Tag Archives: Start-up

How Do You Evaluate Financing Options? Seven Key Points

Situation: A start-up company needs to raise cash to fund the achievement of key milestones. The founders have evaluated private equity, angel, and venture capital financing options. They believe that at their stage of development an angel is the best source of funds. What guidance can the group offer for negotiating with a private financier? How do you evaluate financing options?

Advice from the CEOs:

  • The important questions to answer are: who is the angel, what is the angel’s motivation, and what does the angel bring to the table?
  • What is the angel bringing to the table?
    • Is it money and connections? Who and how many people will be involved?
    • Do these individuals bring the expertise to take business to the next level and beyond?
  • Identify the strengths and weaknesses of the angel’s organization. Ask about other companies that the angel has financed. Talk to those companies about their experience with the angel.
  • Ask how long the angel plans to stay connected to the company.
    • Is the angel committed for the long-term or looking for a quick profit or exit and sale?
    • What happens after the angel leaves?
  • Validate statements made by and the experience of the angel.
    • How may IPOs has the individual or group been involved in?
    • What existing contacts do they have with additional potential funders or buyers?
    • Vet all of the claims and statements made by the angel.
  • Evaluate equity vs. cash funding and the prospects and terms that accompany future funding rounds.
  • What is the company’s long-term strategy?
    • Do the founders want to stay the course long-term or is it sale of the company to another entity?

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How Do You Transition and Mix Leadership Styles? Five Points

Situation: A CEO has shepherded his company from a start-up to a viable enterprise. Early on, his management style was based on facilitation and his “likeability”. This worked well with a tight-knit team. Now the company is much bigger and he feels a need to be respected and able to act as a dominant leader when this is required rather than as a facilitative leader. How do you transition and mix leadership styles?

Advice from the CEOs:

  • What does a dominant mode of leadership entail?
    • Defining the starting point, desired end and important characteristics of the solution – then ask for input on getting there.
    • One can mix dominant behavioral modes with facilitative modes – the difference will be the focus on the end to be achieved.
  • If one were moving the opposite direction – from dominant to facilitator – one would:
    • De-entrench oneself from one’s own position.
    • Become more open to others’ ideas.
    • Change tone / words to express openness.
  • Conversely, to move from facilitative to dominant:
    • Decide what one wants to achieve and express it clearly.
    • One can remain open to the ideas of others, but make sure that the exchange is staying on topic and moving toward the desired objective.
    • Change tone / words to become more assertive.
  • How does one plan ahead to determine what one wants?
    • Review notes / priorities ahead of meetings – decide on the agenda and the objectives for the meeting.
    • Write reminder notes to ask questions or push issues that will drive the agenda.
  • Focus on the framing of the discussion – when one is being dominant the framing is more structured and determinant; when one is being facilitative the framing is more flexible and undetermined.

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What is the Best Way to Roll out a Business Opportunity? Six Suggestions

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.

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How Do You Monetize Your Business Model? Five Suggestions

Situation: The CEO of a start-up software company focuses on connecting potential parties to business opportunities. Early signs are that this offering has legs and potential parties have responded positively. The critical question for the CEO is how best to turn interest into revenue. How to you monetize your business model?

Advice from the CEOs:

  • The first step is to segment the audience and determine both the potential for each segment to both benefit from and fund the service that they receive.
    • Individual contributors may not have a lot of financial resources but may be interested in participating as employees or providers of expertise or services. They also may know others and can spread the word.
    • Collaborating organizations may be able to offer both funding and services to help build and sustain momentum.
    • Companies have funds to support the effort provided they see value to their bottom lines as a result.
  • Suggest a fee or contribution for services from companies who will benefit. Provide guidelines or a sliding scale of fees depending upon duration of services provided to the company. Make it clear that moneys earned will be reinvested to increase the range and depth of services offered.
  • Suggest a sliding fee scale for individual contributors based on the financial benefit that they receive.
  • For companies and collaborating organizations offer levels of membership or recognition for support based on benefit received.
  • For all segments – start with small, timed fees and increase these as the model proves its benefit to them.

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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.

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How Do You Boost Morale in a Branch Office? Five Solutions

Situation:  A company started a new branch office last year. This office started with three people and has remained at that level with some turnover. Morale is low because the branch office team doesn’t feel supported by the home office. The CEO is concerned that this could kill the branch office if it is not fixed.  How do you boost morale in a branch office?

Advice from the CEOs:

  • The problem is most likely the home office, as they assert. There have been few visits from home office personnel – particularly the company president. In addition, they are being criticized in weekly reviews for not hitting the same metrics as the company’s established operations.
  • Remediate this situation by scheduling weekly executive visits and monthly visits by the president until things are up and running and there is a track record of profitability.
  • Clarify your expectations to everyone – this is a new office running to different metrics until they establish themselves. Once they are established, they will run to the same metrics as everyone else. Coach the heads of other divisions that the new office needs support, not criticism, until they establish themselves.
  • Allow the branch office to bid low for market share until they are established in their new location for a period – at least 6-12 months. Create a different set of metrics for a start-up office, and review these during weekly sales meetings.
  • The role of management is to show the colors in the new location and manage peer feedback from established locations. Help them win! Establish start-up metrics like lunches with potential clients to establish relationships. Since the branch office is generating business for other locations, create separate general performance metrics from territory specific metrics for this office and show both in staff meetings.

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What Are The Barriers to Companies Moving to The Cloud?

Interview with Jim Kaskade, Global Executive (most recently SVP and General Manger, SIOS Technologies, Inc.)

Situation: Cloud computing as a concept dates back to the 1960s. “Cloud” became a more prominent concept in 1990s as a metaphor for service delivery over the Internet. The technology that makes it a practical reality has advanced significantly. Broad business adoption, however, has varied depending on the deployment architectures used. What are some of the barriers to enterprises “crossing the chasm” and embracing moving to the cloud?

Advice:

  • Definitions: There are three cloud deployment architectures or market segments when defining the opportunities and barriers to entry:
    • Software as a Service – SaaS – represented by distinct B2B applications like Salesforce.com and Google Apps, and B2C applications like Apple’s iCloud.
    • Platform as a Service – PaaS – represented by application platforms targeted at application developers and including Microsoft Azure and Amazon Beanstalk.
    • Infrastructure as a Service – IaaS – represented by on-demand access to low-level IT infrastructure such as virtualized computer, storage, and networking infrastructure.
  • The elephant in the room is that, relative to global IT spend, use of public cloud is in its infancy.
  • Adoption of the cloud varies by business size and IT structure.
  • Start-ups – particularly technology start-ups – use all three segments. The rationale is simple. It is easier and conserves capital to use all three delivery segments as an expense rather than invest in IT infrastructure. Another benefit is time to market.
  • Mid-sized companies  – up to hundreds of employees – have more challenges.
    • They start with SaaS applications to get their feet wet. Primary concerns are availability and security. If they have good, dependable Internet access, barriers to entry can be low.
    • Using a PaaS is also attractive but begins to compete with internal, existing platforms. Mid-sized companies typically have their own IT and developers who may prefer an internal platform. The company’s choices are also limited to a PaaS system that is similar to current development platforms.
    • The barrier to IaaS adoption is the IT staff itself. If the IT staff is savvy, they can maintain and run their internal data center less expensively than IaaS services. The question comes down to whether building and maintaining a “crazy smart” IT group is core to the company’s business model.
  • Enterprise companies – Fortune 100s or even 1,000s – have far greater challenges.
    • Their current IT model already has moved to a mix of 30% in-house and 70% outsourced with partners like CSC and Accenture.
    • Most Enterprise CIOs begin their use of “cloud” with a migration to SaaS. The barriers to PaaS are that their systems are tailored to customer-specific applications and internal infrastructure, limiting PaaS use to small, non-critical applications which require quick, global deployment.
    • The barriers to using IaaS services are similar to PaaS, where CIOs struggle with tradeoffs between agility and issues of cost, security, and availability.
    • The Achilles’ heel of these companies is that 80% of their IT spend is just keeping the lights on.
  • The implications of all this are that the cloud is ideally for small to medium companies, some of which will become large enterprises. If you can succeed with a migration of legacy applications to cloud-based services you will become more nimble in responding to customer’s needs – the biggest upside to cloud services in general.

You can contact Jim Kaskade at [email protected]

Key Words: Cloud Computing, Adoption, SaaS, PaaS, IaaS, iCloud, Business Size, IT, Structure, Staff, Applications, Cost, Nimble, Availability, Security, Chasm, Start-up, Mid-Size, Enterprise, Outsource, Partner, Data Center, Legacy

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What are the Three Clarities that Every Start-up CEO Needs?

Interview with Naeem Zafar, President & CEO, Bitzer Mobile, Inc.

Situation: Starting a new venture is a daunting task. You must determine market need and land your first few key customers on tight timeline and budget. What are the most important foci for the start-up CEO?

Advice from Naeem Zafar:

  • The answer lies in what I call the Three Clarities.
  • Clarity #1 – Deep Knowledge of Customer Pain Points
    • The fundamental point is that your eventual success is not about your technology – it’s your ability to understand and address the needs of your customer.
    • Research and talk to potential customers. Ask them about their pain and problems (and not about your product). What makes their job or their lives difficult? Learning these facts takes time, patience, persistent questioning, and open listening both for what they are saying and what they are not saying.
    • Once you have a clear idea about their need and can succinctly define it, you must determine whether your capabilities can address the customer’s need.
  • Clarity #2 – Understanding the Purchasing Behavior
    • Once you have identified your target customer, their need and your ability to meet that need, you must understand their current purchase behavior.
    • Have they ever bought from a startup before? What happened when they did? Are they happy or unsatisfied? Where are the gaps in satisfaction?
    • Particularly for a start-up with limited credibility, it is critical to identify those purchasers who will take the risk to buy from a new company.
    • From what you find, determine how you will frame a personal relationship with the likely buyer – how you will frame both your solution and the buying experience – and build a psychographic of the buyer so that you can quickly determine likely customer candidates.
  • Clarity #3 – Understanding the Decision-Maker’s Sense of Urgency
    • Who makes the purchase decision? In B2B sales is it the CEO or someone further down the organizational chart? Who approves the purchase budget?
    • Why now – do they have their ”hair on fire” so a decision must be made now?
    • The essential question is: what are the alternatives to not having your solution?

You can contact Naeem Zafar at [email protected] or check out his six books at www.NaeemZafar.com

Key Words: Start-up, B2B, Customer Need, Domain Knowledge, Purchase, Experience, Psychographic, Competition

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We Only Want A-Players – But Do They Want Us? – Five Strategies

Situation: An early stage company will staff-up over the next year. In the past the CEO has recruited individuals with big company experience and solid resumes, only to find that they had difficulty transitioning to the hands-on responsibility of a small company. How do you find candidates who are highly experienced but who can also excel in a small company environment?

Advice from the CEOs:

  • The best candidates are not in the job-search pool. They are currently working but open to a change. Some will wish to return to a more hands-on situation.
  • Let people know that you are looking for “the best” and have a great opportunity. Create some buzz.
    • Go to your network ask “who do you know?” Don’t be shy!
  • Look for achievers – with proven performance in companies of the size that you plan to be in 12-18 months. Check their references carefully.
  • What can we do now, while we seek the right people?
    • Use contractors and consultants. These people are more entrepreneurial, self-starting, and self-accountable. Monitor their work. If they are good, add them to your team as permanent employees.
    • Develop a milestone-based personnel plan as part of your business plan:
      • When we hit Milestone A, we will need an operations manager.
      • When we hit Milestone B, we will need channel or market development expertise.
    • Conduct case studies of how other companies in your or similar spaces have facilitated their scale-ups. What worked? What didn’t? Why?

Key Words: Candidates, Recruiting, Fit, Culture, Start-up, Achievers, Performance  [like]