Posts Tagged ‘entrepreneurs’

What Investors Expect in Milestones

By Eleanor Haas

A company’s milestones are turning points in a company’s development that mark stages of growth and wash out a measure of the risk of failure.  Investor criteria for these are excellent metrics for shareholder value.  Investors think about six major milestones for an emerging  B-to-B technology company –  they look for this road map:

  1. Product Market Fit

You know it’s happening when your non- or little-paying beta customers stay with you and tell their colleagues about you. Retention above 90 percent.  High word-of-mouth growth.  It’s proof you’ve met a need – at least for the moment – but you’re far from home free.  You can lose product market fit at any time.  Customers discover alternatives you had overlooked, your performance slips or something new and better pops up – and you’re back to Square 1.

  1. Paying Customers

Once you get, say, five customers to make the leap from free or token payment to paid, you know you’ve started creating value for your business as well as your customers.  You won’t have much market penetration, and that’s your next goal.  If you could get five, you can get 50!  Sell-sell-sell!

  1. Statistical Viability

The next bottom-up goal is sufficient recurring revenue to achieve something like an annual run rate of $1 million – i.e., $83,000 per month.  For this, you’ll need solid pricing and market segment data to achieve a reasonably accurate estimate of market size – plus the marketing, sales, customer support and technology to make it happen.

What’s the return per customer?  How many customers do you need per month?  Per day?  Are there enough customers in your segment for you to land that many?  Do you have a market segment than can support your pricing?  No?  Then, what segment should you target?  What would it take to hit the run rate in a year?

  1. Cash Flow Positive

When:  12-18 months from startup for a technology business

Net income is still negative but your cash balance seems to keep pace with expenses.  This is a major coup – proof of economic viability and an investor requirement for further investment.  It’s a precarious time because the balance shifts dynamically.  You have to keep selling, closing deals making deposits, with just enough of a cash cushion for protection when the balance shifts downward.  Profitability still lies in the future

  1. Capital-Efficient Growth

Once you’re generating $3 million to $6 million in revenue and see that you can sustain positive cash flow, you know you’ve reached capital efficiency.  Investors like this a lot because they can expect you to generate $1 million in recurring revenue for every $1 million they invest.  Of course, your growth still depends on outside capital.

You may well  choose to stay at this stage for a long time – selling equity for cash in order to grow aggressively In a competitive market, you could do this through $100 million in revenue or even more.

  1. Profitable

When: typically, 3-5 years from startup for a growth business

Nirvana!  Net income at long last is positive.  Cash balance keeps growing.  Revenue from existing clients is sufficient to maintain it.  The net income is from new business, and it frees you from needing either investment or loans.  Right on!

 

Brave New Business World!

“Build from what the customer wants to buy, not what you do well.”

“Always work backwards from where you want to be, not forward to where you want to go.”

“Successfully sell your offering before it is finalized – when it’s just barely useful – and get customer feedback.”

“You are in the relationship business. Build what customers think is worth having. The product is merely the method to build marketable relationships with customers.”

Marketing words of wisdom from serial entrepreneur Tony Grass, currently founder & President of a new kind of service that help clients find customers worth having – e-Market Intelligence – at last evening’s NYTECH event on “Long-Range Planning for the Successful Sale of a Company.”

Excellent insights were also provided by moderator, Paul Ellis, principal of the Paul Ellis Law Group, and co-founder of NYTECH, and his knowledgeable panelists, all focused on today’s new new exit environment and the importance of building towards an exit from the company’s early days in order to assure a smooth process when the time comes.

What factors build value in the last couple of years before exit? The two most important:
• Reputation, credentials, brand – the brand will be worth 30% of the exit value.
• Recurring revenue – based on distribution for product sales and on recurring need for services from delivering a unique bottom line advantage to B2B customers, “enjoyable value” to B2C customers.

I was especially struck by just how different today’s exit environment has become.

  • The traditional discounted cash flow (DCF) value is not that useful anymore because of accelerated change. Today a lot of value derives from possibilities a company’s assets can lead to in time – the future use potential.
  • Even the traditional structured auction is no longer typical because the same technology has different uses and values for different buyers. It’s all about the individual value proposition.

And because the environment is getting more and more complex, professional advisors have grown enormously in importance – investments bankers familiar with complexities of a company’s industry as well as accountants and attorneys specialized in specific areas of relevance. (Say goodbye to your husband’s best friend who’s a generalist lawyer!)
To begin at the beginning today means knowing the end game from the outset. As the Cheshire cat said to Alice, where you want to go depends a good deal on where you want to get to. If you don’t know where you’re going, it doesn’t matter which way you go.

What Difference Does it Make?

By Eleanor Haas

What differences does it make?  That’s the first question for every entrepreneur and innovator.  

The country – and the world for that matter – is buzzing with new start ups.  Most of them will fail of course and it won't matter because most really don’t makd a difference for anyone.

How does your product differentiate itself?  That’s what the investor will ask – because being different from other products that serve similar purposes is fundamental to being marketable.

But isn’t it time for new companies and new products to make a difference as well as differentiate?  We live in a time when every product category is already saturated with options.  That’s why branding has become hot.  Creating a distinctive image in the minds of customers is the sine qua non of differentiation.  Now some entrepreneurs and innovators are adding an important new dimension to differentiating.  They are creating new ways to improve the quality of life.

Arshad Chowdhury did that to create Cleargears, a startup that promises to make a difference for employees of any company sufficiently enlightened to deploy it.  What it delivers is a system for real-time performance review by everyone of everyone.   Unlike the traditional process – and that hasn’t changed for years – where performance review occurs in huge chunks once a year from the narrow perspective of people at the top, Clearview delivers ongoing feedback in bite-sized chunks from the 360-degree perspective of everyone you work with – anonymously. The vision of Arshad and his early customers alike is that companies can perform better if they help everyone on the team perform better as well

Sandy Heck, MD, is making a difference with Reach Bionics, a start up that is developing technology to help paraplegics wirelessly control electronic devices by activating vestigial muscles around the ears.  

Michael Huerta and his partners at BrightPath Energy are making a difference by applying their skills in providing capital and deal infrastructure to the renewable energy sector.  One of their first projects is Power.ly, an angel-stage product company that solves cost and logistical problems for remote electricity – such as post-disaster, rural areas, the battlefield, or anywhere the grid is limited – with a truly portable generator that uses solar power. 

When I’m lucky enough to discover start ups like these, I hear Stevie Wonder’s lyrics echo in my head: “And I think to myself, what a wonderful world.”