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Funding For Your Business – Worth More Than Money!

Cultivate relationships with established early stage financing sources, through Angel Investors, Capital Finders, or Venture Capitalist. Even if you never raise a dime from any of these sources, as an emerging entrepreneur they are worth to you their weight in gold. In fact, they have something more valuable to you than mere capital. It’s their deal inventory. So what’s valuable about deal inventory?

What’s it worth to you to have first knowledge of the newest and soon to be hottest applications in your field? Could that knowledge give you a huge jump on your competition? Could some new technology enable you to do something no other competitor can now do? Could access to this technology enable you to introduce a new product or service within a time window before anyone else can do it?

I take time every few months to talk with those individuals that I have come to know over the years who have been prolific at either financing or finding financing for companies pioneering new technologies. For the price of a phone call and 30 minutes or so of mutual updating on our current projects, I am consistently introduced to young companies that have developed a technology that can enable me to eclipse my competition.

This past week, I was introduced to a new company with a revolutionary way to digitally color and pattern fabric. They have one name brand account for whom they produce in volume and are hungry for more business. Because of the way they imprint the fabric and fuse dye with material, a clothing designer can economically create clothing designs that would be utterly cost prohibitive under any other existing method.

Imagine the reception by buyers for major department stores when I show them at the next trade show a clothing line priced 40% less than what comparable style and quality would normally cost. What an opportunity to introduce a new line of clothing from a new designer!

And, what if we’re too successful? How do we finance production? We take orders at the trade show for delivery several months later. We’ve lined up the manufacturer ahead of time as well as the lender, a factor and even some small investors. Once we have the orders in hand, everyone is happy and ready to play their part with minimum if any risk.

What’s My Business Worth?

Probably one of the most common questions business owners ask is “What is my business worth?”. Perhaps you want to do some retirement planning, succession planning, divorce planning, estate planning, etc.. This simple question has no simple answer, however. Valuations differ based on their purpose. For instance, the courts and accountants focus on a “Fair Market Value” without compulsion. For the sale of a business, brokers and valuation experts create a “Most Probable Selling Price” that takes the current market conditions into consideration. Let’s assume we’re looking to sell our business, and we want a valuation.

There are three main approaches to determining a most probable selling price:

1) Market Approach
2) Income Approach
3) Asset Approach

The market approach is based on the comparison of “similar” businesses that have sold when compared to ours, then projecting a value for your business. The principle of substitution would suggest that this is a reasonable way to come up with a valuation. There are several problems, such as comparing businesses in different parts of the country, or even state that might make this comparison inaccurate since local economic conditions vary. Also, comparing companies of significantly different sizes can skew the results since buyers typically pay higher multiples for larger companies.

The income approach looks at a view that presumes that a business is a cash generation machine, and you should compare your business to any other investment that generates cash. The big difference here is that small business is risky, so an accommodation for risk needs to be built in. A key part of the process is to identify the cash coming from the business through a process known as recasting. Recasting will take tax returns or financial reports and estimate the cash flow of the business that benefits the owner. This is often referred to as “Sellers Discretionary Cash Flow” (SDCF) or “Seller’s Discretionary Earnings” (SDE), or something similar. This cash flow number is then multiplied by industry specific ratios to estimate a value. Other variations on this method include a capitalization rate applied to the SDCF or looking forward and estimating the SDCF for several years and calculating the net present value of that cash flow (what the sum of future benefits is worth today).

Finally, the asset approach depends on the fair market value of the company’s assets. This is sometimes called the cost approach, since it deals with the physical assets of the business, and doesn’t provide much value for goodwill. In most businesses, goodwill is the majority of the value of the business. This approach is most useful for unprofitable businesses or businesses that have a significant investment in equipment or other assets.

Ultimately, the market determines the price of the business. Because every business is unique, expect negotiation on the price. Buyers buy the whole package, it’s not just price, but the perceived risk of the business, the prestige of owning that business, the volatility of earnings, strength of the industry, the local economy and a host of other factors not easily quantified. The opinion of value is the start of the discussion on what the business will actually sell for. You should get some help when its time to price your business.

Startup Storytelling – Create a Business Worth Talking About, and Tell Stories About Your Startup

This is one way to approach the whole of business startup, I think. In fact, it is one way of considering your value proposition. If your business is not worth talking about, then you should probably not start at all. But your business is worth talking about. Avoid second-hand stories, because yours must differentiate you.

They have to be good stories and have a purposeful message. In these days of information overload, a good story will always win over dry ‘corporate speak’ or ‘marketing hype’. If you are starting a business, your experience is a treasure trove of stories. Do not be shy. You have learned many lessons and can make them useful for others.

Entrepreneurs Stories to Attract Attention

Entrepreneurs need stories badly. If you contact someone and say, “I’m calling from the Googleplex and I..,”you will probably get attention. If you are making a presentation and you are introduced by the chair saying, “Will is from Goldman Sachs..,” your audience is likely to be very attentive.

But neither of these apply to you. And you need to attract attention fast, however good your (unknown) product or service.

Injecting some humor is good, unless like me you risk forgetting the punch line. The story need not be long and should follow the advice of Chip and Dan Heath (authors of Made to Stick) who say, “For an idea to stick, for it to be useful and lasting, it’s got to make the audience:

  • Pay attention
  • Understand and remember it
  • Agree/Believe
  • Care
  • Be able to act on it.”

Reveal Who You Are

Your story will reveal who you are implicitly, without having to churn out out your resume, or hand out your business plan. The story will of course be true and even if you are telling a story against yourself or one that demonstrates a lesson you have learned, make it positive in tone.

That does not mean that stories need to be embellished and there is nothing wrong with revealing your emotions. It could be that the lesson learned was a hard one. Your brand certainly needs its story and it should not be defensive. It should be narrative. “It’s about communicating who you, as a business, are-discovering your identity, not inventing a new one willy-nilly. Positioning helps a company become what it is, not something it’s not,” says Stephen Dunning, author of The Leader’s Guide to Storytelling.

Rehearse Your Story

Storytelling may sound easy. It is not, and you need to prepare yourself, just like you would for any presentation. Craig Wortmann, author of What’s Your Story? has an excellent piece of advice, “Approach your presentations as if your clients or people will not be allowed to take notes or refer to any documentation.”

Craig’s storytelling mnemonic, IGNITE, is worth you noting for creating your own stories-make them:

  • Intentional
  • Genuine
  • Natural
  • Improvisational
  • Total
  • Engaging.

Find a storytelling buddy and rehearse your story together. If you do not like that idea, record it and listen to it on your own. Better still record it on your webcam and play it back to review how it goes. If if you have no webcam, tell it to the bathroom mirror! A live story telling will be different because you will get feedback from the audience, but a rehearsal will iron out obvious shortcomings.

Where the Subject Sources Are

The sources of subjects for your storytelling are most effective if they come from your own experience. But they can also be:

  • second-hand; I told a story to a trainer friend and he loved it enough to ask if he could use it and he has already told it with more panache than my original, but then he is an excellent storyteller;
  • from your company experience; successes of employees, customer experiences, neat problem solutions, examples of creativity;
  • from articles that quote experience or stories recounted in books; you will find Patagonia founder, Yvon Chouinard’s book Let My People Go Surfing is full of them;
  • presentations of stories retold by you in your own context, if they make strong and memorable accounts that are pertinent.

A storytelling story

A former colleague of mine, George, whose storytelling is a big contributor to his business success, always made me smile when we were on gigs together. He carries a battered old leather briefcase with him. It is so old and worn that the handle is long gone. When he arrives at the front, he needs a large table by the lectern, on which he can spread out a whole bunch of notes and papers before he starts talking. He is a business school professor and this underlines his professorial status.

What the audience does not know is that, while he delivers his presentation as if he had never done so before and does occasionally refer to the papers on the table, it is a presentation he has made many times before, with the same old notes from the same old briefcase. But this ritual is one of many reasons why he makes the presentation a winner every time. He tells the stories like it is the first time they have been aired.