Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 35: goals and benchmarks and effective development and communication of them 15

Posted in startups, strategy and planning by Timothy Platt on February 12, 2018

This is my 35th posting to a series that addresses the issues of planning for and developing the right business model, and both for initial small business needs and for scalability and capacity to evolve from there (see Business Strategy and Operations – 3 and its Page 4 continuation, postings 499 and loosely following for Parts 1-34.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I began discussing three exit strategies in Part 33, that all hinge on how a new business would enter into and pursue its first real growth phase after establishing itself as consistently profitable enough to perform at least better than break even in balancing its income and expenses, and on an ongoing basis. I have in fact been addressing this subject and these types of next-step development scenarios for a while now in this blog – and with some of that coming out quite recently. So my goal here in this posting is to take a fresh approach to one of those possibilities: one of those scenarios. And I begin doing so by briefly recapping what the three are, in order to put this discussion to come into perspective:

1. A new venture that has at least preliminarily proven itself as viable and as a source of profitability can go public and with all of the organizational change and all of the transparency and reporting requirements that this entails as they begin offering stock shares.
2. A new venture can transition from pursuing an organic growth and development model (as in exit strategy 1, above) but to one in which they seek out and acquire larger individually sourced outside capital investment resources, and particularly from venture capitalists.
3. A new venture, and certainly one that is built around a growth-oriented business model, might build its first bricks and mortar site, in effect as a prototype effort that it would refine with a goal of replication through, for example a franchise system.

I have basically finished my discussion of Scenario 1 here, at least for purposes of this series, in Part 34. And I turn from that, in this next series installment to consider Scenario 2 and venture capital funding in more detail. And I begin that by specifically acknowledging that this is the one scenario of these three that I have already delved into the most in this blog, and by far and certainly when compared to my option 3, franchise system development scenario.

What would I add here that would fundamentally add to what I have already offered on this topic? My goal here is to more fully consider how the founders of a new venture, and one or more venture capitalists might come together to discuss the possibilities of working together, and how those new business founders might best present themselves and their new business in this, in order to both secure venture funding and to do so under the most favorable terms, from their perspective. Ultimately, if a new venture’s founders cannot achieve that, Scenario 2 as listed above can at best only offer them a limited share of what could be its value creating potential.

I begin addressing this set of issues by explicitly noting that finding the right possible outside investors, or being found by them, and coming to a mutually beneficial agreement with them depends on who you know or can come to know, and how effectively you can organize and present your business development pitch. And online social media and the interactive online have made this coming together of at least potentially involved collaborating partners in this, a lot easier.

Let me at least start fleshing the how of that out, with the fundamentals, and by noting that most all of what will follow here, applies to securing angel investment funding too (which I will parenthetically make note of as appropriate):

• Venture capital investors tend to specialize in industries and business sectors that they have hands-on expertise in, as a due diligence measure that increases their chances of backing the right ventures that are more likely to succeed and bring them a return on their investments in them. (And angel investors tend to specialize too, though they are more likely to focus on business models and more specifically on the mission and vision statements and intentions that underlie them, than venture capitalists would.)
• So business founders need to both identify and successfully reach out to these investors, and to the right ones for what they seek to do, and in ways and with messages that would prompt them to want see and hear more from them.
• This means a new business’ founders doing their homework and for determining the levels and types of funding that they would need, and the levels and types of constraints that they would accept as trade-offs for that funding. And crucially importantly, this means their doing their homework to identify what possible funding sources might be interested at least generically in their type of business, categorically.
• Both more traditional broadcast published online resources such as web sites, and more interactive resources such as social media enter in there, with an initial focus for this step in this process, one of finding out before reaching out. See my earlier series: Using Social Media as Crucial Business Analysis Resources (as can be found at Social Networking and Business 2 as postings 217 and loosely following for its Parts 1-7.)
• Know who you seek to work with in this and who is most likely to be most interested in investing in the type of business venture that you are developing and building. Know something of where they have invested in the past, and their terms of agreement and their due diligence requirements as expressed there: the demands that they have made on other business founders for what they would do and how and when, as well as what they offer in return. Is it possible to identify other businesses and their executives and owners who have worked with the investors who you are considering here? Can you contact them and gain insight from them as to their own experience in this, that would help flesh out your own due diligence here?
• And then reach out to the possibilities that you see as holding the greatest promise to you and your business.
• At the same time, selectively develop and offer pitch-oriented information about yourself and about your new venture online too, and with multiple explicit audiences in mind:
• Potential markets and their consumer members, with a goal of developing a basis for viral marketing as well as purchasing-oriented interest, and
• Potential investors included. Post online and interact with others online in this, with a goal of increasing visibility and creating at least a measure of buzz.
• And as part of your basic background research and of your outreach, identify appropriate face to face forums where entrepreneurs meet and pitch to potential investors, and with a goal of gaining insight in how to refine your message as well as with a goal of actually securing funding. If you do seek out an audience of this type, and opportunities to present at this type of forum, practice at what might more likely be a second choice one first. And then take the lessons learned from that to your efforts to present and win over investors at more of a first choice venue of this type. And remember: participation in forums of this type only opens conversations. The real work of marketing and negotiating follows. (These forums often bring multiple types of investors under one roof, with at least some venture capital participation possible but with angel and other investors definitely also included. Know who participates on the other side of the table, and the levels and types of investments that they make, coming out of these events, when they decide to invest from that at all.)
• Note that larger and more established venture capital firms are a lot less likely to appear at these forums unless one or more of their principals have a direct, personal professional relationship with a forum organizer. If you really seek support from one of them, you might consider participation in these forums as valuable practice runs for refining your pitch for when you do reach out to them. But even if this is your up-front goal, keep an open mind to the possibility that a perhaps overall smaller investor might be both interested, and willing to offer you a better deal.
• And very importantly there, remember that a good deal in this does not just mean how much investment funding would be offered, or better terms of investment as far as what these funding sources would demand in return, or how soon. Know what they can and will offer in the way of mentoring and advice, and yes: through board participation in your new venture and through other more direct forms of participation too. Who would they bring with them to the table – to your business’ table, who could help increase your chances of success, too?

I am going to continue on in my next series installment to consider the third scenario from the list that I repeated here towards the top of this posting:

• A new venture, and certainly one that is built around a growth-oriented business model, might build its first bricks and mortar site, in effect as a prototype effort that it would refine with a goal of replication through, for example a franchise system.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too and at its Page 2 continuation.

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