Is your business investment ready?

Its one thing to look for investment for your business and quite another to ensure that your business is investment ready. Once a potential investor agrees that your idea or business looks potentially viable for investment subject to due diligence being carried out successfully, do your real problems begin or will your business be ready?

A recent client of mine was in this same situation two months ago and because he never really believed that the day will come so soon, he was just no prepared. His company was not investment ready. So how do you become investment ready?

In the next few weeks I will cover the various steps to be taken on the road to becoming investment ready.

Herewith the first two steps:

1) Describe the background and history of your business

This first step in explaining the investment ready status of your business may seem straight forward bur there may be more to it then meets the eye. Points that you may want to cover here is how your business cam into being. What were the difficulties encountered when starting and how were these overcome? What were the barriers to entry you encountered and how difficult may it be for future incumbents to do the same? Have your growth been erratic or stable and what roles has other industry trends plaid in your success up to now?

Investors want to know, not only that your business has a high potential for future growth but also that the business has been able to handle demand and other challenges that show up at your door during the initial stages.

2) Illustrate the Organisation Chart and resumes of your senior management
Potentially one of the more straightforward issues to cover, your organisation chart should be illustrating the flow of communication within the business and the effectiveness of this strategy. In addition the resumes of your senior management team needs to illustrate what your company stands for. Where are your strengths? How does the experience in your team contribute to your competitiveness and uniqueness of product. Is there a good balance between skills, experience and cost within the team?

SA Business Plans in the news

SA Business Plans has recently been in the news with the announcement of their new business planning and growth consulting business in the UK. According to Google News and US based public relations site PR-USA.net the new division launched in August this year and are already proving to be popular.

Raising finance for an South African business

Raising finance for a new business in South Africa is often the most challenging task of the entrepreneur. No one enjoys asking others for money (well almost no one) and going ha in hand to your local bank or investment firm is perhaps similar to a trip to the dentist. But it does not to be that hard. Raising funds should be seem as your first real opportunity to see whether you fist of all can communicate your idea effectively an secondly whether other professionals see the opportunity in the same light that you do. Its one thing convincing friends and family, who after all are often interested in seeing you in a good mood, vs convincing the people to such an extent that hey will invest money into the idea. Granted tht if you are one of the lucky few, friends and family may be the same people who will be finding the business in the first place.

In general, raising finance for your business can be divided into 6 simple steps.

1. Seeking out the Investors

This is arguably the hardest part of the process. If you are someone who regularly runs to stay fit you will know that the hardest part is to put your shoes on and start running. Once that is happening the rest sort of happens by itself. Most people start within family circles, friends, business associates and other acquaintances. Others may go directly to the bank or government institutions proving grant or loans for start-ups. If you are unsure on how to approach this ste yourself, make use of an expert in sourcing venture finance

Once you find the right contact willing to finance your business, a well written South African business plan should normally take care of the rest. The first step often takes the longest so don’t loose fath when I takes longer that expected. Is your idea is viable and it excites you then the right investor or investment body will come along.

2. The Approach.

During the approach, two things must happen. As with any new relationship its always useful to start by breaking down the barriers between you and the other party. In his classic book, How to Win Friends and Influence People, Dale Carnegie talks about finding some thing in common with the other person. A common interest can help you to get to know the other party in question and help them to start understanding that you are actually not to different from them. Remember that the first thing you may have in common is that you may both be interested in meeting the right venture partner. Secondly you need to make the other person believe that you know your subject area and that your business idea can also help them with other own goals fr the future. Simultaneously be building a degree of kudos. The venture source needs to invest capital, and you need to raise capital. Fulfilling your mutual needs is the task you must accomplish together.

3. Choose the most suitable source

once you have identified suitable funding sources, list the reasons why they would be interested in funding your business. Always consider the ‘WIFM’ concept. When listening to your proposal or business concept the other party will be listening through a filter of ‘What’s In It For Met?’ Not everyone invests in the same deals for the same reasons, as certain benefits among the features will be more important to individual capital sources than others. In fact, the same plan is likely to be supported by different people for different reasons. You need to identify the needs and reasons for investing of your potential money source. Study the background of the various funding sources, ideally considering the other businesses they have invested into.

4. Presenting the Business Plan.

During this stage you can really show of your knowledge and passion for the industry and the business that you are intending to start or grow. This is an area where most entrepreneurs actually do well in. Do remember however, that your presentation need to reflect the investors interests and answer questions that thy may have. If you have already build up a relationship with the investor it may be easier to understand and address their concerns. If not, be sensitive to any body language or signs form the investors as to which areas you need to focus on.

A rookie mistake at this stage is to over value your business or present and half developed concept. Unless your market research has show exceptional interest from potential clients, investors will be looking for working concepts. Remember that they are thinking, what can go wrong with this, is it a good investment opportunity. They are not interested in simply paying your salary for the next two years while you further develop your concept.

5. Address their concerns confidently.

Don’t be taken aback if there are allot of questions or objections. These merely indicate that the investors are interested and want their doubts put to rest. They may ask about your income potential and how you came up with the amounts mentioned. Real sales is of course the ideal at this stage as it takes the doubts out of business. "What are you going to do that's different, and how are you going to do it better than what is already being done?" In handling objections, the first thing to avoid is to be defensive. Instead, acknowledge the comment, and respond to the objection in a sincere way. See objections as a support mechanism. If investors have objections or doubts then so may your eventual clients. These may be people who have been involved in start-ups before and its really an opportunity for some very valuable free advice. Don’t be afraid to ask questions of your own.

6. Gaining to a yes.

If the first five steps was executed well then this final step should take care of itself. Look for definite answers and commitment, if there is a maybe, discuss next steps and how you could potentially turn the last objections into a yes. Remember, your enthusiasm and entrepreneurial spirit are two characteristics that investors will value most.

VIVA - SA Entrepreneurs day!

This weeks sees the launch of a hopefully extremely successful Entrepreneurs Day in three South African cities.

The Small Enterprise Development Agency (Seda), in partnership with the Department of Trade & Industry (dti), will host the first Entrepreneurs Day based on a successful Belgian model in Gauteng, Limpopo and the Western Cape on the 22nd of October. The model which has also been extremely successful in the UK with the twice annual B-Startup exhibitions taking place twice a year to packed exhibition halls, will see a wide range of entrepreneurial service providers recruiting onlookers to make use of their services.

These events not only showcases what is on offer as far as entrepreneurial services are concerned but also provide a most wonderful opportunity for entrepreneurs to network and share ideas with both potential clients and each other. Having been involved with similar events in both South Africa, the UK, France and Germany over the last decade I believe that with the entrepreneurial passion already present in South Africa that it is likely t become a very popular and effective annual entrepreneurial gathering.

SA Small Business Funding: When will the banks come to the party?

Regular readers will be familiar with my regular rants against the lack of small business support from South African banks. With an issue that can so obviously make a significant difference in areas such as job creation, increase in GDP, the development of technology and the influx of foreign investment in to our country, it is fascinating that banks are not falling over each other to provide more funding and service to small firms. How short sighted can they be? It seems obvious that despite the risk that exists when investing in small firms the long term benefits of gaining them as clients and strengthening the countries economy far out weighs the risk.

Small firms need bank support not only to fund their SA business plans but for day to day cash-flow support.

In a recent article in Business Report (busrep.co.za) Polo Radebe commented that "we have seen a plethora of initiatives aimed at micro enterprises. Significant resources are directed at larger, sophisticated clients and micro enterprises, leaving the SME space underserviced. Development practitioners often call this gap the missing middle.

Despite the government taking some much need action to address this issue by establishing institutions such as Khula Enterprise Finance. Khula states that its role is to maximise access to finance for SMEs in a way that leads to the development of sustainable small and medium businesses, job creation, economic growth and equity, it is now time for the banks to come on board once and for all.

Recent economic bailouts in the UK even went as far as to specify that banks will be backed by government bailout initiatives on the condition that more loans and better service is provided to small and medium size businesses. Can we expect a similar show of support for small business from the SA government?

Market Research before starting a business

Market research, apart from being so crucial to understanding the potential of a new business idea is surprisingly enough a process that extremely few entrepreneurs or business owners / managers carry out. Most people are happy with the odd ‘that sounds like a great idea’ or ‘ wow how did you think of that’ comment from friends and family. No surprise then that around 60% of start-ups are no longer around after three years. Outside of the few occasions when your friends and family are going to be your only clients – which means you have a hobby rather than a business – market research need to consult potential clients.

When conducting market research, speak to a sample of those people who you will be asking to part wth ther hard earned cash in exchange for your product or service once your business opens. This is the first opportunity to see how viable your idea is. Yes it may sound great, and perhaps there is nothing else like it on the market but if people are not prepared to buy it, it either means that the benefits of its use is not clear or the idea needs a re-think.

No surprise then that, when approaching banks, venture capitalists or business angels for funding the information they may ask for would be the results of your market research study. Provide positive proof of client interest at this stage and you will certainly have your foot in the door. Any lack of client interest or lame excuses on why no research had been carried out may prove hard to overcome.

In speaking to a wide range of business funders and representatives if venture capital frms over the last few weeks I was as surprised as they were that so few new businesses have actually done research of their own.

When asking Peter Jones, well known entrepreneur and venture capitalist what the one thing is he would tell a budding entrepreneur, he said: “My most crucial tip of all, is make sure that you research your idea thoroughly! It is amazing how many people try to pitch to me, without having looked into the market sector that they are trying to break into. Sometimes a simple internet search reveals that their idea has been done before, or that their estimation of demand is completely skewed. Look around at your competitors and see how you can offer a better and more competitive service than them.”

Doing a research or viability study prior to starting your business is not something ‘other people’ do. Its something every business owner who wants a real chance to succeed, simply have to do. Who are your clients, what are their interests or challenges, how much will they pay to solve or address these challenges? Just some of the questions that anyone needs to answer before starting a business.

Raising Foreign Finance

With foreign investors becoming more prominent and easily accessible for South African entrepreneurs today more start-ups are looking abroad when raining start-up funding.

Lourie Nel wrote a great Blog post on this recently, you can see
by clicking here