How to succeed with start-ups

[fanocks2003]

<div class="bbWrapper">How do you succeed with start-ups? Anyone?<br /> <br /> One way of raising the odds of succeeding is by doing it this way (this way do not exclude the risk of market declines. Market declines is just a natural occurence in business as you know):<br /> <br /> 1) Find a demand or want to fill.<br /> 2) Get that demand/want on paper (signed purchase agreements is one way. The best way as I&#039;m concerned).<br /> 3) Start a company.<br /> 4) Find a CEO that would be the best candidate to run your company. Have CEO on stand-by.<br /> 5) Find investor/s to finance 12-24 months of operations (including owners salary).<br /> 6) Hire the CEO and let him &quot;rock on&quot; (Sit on the Board of Directors and &quot;direct&quot; the CEO).<br /> <br /> I usually structure start-ups like this (in more than 80% of cases. It depends on the kind of business you are starting). I like those purchase agreements because they make it possible for me to avoid investing actual cash in my projects<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />. The money I already have can be used on fun things instead. Like travel and party<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />.<br /> <br /> The main idea here is to use non of your own money if possible. The second thing is too &quot;build up value&quot; in your project as much as you can, before bringing in investors. This is due to two main reasons: <br /> <br /> 1) You will prove the concept and it will be easier to sell the idea to investors.<br /> 2) It will give you a greater chance of holding a bigger share of the company ownership (see calculations for pre-money and post-money valuations below).<br /> <br /> Pre-Money Valuation:<br /> Question to ask: How much is the company valued at BEFORE investors put in cash in this project? <br /> <br /> Post-Money Valuation:<br /> Question to ask: What will this company be worth AFTER investors has put cash into this project?<br /> -----------------------<br /> Pre-Money Valuation example:<br /> <br /> You start a company and you have built up a contractual value of $100,000. You own 100% of the shares and votes. Then comes an investor who wants to invest $250,000 in your company. How much will this company be valued at after this investor has invested? The company will be valued at: $100,000 + $250,000 = $350,000. How much will you have in ownership after this transaction and how much will the investor have in ownership? You will have: $100,000 / $350,000 = 28,57% of capital and votes. The investor will have $250,000 / $350,000 = 71,42% of capital and votes. The investor will run the show.<br /> <br /> Post-Money Valuation example:<br /> <br /> Post-Money Valuation is what the company is worth after investment from investor/s. In the case above the Pre-Money Valuation was $100,000, but as soon as the investor invested his money the value went up to $350,000. Post-Money is the after math so to speak.<br /> <br /> One more exmple for clarification:<br /> <br /> Company starts: Pre-Money Valuation = $0<br /> Company get a total capital injection of $100,000: Post-Money Valuation = $0 + $100,000 = $100,000.<br /> <br /> Pretty simple when you get the hang of it. Necessary to know this stuff if you are a start-up entrepreneur. If you know this, you will have more smooth discussions with investors<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />. You will speak the same language as they prefer to say.<br /> <br /> ----<br /> <br /> ¤As an entrepreneur you should always aim at building up as much value you can before bringing on-board investors. Get that value so high that you can see the stars and at the same time, find ways of needing as little money as possible to fund operations in the beginning. That way you get to keep more of the cake and still get the business up and running.<br /> <br /> ¤¤Remember, 1% of ownership can mean a lot of cash when the company do make a lot of cashflow. Be smart with the math.<br /> <br /> ¤¤¤Never compromise on hiring a CEO. CEO&#039;s with business education in the subject is, as I said, &quot;educated&quot;. They know the formalities of running a business. Entrepreneurs are not always the best managers. Some are, most aren&#039;t. There is a reason they are entrepreneurs in the first place. If you don&#039;t have the cash to fund the CEO, find investors who have and use the &quot;built up&quot; value as a way of preventing the doom and gloom of your ownership.<br /> <br /> Try this out. Only the &quot;testers&quot; have a chance.</div>

 

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[Kung Fu Steve]

<div class="bbWrapper">If I could give you some more rep right now I would! Great post.<br /> <br /> Maybe I could add something about an exit strategy. mtnman and I were talking briefly about how my business lacks a solid exit strategy. (Half because I don&#039;t want to leave the business, probably EVER :smxB<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" /> But it has been said that most people don&#039;t think about an exit strategy, they just think about getting in! (what if the building is on fire, might kinda suck if you can get in and not back out?)<br /> <br /> The difference between entrepreneurs and CEOS:<br /> <br /> Entrepreneurs HAVE to think on their own, we hate working for people (I HATE it.. and hate&#039;s a strong word... but not strong enough) If you hire an entrepreneur to run your business you are going to have issues... many of them...<br /> <br /> CEOs want a job and don&#039;t want to think. They just run the systems that are in place. Procedure, procedure, procedure. Cut costs, increase profit, etc. I think most of the world is like this. Correct me if I&#039;m wrong but I don&#039;t think anyone on the Fastlane here has the mentality of a CEO. More along the lines of an Entrepreneur.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="Kung Fu Steve" data-source="post: 56362" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56362" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56362">Kung Fu Steve said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> If I could give you some more rep right now I would! Great post.<br /> <br /> Maybe I could add something about an exit strategy. mtnman and I were talking briefly about how my business lacks a solid exit strategy. (Half because I don&#039;t want to leave the business, probably EVER :smxB<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" /> But it has been said that most people don&#039;t think about an exit strategy, they just think about getting in! (what if the building is on fire, might kinda suck if you can get in and not back out?)<br /> <br /> The difference between entrepreneurs and CEOS:<br /> <br /> Entrepreneurs HAVE to think on their own, we hate working for people (I HATE it.. and hate&#039;s a strong word... but not strong enough) If you hire an entrepreneur to run your business you are going to have issues... many of them...<br /> <br /> CEOs want a job and don&#039;t want to think. They just run the systems that are in place. Procedure, procedure, procedure. Cut costs, increase profit, etc. I think most of the world is like this. Correct me if I&#039;m wrong but I don&#039;t think anyone on the Fastlane here has the mentality of a CEO. More along the lines of an Entrepreneur. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Exit strategies should be in place from the get-go. Totally agree. There is so many types of exits you can make: You can hold on forever (believe it or not, but it is a strategy), sell part of your business during different points in time, sell of the entire business in a given time period (say 3 years from formation) etc. Many ways. These are just 3 of the main strategies used.</div>

 

[HenkHolland]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="fanocks2003" data-source="post: 56350" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56350" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56350">fanocks2003 said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> Pre-Money Valuation example:<br /> <br /> You start a company and you have built up a contractual value of $100,000. You own 100% of the shares and votes. Then comes an investor who wants to invest $250,000 in your company. How much will this company be valued at after this investor has invested? The company will be valued at: $100,000 + $250,000 = $350,000. How much will you have in ownership after this transaction and how much will the investor have in ownership? You will have: $100,000 / $350,000 = 28,57% of capital and votes. The investor will have $250,000 / $350,000 = 71,42% of capital and votes. The investor will run the show. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Fanocks good post. Speed+<br /> <br /> Just one remark based on your pre-money valuation example.<br /> In your example you treat the money that the investor puts up as if it all translates into share capital.<br /> More realistic would be to negotiate with the investor and, depending on the uniqueness of your concept, try to limit his stake to somewhere between 25 and 49% of the shares. Depending on the total share capital of the company a large part of the investor&#039;s money will normally be a (preferably subordinated) loan to the company.<br /> That&#039;s what I do with start-ups.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="JScott" data-source="post: 56435" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56435" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56435">JScott said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> And using your equations for determining equity stake:<br /> <br /> Owner&#039;s Equity: $0 / $100,000 = 0%<br /> <br /> Investor&#039;s Equity: $100,000 / $100,000 = 100%<br /> <br /> So, in this case, you retain none of your own company because the total capital investment has come from outside sources. You&#039;re now working for free (or just a salary).<br /> <br /> In the real world, equity stake is generated not just from cash infusion, but from a number of other sources as well... </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Yes, that is an obvious thing, no (refering to the math example)? <br /> <br /> I know that the &quot;real&quot; world is more complex, you can inject real estate or any other assets as well. Even know-how if you can come to grips on how much someones know-how is worth<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />. You can fleece a cat many ways. But for those who need to understand the basics, cash infusion might be a great step to start the discussion at, yes? No?</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="HenkHolland" data-source="post: 56434" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56434" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56434">HenkHolland said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> Fanocks good post. Speed+<br /> <br /> Just one remark based on your pre-money valuation example.<br /> In your example you treat the money that the investor puts up as if it all translates into share capital.<br /> More realistic would be to negotiate with the investor and, depending on the uniqueness of your concept, try to limit his stake to somewhere between 25 and 49% of the shares. Depending on the total share capital of the company a large part of the investor&#039;s money will normally be a (preferably subordinated) loan to the company.<br /> That&#039;s what I do with start-ups. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> There are many ways to fleece a cat. I agree that you should retain 51% of voting rights in the company you create in order to control the company.</div>

 

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[Peter2]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="fanocks2003" data-source="post: 56459" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56459" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56459">fanocks2003 said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> I agree that you should retain 51% of voting rights in the company you create in order to control the company. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote> <br /> There is a big problem with that thinking. It&#039;s next to impossible to find an investor that will invest in your company without getting a controlling interest.<br /> <br /> That&#039;s OK, because 30% of a $500 million company is better than 100% of a $5 million company.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="Peter2" data-source="post: 56493" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56493" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56493">Peter2 said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> There is a big problem with that thinking. It&#039;s next to impossible to find an investor that will invest in your company without getting a controlling interest.<br /> <br /> That&#039;s OK, because 30% of a $500 million company is better than 100% of a $5 million company. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Well, don&#039;t bring on board investors then. Finance with a bank as much as you can.<br /> <br /> This is how the math works. I have not invented it<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />. And no, it is not impossible, but may be hard. That is why you need to have a proven concept, brand and team. That is what investors invest in. I have seen investors invest in projects that have neither of those 3 main subjects fullfilled. So, impossible? No.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="JScott" data-source="post: 56501" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56501" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56501">JScott said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> In my experience, that doesn&#039;t happen in the real world. Anyone investing a significant portion of the total capital will want control. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> You clearly miss the point here. Ever heard about &quot;sweet equity&quot;? If you, as the entrepreneur build up value in the form of secured purchase agreements (essentially future orders that makes this business, a business) then you have invested your time and also the actual time value you should have recieved for your time. If you are paid $20 an hour at a regular job and you work for FREE when building up the value in this company of yours. Say you work 100 hours to bring on board as many purchase orders as you see being enough to introduce it to a CEO and then to an investor. If you invest 100 hours, you have essentially invested $4000 of pure time and energy and sweat.<br /> <br /> The Almighty Dollar is really worth less in the total equation as I see it. Why? Well, this entrepreneur is essentially the one creating the opportunity in the first place. This entrepreneur is the one who is securing the 3 important pillars to make something out of nothing (the three pillars being proven concept, proven brand and a proven team). <br /> <br /> I still see investors as the &quot;guest&quot; in the equation and always will (they are essentially &quot;lucky&quot; to be a part of the opportunity in the first place). Investors money do fund the operations if the entrepreneur can&#039;t bring money on his own. But you gotta remember, there is no shortage of investors. There is a big shortage of smart entrepreneurs out there. If the investor/s don&#039;t like the math, their problem. Not the entrepeneurs. The math works like it works. If the investors don&#039;t like the start-up math of pre and post-money valuation, then change the rules<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />. Don&#039;t whine about it.<br /> <br /> The reality is much more flexible than you think, JScott. You can make a deal in million ways. The ones presented above is the most normal ones. At least as far as I am concerned.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="JScott" data-source="post: 56614" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56614" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56614">JScott said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> Apparently you deal with different types of investors than I do... </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Yes, I am<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />. Just because you have the liquid cash does not mean you, as the investor, are entitled to the lions share of the shares per automatic. It depends on the pre-value and how much you as the investor, invest. The correlation between those two things decides how much the investor are entitled too. <br /> <br /> I have never, ever heard about an investor getting 51% of the voting rights in a company just because he/she is the only one putting up liquid cash. Never. <br /> <br /> JScott, correct me if I am assuming wrong here, but say, if the entrepreneur puts in his house, his two duplex holdings and anything else he has of value that is not liquid assets and these assets are fairly valued at $1 Million. Then the start-up company is worth $1 Million.<br /> <br /> Then say that the entrepreneur finds an investor who is willing to invest $10,000 in liquid cash. Are you then saying this investor is entitled to own 51% of the voting rights in this start-up company just because he has liquid cash and the entrepreneur don&#039;t? I am just trying to get a grip around your argument, because I am well aware that I just don&#039;t understand your math just yet. Please, explain it to me. What have I missed?</div>

 

[HenkHolland]

<div class="bbWrapper">I have seen both situations and it&#039;s all a matter of negotiation. In general I feel that an investor, even if he puts the majority of the capital is wise if he leaves the entrepnreneur with the majority of the shares. The entrepreneur has to create the success. Don&#039;t reduce him to an employee by claiming to many shares. Your success as an investor will follow. <br /> <br /> As to control, you can have the control over a company without owning the majority of the shares. I have a controlling interest in a company in which I own only 30% of the shares. However, I own a few priority shares which give me the control.</div>

 

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[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="JScott" data-source="post: 56620" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56620" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56620">JScott said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> In almost all situations I know of (and as I&#039;ve said before, my experience is mostly limited to high tech venture capital, so it may not be relevant), <b>if an investor injects a substantial portion of the liquid assets, he will want to have a controlling interest.</b> </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Then the logical question is: Why? Why should the investor own the controlling stake if the entrepreneur is risking more value than the investor risks in liquid cash? <br /> <br /> In my example above (the last one I brought up), the entrepreneur is sacrificing 100 times more than the investor does. But still the investor is entitled to own the controlling stake of the company (a controlling stake can be as low as 5-11%, but ultimate control is when you have 51% of the voting rights in a venture. Then you can run the place the way you want it) because he is the only one putting in liquid assets?<br /> <br /> In the example above, with the math of pre an post-money valuation, the investor is entitled to no more than $10,000 + $1,000,000 = $1,010,000; $10,000 / $1,010,000 = 0,99% of capital and votes (if we aim at having one vote per one share of capital). <br /> <br /> In this example it makes no logical sense, or financial sense for that matter, to give the investor even 10% of capital and votes. Giving the investor 51% would really be a lunatic action. You need to whey all participants contributions together and then calculate the ownership. Otherwise you screw people over, that is not nice. Not a great way of starting a happy partnership<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="HenkHolland" data-source="post: 56626" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56626" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56626">HenkHolland said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> I have seen both situations and it&#039;s all a matter of negotiation. In general I feel that an investor, even if he puts the majority of the capital is wise if he leaves the entrepnreneur with the majority of the shares. The entrepreneur has to create the success. Don&#039;t reduce him to an employee by claiming to many shares. Your success as an investor will follow. <br /> <br /> As to control, you can have the control over a company without owning the majority of the shares. I have a controlling interest in a company in which I own only 30% of the shares. However, I own a few priority shares which give me the control. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> There are many ways of structuring capital and votes. But when it comes to how much capital ownership each participant should have the math is pretty clear.<br /> <br /> Personally, I dislike priority shares. Everyone should play on the same terms (voting like and capital like). Why? Why should someone with more value on stake give up the control to someone who might have put up only a tiny fraction of the company worth? Are you so hungry for cash that you are willing to sacrifice control over the assets you have contributed with? If you are, please think the deal through before shaking hands with the investor. Because, if you have not done a bad deal before that moment, you will do one after that hand shake.<br /> <br /> Same terms or no deal. Simple thing.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="JScott" data-source="post: 56661" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=56661" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-56661">JScott said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> Somehow your example (the I&#039;ve been referring to for the past several posts) went from this:<br /> <br /> <br /> <br /> To this:<br /> <br /> <br /> <br /> I don&#039;t know where or why you changed the scenario, but those are completely different situations and bare no relation to one another. In the case where an investor is putting in relatively little capital compared to the overall valuation of the company, certainly he/she shouldn&#039;t have controlling interests.<br /> <br /> I was referring to your original scenario where the entire cash injection is coming from the investor -- in that case, the investor should certainly want a controlling interest.<br /> <br /> By the way, a controlling interest does not mean that the investor has say in day-to-day decisions of the company (I think this may be where you are confused). A controlling interest only means that the investor has the power to make the large-scale (i.e., &quot;voting&quot;) decisions of the company, such as replacing you as CEO. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Yes, in the first example with the 100% capital injection that is the case (100% controlling interest of voting rights and capital, because there is nothing coming from the entrepreneur). Totally agree. Though I came to understand your view as if the investor always had the right to have controlling interest no matter what.<br /> <br /> I see that I misread your point of view and I beg you pardon for that. Thank you for explaining it<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />.</div>

 

[servicefly]

<div class="bbWrapper">Rather than pick apart the original post I would like to inject one element to startup success (not growth success) that has not been mentioned yet.<br /> <br /> GET YOUR CUSTOMERS FIRST!<br /> <br /> This is very important in ensuring anyones startup success. It is also the hardest part. I don&#039;t just mean recognizing a need and a group that wants to fill the need, I mean find willing buyers 1st. It is possible. An example from my past:<br /> <br /> I started an online service company to insurance sales people. (not leads per se). I found 3 companies (brokerages) with over 100 sales people each willing to sign up with our service immediately once we showed them the service working. After the 1st month we grossed $2,500 per day in subscription revenue. It took 3 meetings to get the customers.<br /> <br /> Getting the 3 meetings took 8 months! It is hard work, but it can prevent the need for investment capital.</div>

 

[australianinvestor]

<div class="bbWrapper">(Preface: I haven&#039;t had time to read all responses, so sorry if I re-hash stuff).<br /> <br /> This thread is an example of why this forum kicks the arse/a$$ of others, RK&#039;s included. <br /> <br /> <br /> I agree with a lot of what Fanocks wrote. However, I would value the company at the investment stage based on the present value of future cash flows, proven by the contracts already held, and definitely not limit it to book value. Otherwise, you&#039;re really assuming you are selling a portion of your current assets to the investor, when he/she is really buying the future value of the cash flow that is expected to come in. The risk can be factored in using an appropriate discount rate, but do not sell your company too cheaply by using a book value method to value it.<br /> <br /> I love the description of the method to start the company. During my MBA, I did an entrepreneurship class with a guy who was a total f-wit (excuse the pseudo-French) and preached some textbook idea of creating a detailed business plan and shopping it around to investors until you find one willing to do it. Sad part is, he&#039;s also a VC, and didn&#039;t even defend his position when I challenged him with my method, very similar to Fanocks&#039; method.</div>

 

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[australianinvestor]

<div class="bbWrapper">Example of getting customers first:<br /> <br /> I am developing a boutique resort (that makes two of us here, apparently!) in the Pacific. It doesn&#039;t even exist beyond some initial planning, and we haven&#039;t bought the island yet. However, we have two bookings.<br /> <br /> Sweet.<br /> <br /> Sir Richard Branson did a similar thing when he started: he advertised records (you know, music on black plastic disks) via mail order, received money with orders in the mail, took the money to his supplier, bought the records, mailed them back and kept the difference.<br /> <br /> For those just starting, look into drop-shipping. You can build a website selling stuff you don&#039;t own, but can order once someone pays you. The supplier then delivers it directly to your customer. You keep the difference between what you charge the customer and what the supplier charges you. Advantage: you get the larger amount before you are charged the smaller amount. <img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":-)" title="Smile :-)" data-shortname=":-)" /></div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="servicefly" data-source="post: 64360" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=64360" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-64360">servicefly said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> Rather than pick apart the original post I would like to inject one element to startup success (not growth success) that has not been mentioned yet.<br /> <br /> GET YOUR CUSTOMERS FIRST!<br /> <br /> This is very important in ensuring anyones startup success. It is also the hardest part. I don&#039;t just mean recognizing a need and a group that wants to fill the need, I mean find willing buyers 1st. It is possible. An example from my past:<br /> <br /> I started an online service company to insurance sales people. (not leads per se). I found 3 companies (brokerages) with over 100 sales people each willing to sign up with our service immediately once we showed them the service working. After the 1st month we grossed $2,500 per day in subscription revenue. It took 3 meetings to get the customers.<br /> <br /> Getting the 3 meetings took 8 months! It is hard work, but it can prevent the need for investment capital. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> Totally agree. You need customers to have a business. I can also relate to that it takes a bit of time in the beginning. Many people fail in start-ups because it takes too long to get their first customers. Sometimes it is a fast process, but many times you need to tailor stuff to the market a little bit and that can take it&#039;s time. But when you get a match, you&#039;re in.</div>

 

[servicefly]

<div class="bbWrapper">Most startups do not fail because it takes too long to get the customers first! If it is taking too long to get your customers then you are making a mistake:<br /> <br /> Either you are spending money to get your customers; which does not follow the principle of getting the customers first, or<br /> <br /> You are not balancing your time with building the customer base and earning living expenses.</div>

 

[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="servicefly" data-source="post: 64437" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=64437" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-64437">servicefly said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> Most startups do not fail because it takes too long to get the customers first! If it is taking too long to get your customers then you are making a mistake:<br /> <br /> Either you are spending money to get your customers; which does not follow the principle of getting the customers first, or<br /> <br /> You are not balancing your time with building the customer base and earning living expenses. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> If you have something new on the market (that has not been there before) then it will take some time to adjust it to the market. Adjust it so that it creates a value in the market place. So I disagree with you, respectfully<img src="/community/imgs/emoticons/em-smile2.png" class="smilie" loading="lazy" alt=":)" title="Smile :)" data-shortname=":)" />.<br /> <br /> And, yes it do take some money to find customers (marketing). It does not take a hell of a lot of money, but at least $1500 to send out an email campaign at least. Without marketing you don&#039;t have leads. And without leads, no business.</div>

 

[servicefly]

<div class="bbWrapper">With respect fanocks2003,<br /> <br /> I have found my customers first in 80% of my startups. It took a lot of time and very little money. I was able to speed the time up with money, but $$ was not required. I would have agreed with you before the Web, but now I can&#039;t.<br /> <br /> Another example from a business I don&#039;t know much about (Dance Clubs):<br /> <br /> If I were to start a dance club in LA, which I have been told is very difficult then here is what I would do; first, visit all the other clubs of the same caliber as my future club. After I have chosen the team to start and run the club (time consuming as well) then I would proceed to research a central source of LA Players known to make or break new clubs. I came up with 3 main websites online (2 blogs, 1news) dealing with Hollywood, read by Agents. Now all that I would need to do is time a buzz story with a little mystery about a new club with an A-List party on a mystery date. Once this story is released to all the right places (Agents rumor mills) then I cultivate the story with small bits of info until all the Agents are calling me or my team for invites. Then we play &quot;hard to get&quot; or &quot;the take away&quot; game until our list is full.<br /> <br /> Not any of the above is easy, but it would work. I have never dealt with a dance club as investment before, but the process for generating customers first is possible with no money when properly implemented. Remember, it is not easy which is why most Entrepreneurs skip this part.<br /> <br /> Plus if you are starting up in a business you love, you probably already have some connections to make this easier.</div>

 

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[fanocks2003]

<div class="bbWrapper"><blockquote data-attributes="" data-quote="servicefly" data-source="post: 64664" class="bbCodeBlock bbCodeBlock--expandable bbCodeBlock--quote js-expandWatch"> <div class="bbCodeBlock-title"> <a href="/community/goto/post?id=64664" class="bbCodeBlock-sourceJump" rel="nofollow" data-xf-click="attribution" data-content-selector="#post-64664">servicefly said:</a> </div> <div class="bbCodeBlock-content"> <div class="bbCodeBlock-expandContent js-expandContent "> With respect fanocks2003,<br /> <br /> I have found my customers first in 80% of my startups. It took a lot of time and very little money. I was able to speed the time up with money, but $$ was not required. I would have agreed with you before the Web, but now I can&#039;t.<br /> <br /> Another example from a business I don&#039;t know much about (Dance Clubs):<br /> <br /> If I were to start a dance club in LA, which I have been told is very difficult then here is what I would do; first, visit all the other clubs of the same caliber as my future club. After I have chosen the team to start and run the club (time consuming as well) then I would proceed to research a central source of LA Players known to make or break new clubs. I came up with 3 main websites online (2 blogs, 1news) dealing with Hollywood, read by Agents. Now all that I would need to do is time a buzz story with a little mystery about a new club with an A-List party on a mystery date. Once this story is released to all the right places (Agents rumor mills) then I cultivate the story with small bits of info until all the Agents are calling me or my team for invites. Then we play &quot;hard to get&quot; or &quot;the take away&quot; game until our list is full.<br /> <br /> Not any of the above is easy, but it would work. I have never dealt with a dance club as investment before, but the process for generating customers first is possible with no money when properly implemented. Remember, it is not easy which is why most Entrepreneurs skip this part.<br /> <br /> Plus if you are starting up in a business you love, you probably already have some connections to make this easier. </div> <div class="bbCodeBlock-expandLink js-expandLink"><a role="button" tabindex="0">Click to expand...</a></div> </div> </blockquote><br /> I would prefer the PR approach, but I can&#039;t say I have recieved any good response that way. I am willing to learn the appropriate way of using the presses than using marketing though. Up for a discussion? You give me some tips and I give some of my tips in return? PM me.</div>

 

[servicefly]

<div class="bbWrapper">If you don&#039;t mind I would rather discuss this on an open thread so others could read it? I respect your privacy. PM if you would rather discuss privately, or start a thread and we can discuss strategies.</div>

 

[llcollins82]

<div class="bbWrapper">I would also recommend incorporating your business. There are huge benefits to be had when incorporating, and there is a lot of flexibility as well. Would you choose a LLC? a S Corp? a C Corp? Unsure? You can find out more about this at the new TimeToStartup blog. Does this help your business at all?</div>

 

[cali2azbak2cali]

<div class="bbWrapper">Interesting approach... Also very relevant to what I&#039;m doing seeing as though I&#039;ve just recently joined a start-up. Useful knowledge, thanks for sharing it.</div>