guide to success: 3 stages
TRANSCRIPT
Introduction
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South PhiladelphiaPenn StateDrexel TechnologyUnivacBurroughsEM&MTRW Inc.RJD Associates, Inc.
◦Mentoring Small Company Presidents◦ Investor – Start-Ups◦Director
What’s a Dick Dadamo?
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“I do not profess to be an expert, but I do profess to be an observer, so listen to my observations after years of experience, and accept there is more than one way to do things. In fact, listen to how I have done things wrong as well as right, if only to avoid the same mistakes. Then, if I have challenged your mindset and encouraged you to consider alternatives, I have accomplished my task…”
Dadamo Creed
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The Beginning
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Vision◦Make sure the team buys in
Mission◦Provide the differentiator to do a plan
Business plan◦Put emphasis on the assumptions
(seldom see a plan with assumptions)ALERT: Law #12 – Do what you do best!
The Foundation
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A visions must be a living thing, and you should eat and sleep it. It should also be the inherent basis in making daily decisions in your life. It is the force that drives the company, creates team building and gives all the employees a purpose for the company.
ALERT: The priority gap between entrepreneurs and investors.
Vision
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Shared visionStorytellerSuperstarsAdvisory boardsALERT: Equal Partnerships Suck!
The Team
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KnowledgeCuriosityFlexibilitySense of responsibilityContinuous learningPASSION
Characteristics for Success – The Individual
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Niche-go after competitors weaknesses
Leaders-go after competitors strengths
Many businesses evolve from recognizing a niche
BRAND – Requires big bucks ($$$)
Marketing Strategy
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The Market --- 1The Need (Pain) --- 5The Match --- 10The Penetration --- 100ALERT: .001% of $4 billion market doesn’t fly
The Start – To Identify – (Importance Factor)
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Executive Summary◦Paragraph 1 – the story
The Business The Market & CompetitionThe ManagementThe FinancialsThe Pay Out and Exit PlanALERT: If not exciting and interesting reader will go no further.
The Plan Structure
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We have this great product/service and we are going to be very successful in this fast growing emerging market, and we are going to give you an opportunity to come along with us and reap the following rewards!
ALERT: Avoid being savior of all the world’s problems
The Story – For The Investor
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Research the industry normsBe careful of overstating
◦Growth rates – no $30 million in year 2◦Profit margins – not greater than best
companies in segment◦Time for acceptance of a new
product/service◦Time to reach profit or breakeven in cash
Law #101 – Everything takes longer than you believe
Avoid Guinness Records (Again)
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REMEMBER:Anything times zero equals
zeroNX=0
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The Race
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Law #1: the goesinnas need to exceed the goesouttas!
Law #2: Profit is muscle, cash is blood!
Cash is King
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Position statement◦How do you want your customers to
perceive your companyPosition
◦How does the customer perceive youAdjust if Required
Tracking Your Image
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The greatest reasons for most companies failures are:1. Poor cash management2. Lack of focus3. Trying to be “all things for all people”4. Lack of proper priorities5. Not willing to make a change
WSJ Article on Venture Capital Failures: 3 in 4 investments fail – do not return investor capital
Failure Reasons – (To Avoid)
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Good management needs to make decisions with◦The information available◦The resources available ◦In the time allowed
Will delay decisions add valueOften delays are to avoid making
decisions
Truism – Decision Philosophy
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Working capital◦ The more successful a company is the more cash is
needed – beyond what yields from profit (big misunderstanding)
Inventory◦ Product – ages and becomes obsolete◦ Hours in place hurt if not sold
Account receivable and accounts payable◦ Try for the shortest period for A/R and longest for
A/PALERT: Danger if A/R payment term longer than A/P payment terms
Hidden Operating Taboos – (Cash Eaters)
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Assets LiabilitiesCash $300,000 A/P $300,000A/R 1,000,000 Equipment Payable 20,000Inventory 600,000 Account Expenses 70,000A. Total Current Assets
$1,900,000 Make Payable 5,000
Fixed Assets B. Total Current Liabilities 395,000
Equip & Furniture 400,000 Debt LC 60,000Depreciation (200,000) Debt Inv. 660,000
Leasehold 50,000 Total Liability $1,115,000
Amortization (4,000) Paid in Capital 1,200,000Goodwill 900,000 Retained Earnings 731,000
Total Assets 3,046,000
Total Liabilities + Equity
$3,046,000
Balance Sheet
Working Capital = Total A – B Total Current Assets 23
Working capital is not a rationWorking capital equals current assets
minus current liabilitiesIt is hard to grow if not sufficient
working capital◦Cannot invest in new expenses if only
covering the operation costsCash conversions cycle is a measure of
time working capital converted to cash
Working Capital
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Balance Sheet Year One Year Two Delta
Accounts Receivable $200,000 $400,000 $200,000
Inventory $150,000 $300,000 $150,000Accounts Payable $75,000 $150,000 $75,000
Working Capital $275,000 $550,000 $275,000 (increase)
Sales $1,200,000 $2,400,000Profit @ 8% $96,000 $192,000*
Working Capital – Example
Company wants to double revenue.*During the year and assuming all available cash.A service company can gain with less inventory.ALERT: Working capital needs can’t be derived from P&L statements 25
Organize to track and control◦ Cash flow◦ Use of resources◦ Burn rate◦ Sales expectations◦ Revenue and profit◦ Set milestones and continually review
ALERT:Law #10: Plans are born to be changedLaw #3: A staff that stays together cannot grow togetherLaw #60: Reports are the vital signs of a company
Going Forward
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Plan for advisors to help – look for people for counseling with disciplines in◦ Financials◦ Technical◦ Marketing◦ Spiritual
Look for advisory boards – Personnel “White Hairs” and “No Hairs”
Law #100: Do not mistake advice for counseling!ALERT: Meeting milestones in your plan will increase the probability for another financial round when and if needed
Forward Thinking
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Avoid divergence from the plan – too soon
Concentrate on getting the first sale◦Getting customer activity helps (Beta
Sites)Prioritize assumptions and keep
reviewing
Focus! Focus! Focus!
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The Next Step/ Big Capital
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Penetration (sales) before major investorsProven conceptEmerging marketDisruptive technologyDifferentiator advantageCredibility, trust, comfortALERT: Start any financial projection with “month 1” after funds in – avoid putting dates on
The Need – for Next Round of Financing
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Investors look for credibility◦Management depth◦Been there, done that◦Board of directors◦Board of advisors◦Coaches/Mentors/Services◦Open Mind/Good ListenerALERT: Do not fence (argue) with an investor
The Team
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Research the industry normsBe careful overstating
◦ Growth rates – no $30 million in year 2 Examples:
Google – 20% IBM: 15%
◦ Profit margins – not greater than best companies in segment
◦ The acceptance of a time to new product/service◦ The time to profit or breakeven cash
ALERT: Law #101 – Everything takes longer than you may believe
Avoid Guinness Records
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Always present the need first◦To get the investor’s attention
Personal investment◦Like to see as measure of believing
Make sure of return◦Go out far enough
Make them comfortableALERT: Credibility Breeds Trust
◦Trust breeds comfort◦Comfort brings investments
The Tips
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How to use funds◦ If asked what would you do with $500,000◦ Be fast on your feet for credible answer
Your motives must be financial◦ Investors won’t relate otherwise
Get enough the first time◦ Will pay dearly if fall $ short◦ Use referrals
Story teller◦ Competing against several
Make them believe◦ They want to
Make it for growth◦ Only way to get return
The Tips (cont.)
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No Vision◦ “You must believe first, to get me to believe”
Opportunity and NOT a business◦ Many ideas aren’t supportive of a vision
No plan exists/NO exit plan exists◦ Hard to get anyone’s attention
Market penetration not convincing◦ Not enough to have a big market i.e. VOD
No proprietary advantages◦ Makes you one of the bunch
Valuation not credibleALERT: Don’t say “the Valuation” can be negotiated – it weakens story
11 Reasons Why an Investor WON’T Buy a Business plan
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Too ambitious i.e. 12 million in first year ◦Kills credibility
Bank borrowing is naïve◦Credibility problem again
Market growth potential insufficient◦Can’t support a business
Payoff for investor not good enough◦All investors have some criteria
Team is weak◦Usually investing in people
11 Reasons Why an Investor WON’T Buy a Business plan (cont.)
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Market! Market! Market!Team! Team! Team!Comfort! Comfort! Comfort!
The Investor Attitude
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Advisory boardsWilling to give up CEO roleAccepting mentors/coachesWilling to give up fair amount of
equityBetter understanding of managing
business
Positive Trends
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First question to answer:◦Is it a business or an opportunity?
Believe in your dreamConvert to an investmentMake them believe
Summary
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Appendix
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1. How much cash are you asking for to get to success?
2. What can you do with the present request?3. How much money has been raised so far4. How much has have you put in?5. What will be the sales channel?6. Is your market strategy based on market studies?7. What is the valuation and how did you get there?8. Why did you pick this market?9. What is your value equation?10. What is your secret sauce?
Questions Often Asked by Investors
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11. Do you have any IP?12. How much money are you asking for and what will
you do with it?13. What is your exit plan?14. What might the return on investment be?15. How long will it take you to breakeven cash wise?16. What is your marketing strategy?17. How long has the team been together?18. Who will be the direct competition?ALERT: A sophisticated investor will do a due diligence before making an investment that will include validating any claim you make
Questions Often Asked by Investors (cont.)
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Customer serviceOpen architectThe InternetGlobalizationOutsourcingBetter, Faster,
CheaperSocial Networks
Quicker time to market
Rapidly changing technology
Customer is kingQualitySmaller funscustomization
The Changing Environment
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Do it right the first time Put customer satisfaction high on the list Everyone is a customer service person There are customers inside as well as outside The customer is right until proven wrong Quality is everyone’s business Honesty is the norm Fair pay for a fair day’s work There will be no “not invented here” (NIH) factor Sexual harassment will not be tolerated Separate performance review from pay review Provide a challenging environment for people to grow
Truism – Values
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MINDSET – the proper combination of:◦Perception◦Perspective◦Priority◦And Planning
Mindset – The Key to Success
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If you can’t track or measure it, it isn’t a good goal!
Law
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Everything Takes Longer Than You Think
Truism
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“Don’t fix it if it isn’t Broke….Except…
True or False
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I’ll never pay a finance company 30% interest for a loan!
Finance - Myth
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My pricing formula will guarantee a 20% profit margin
Finance - Myth
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My gross margin percentage is high enough to guarantee a profit for the year
Finance – Myth
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I’ll be able to get an accounts receivable loan whenever I need it
Finance – Myth
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I will be able to finance the growth from my profit
Finance - Myth
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Do we really speak English?◦ Man you are in deep yogurt and you are up the creek without a paddle◦ Do I need an instant replay to get the message across?◦ Last month you went 0 for 4 and if you don’t start hitting, I’ll be all over your
ass when I return◦ You better get a point guard out on the line, and go to a full court press◦ We need an all out blitz◦ You may luck out this week as it is a slam dunk◦ We may still be in trouble for the month even though the fat lady hasn’t sung
yet◦ Don’t choke even if you haven’t got a no cut contract◦ We may all be in the same boat but I am not going down with your Titanic◦ In fact I have an ace in the hole because I got in the lottery round◦ You better hit the bomb, so go for the hail Mary as we are passed the two
minute warning, but don’t think you can see the forest for the trees◦ My heart bleeds for you but we’re not going back to square one. ◦ You have me climbing the walls and I will be in a bind if you don’t cut the
Mustard◦ So this is the acid test and you better come up with a hat trick and go deep or
I will Bobbitize you.
Communication
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Losers do their best!Winners outdo their best!
Truism
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