Lighting Small Fires–When do you get investment? #MORGO Diary note 1

NZ Business Superstars Bare all at MORGO

It’s true behind every success there are near failures. Making a go of it in emerging business space is hard yards and certainly not for the faint hearted.

MORGO is an inspirational gathering of NZ Entrepreneurs sharing stories and insights of success and failure. While the real gems are reserved under Chatham House rules of the event there is plenty to share that will not embarrass or incriminate. But I have compiled a small series of blog posts to share some of the MORGO 2010 gems.

Ian Taylor’s (Animation Research) opening remark at MORGO this year was “Bugger the boxing, just pour the concrete”.

When is the right time to get investment?

Grant Ryan from Yike Bike (cool ride by the way) shared the wisdom of “Do as much as you can with no or little money, then once you have the evidence to prove that you have a great business,  get investment and run as fast as you can”. 

Many NZ businesses are great at  doing lots with no or little money, it’s the second step we forget or have no experience with. Many NZ businesses are missing opportunities with lack of cash flow to fund getting the right people on board to achieve their true potential.  

If you want to find out more about how to raise capital call the Escalator Service, which  is a government funded investment ready service.

Steve Bayliss from Air New Zealand shared a great marketing philosophy of  “Lighting many small fires, watch out for the ones that people want to warm themselves with, then pour petrol on them.”

Many people had commented on bold moves Air NZ had made “bare it all campaign”,  “Automated self check in“ and like. But as Ian explained these initiatives all came from simple little trials, that were fuelled with more fuel once they were deemed to be successful. One newspaper ad was what started the bare it all campaign, it was the great positive response that went on to “body painted  safety videos” .  The advice here is not to dissimilar to Grant’s or Ian’s above. (more on this in the next blog post)

Key message here for business owners do not muck around designing and justifying big marketing initiatives, just get on with it, the money and time wasted doing all the thinking and posturing can be better utilised by doing a teaser or pilot trial – JUST DO IT!  Invest quick, and pull out quick if it doesn’t work.

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Grow or Die – M&A the Answer to Export Success

Failure to get critical mass is burning out NZ exporters – adopt a M&A plan  

NZ business people have a great ability to create world-beating products and solutions, yet our track record of building long-term sustainable high growth businesses is poor, why?   We  are “failing to build companies of suitable critical mass to conquer international markets”. 

We are suffering  the curse of our own “DIY – control mentality”. This is getting in the way of our businesses attaining the critical mass required to master the real game on the global stage. The very stuff that helps us get started is getting in the way of long-term sustainability.  

Let’s take the example of a fertile niche industry like Baby products:  

  • The opportunity is prime – a market where globally people are having fewer children, later in life and spending more on the children. Given this backdrop you would think business would boom. But we have numerous small players operating in the baby market in NZ (turnovers sub $5M), all with great innovation selling single products to international distribution chains.  You can just imagine a Sunday night in Auckland Koru lounge; in there we have a bunch of eager solo operators selling non competing products all heading to the same market, talking to the same distributors.
  • These export road warriors are simply going to burn themselves out before they achieve success.

  

Typical day at the office for an exporter

In any other culture I would suggest that these small businesses collaborate. However kiwi business owners do not have the desire  to collaborate. Perhaps it is the fear losing control that gets in the way or the feeling that someone else will screw it up or perhaps just a plain overdose of “not invented here syndrome”.  

Another very evident cultural hang up is failure to talk to competitors or fellow industry players; learn to talk about your business without giving away the “secret sauce”.  

Looking ahead I believe that NZ has yet to feel the true impact of the global financial crisis. In order to turn our economy around we need to adopt a new game plan.  

My advice to business owners is to forget collaboration, adopt a new game plan of Merger and Acquisition (M&A). Use the leverage of the true commitment , that can only be gained by joint ownership. I often quote the bacon and eggs story: The hen is involved, the pigs committed!  

An M&A strategy is just as valid for small business as the corporate giants.  When doing these deals it’s important to focus on the long-term game and huge opportunity cost of not doing the deal. There are plenty of ways to structure deals without the need for cash now.  

Hunt down other aligned small businesses and explore the opportunities for complete integration of your businesses. The synergistic benefits of M&A for SME’s are numerous:  

  • Shared commitment – no longer the need to sweat the hard stuff alone as owners.
  • The volume to justify hiring of specialist skills in the business e.g. channel (distributor) management, Sales etc.
  • With a broader product offering the ability to increase averages sale price with resulting lower cost of sale

Yes the M&A process will take some effort. Do not forget the important process of post deal integration, it will need careful planning and support.  The bottom line is that overall your probability of success will improve along with a M&A strategy.

Documenting and Developing Business Models

The “Business Model Generation” methodology is an essential aid to all business owners and consultants, who want to  document, communicate and brainstorm businesses models in a succinct manner.

The book “Business Model Generation” by Alexander Osterwalder & Yvess Pigneur provides great examples of how to document business models, along with methods to brainstorm innovative changes in business models for existing businesses.

If you like visual aids, then you are going to love the techniques described in this must have book. What struck me, biased as I am toward visual tools, is how their visual models encapsulate the linkage and dependency on the key elements of the business in one page.

The base technique describes uses a common base canvas to capture the core building blocks of your business model: Key Partners (FP), Key Activities (KA), Key Resources (KR), Value Proposition (VP), Customer Relationships (CR), Channels (CH), Customer Segments (CS), Cost Structures (CS)  and Revenue Streams (RS).

A simple example of how this would work for apple’s I-pod is shown below:

Once the base or existing model is created the book then helps you explore the opportunities to explore other alternative business models. Some example business models described in the book include:

  • Unbundling Business Models
  • The long tail
  • Multi sided platforms
  • FREE as business model
  • Open Business Models

Key techniques described include brainstorming with the use of post-it notes against the base canvas, as well as my old chest nut of customer value propositions and what’s in it for customers.

Once you have your model developed with post it notes, you can really go to town and prepare a visual form of your business with pictures.

BTW: Do not be put off by the 72 page book preview available on their web site http://www.businessmodelgeneration.com/.  As a result of my pre-read of the preview I nearly didn’t buy the book. So glad I did purchase, based on a recommendation (thanks Matt McKendry).  My order on amazon was delayed waiting for a reprint, so hopefully they now have plenty in stock.

This book is now going on my must read list for entrepreneurs, order your own copy now

Post Ed note: I now run workshops which include this methdology – www.growthmanagement.co.nz/training

After using this model for some time I have come up with my own variant read more>

6 laws of successful pitching

Gail Geronimos – Achaeus – Australia sings from the same hymn book with her sound words of advice to those pitching for investment.

On Gail’s blog you can download a paper detailing her 6 laws of investment pitching. Check out her blog at www.pitchingtoinvestors.com 

Here is a quick teaser summary: – with my comments

law 1:  Understand the investor  – is this the next, “best” investment for them – “so tell us about the investment not just your product”
law 2:  Have a good business plan –  – “dreams and visions are not enough – show us how you will get there”
law 3: You have 20 seconds to increase my heart rate – “be different its abut standing out from the pack”
law 4: Answer the question“Oh yes I have seen some people dig big holes here (and not money pits either), acknowledge different view points – remember the line between confidence and arrogance”
law 5: Get an Introduction“be credible and it will happen – remember in the investment game every referral reflects the referer don’t expect introductions immediately they are earned”
law 6: Execute/demonstrate how you will build the business

Would Trade Me have sold for $750m under the new Financial Advisers Act?

Is the new proposed financial advisers act is bureaucracy gone wrong? My fear is that this sort of policy is going to slow the economy and scare off the wrong people.

Check out Andrew Simmonds take on the impact of the new act on the legendary and inspiration trademe deal 

http://bit.ly/bZ74az

Pre Money Valuation of >$1M check your logic

Escalator Angel day last week was a great chance to reset the dial for many entrepreneurs, well I hope so.

Here is one investors company valuation model – not to different to the VC model we use in our workshops:

Work out what realistic valuation you expect to get on exit. Hint more trade sales are hit at around US$30M than any other mark (NZ$40M). Then calculate valuation today.

So if you wind the clock back 5 years (to today), based on a 30x return and a exit valuation of $40M, that mean today’s valuation must be $1.5M post money … say $1M pre money plus $500K investment for 33%

You need an independant advocate when raising capital

Finding investor – EASY, 
Getting and investors attention – HARD
Negotiating a good deal – NEEDS SPECIALIST help. 

Here is a great interview with a entrepreneur who was grateful for an independent advisor when raising capital.  Many entrepreneurs end up with the wrong deal because they simply took the first investors offer.

Listen to interview the 
 http://www.youtube.com/succinctstories#p/a/u/0/Ua64VBNXw_s