talk about Work:
    • Our aim is for every business person to make it a priority to invest time in public education. This takes an investment – we ask for a consistent investment of 4-5 days a year.
  • Next is Wealth:
    • We encourage every business person to sign up to our Sustainer Program. The commitment is modest – only $5 per month to support our activities.
    • We encourage corporations to Adopt a Classroom for $10,000.
  • Finally we have Wisdom:
    • We encourage business people to get involved. We need help designing technology products that enhance learning and in formulating a blended learning approach.
    • We need to improve the enabling of technology in our schools to improve individualized learning to maximize the potential of each student.
    • We need support and involvement in policy work by contributing business thinking. Education has lessons to learn from business.
    • There is room for innovators who are interested in social benefit and long-term investment with profit as a secondary consideration.

You can contact Muhammed Chaudhry at muhammed@svefoundation.org

Key Words: Technology, Future, Education, Workforce, Math, Algebra, Science, College, Preparation, Work, Wealth, Wisdom, Investment, Engineer, Software, Funding, Learning, Policy, Innovation

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Financing: OOM or OPM? Three Things to Consider

Situation: An early stage web Company is looking at steep ramp up expenses. Many companies have bootstrapped their way to success. However outside investment may speed the process. How have other CEOs evaluated these two options?

Advice from the CEOs:

  • Raising money takes time and is a major distraction to your development process. The two big variables will be investor interest and timing of investment.
    • Talk to Angels and VCs now. Start by presenting a broad outline of your technology and business model. Ask what they will want to see to offer you funding at different levels.
    • This will give you a reality check as to investor interest in funding you, and creates a roadmap to funding if the response is positive.
  • What are you seeking? Money or accountability? One CEO bootstrapped the company early, then looked for outside investment to gain accountability and advice – a whip to help move things along.
    • This CEO found that investors brought few of the anticipated assets, and added a new level of distraction and pain.
  • If you are looking for funding to purchase content to serve through your portal, consider a more creative way to gain content.
    • Can you use a Web 2.0 portal through which your target audience provides both the content and the consumer audience in a marketplace exchange? Establish the audience and add premium services to monetize the model.
    • This can minimize your upfront cash investment requirements, and may create a faster track to positive cash flow.

Note: OOM = Our Own Money; OPM = Other Peoples’ Money

Key Words: Investors, Investment, Ramp-up, Bootstrap, Financing, Cash Requirements  [like]