What I would do if I started today... And Why...

[SquatchMan]

Well capitalizing and going big go hand in hand, so I see how people landed there, but one is a cause and the other is an effect. So yes while this advice may seem like a bit much for some, I still think most people who truly set their sights on well capitalizing a venture can probably do it.

But hey, I prefaced this thread on the first post with the fact that this was just what I would do, not what people should do. They should absolutely know it’s a realistic option.

Was reading the story about Chobani and saw he borrowed money to start his business. It sold a billion dollars worth of yogurt within 5 years.

I'm assuming you mean having a plan like that?

 

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[Kak]

Was reading the story about Chobani and saw he borrowed money to start his business. It sold a billion dollars worth of yogurt within 5 years.

I'm assuming you mean having a plan like that?

Yes... something along those lines. Although, you can’t plan an effect but you can plan a cause.

You can plan on making a quality product at a competitive price and selling it aggressively. You can’t plan on “a billion dollars worth of yogurt”

 

[Walter Hay]

Big can happen without huge reserves of cash. I know because I started my first business with cash in the bank totaling less than 1/2 my weekly pay at the job I had just left.

The secret primarily was obscenely high profit margins. It might be easier for some entrepreneurs to find something they can sell at such margins than to find investors willing to buy their idea.

I sold 20 years later with the buyer funded by a huge investment bank. He was thinking big but within a few years the business was worthless.

I have never borrowed or sought investor money, either for that business or for my second one that rapidly developed into a four country franchise network. Extremely high margins financed expansion. Money from franchises sold was just icing on the cake.

Walter

 

[ZF Lee]

I sold 20 years later with the buyer funded by a huge investment bank. He was thinking big but within a few years the business was worthless.

What happened there? Why did it go worthless?

Wasn't the business system you sold him fine?

 

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[Kak]

Big can happen without huge reserves of cash. I know because I started my first business with cash in the bank totaling less than 1/2 my weekly pay at the job I had just left.

The secret primarily was obscenely high profit margins. It might be easier for some entrepreneurs to find something they can sell at such margins than to find investors willing to buy their idea.

I sold 20 years later with the buyer funded by a huge investment bank. He was thinking big but within a few years the business was worthless.

I have never borrowed or sought investor money, either for that business or for my second one that rapidly developed into a four country franchise network. Extremely high margins financed expansion. Money from franchises sold was just icing on the cake.

Walter

I’m not saying it’s the only way to make it. A lot of us have done well on our own too. My point is, they aren’t talking about your company on CNBC. There isn’t a market full of stock traders willing to overpay for your company. That’s a pretty powerful place to end up.

I am talking about what most companies did that made it to levels of name recognition. How someone can be 30 years old when the cause pretty well matches the effect and has amassed a 9 or 10 figure empire.

Facebook is an example of an effect that blew up bigger than the cause. I wouldn’t call Zuckerberg lucky, but people could have decided to cling to something else. I’m talking about the true industrialist type that just battles it out on the way to a massive company for a decade.

Money, though not needed, buys much needed resources and betters the odds of being part of a very large organization.

Finding massive margins as you have said here, would make it very easy to find cheap money.

 

[Walter Hay]

What happened there? Why did it go worthless?

Wasn't the business system you sold him fine?

The business was extremely profitable, with exports throughout the Asia/Pacific area. The business had an international reputation that led to inquiries coming in from Europe and I already had customers in the USA, one of whom paid for air freighting 500kg of product from Australia to save their production line grinding to a halt.

It was ready for major expansion, and the big merchant bank could see that, paying me a price that would have allowed me to retire very comfortably at the age of 50. (Not my style.)

So what went wrong? The bank allowed the new owner free reign because he was highly qualified and had already been CEO of a multinational company in a similar field. He went on a spending spree.

World travel at a grand level of luxury was supposed to develop the export market, but he must have been the world's worst salesman. Meanwhile, business back home was neglected, and once customers felt the effects of that they moved to other suppliers in droves.

Even the existing export customers were not visited by the new owner or a deputy.

In short, he was unfit to operate an innovative company that relied on a high level of customer support. By the time the bank stepped in to take control it was too late.

I was very disappointed to see my "baby" die, but my big bank balance provided consolation and I moved on.

Walter

 

[randomnumber314]

I understand the concept of finding investment to turbo charge growth, but aren't the hard lessons the essential parts of growing a business?

I had a small service company a couple of years ago. I move around $500k in sales in a few months. I never figured out a good hiring pipeline, and in the end that failure cost me a lot of money and forced my hand at shuttering. I don't know if having $500k would have solved that problem, but it would have more likely have just added months to a losing process.

That being said, that hurt bad enough that I've been scared to enter another business since, miserly hoarding cash to the tune of $100k+ for no good reason. Whenever I do find something worth obsessing over, I know that I will be very carefully estimating the risk.

 

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[MrG]

Hi Kak, thanks for posting this.

I have a business figured out thanks to experience in the industry I work in. It would be an educational/consulting service that can be packaged as a product too.

I am planning to build the foundation (website, brand, awareness, first 1k email subscribers, first 100 visitors/day etc.) within a year while working a full-time job.

Once I start producing the set of products I can easily make ~150k the first year on my own.

The scenario above would probably cost me less than 5k and a lot of time.

If I put in more capital, I could do much better:

A proper content team of 2 for marketing, a developer and one assistant would easily yield ~500k in a year after the first 6 months of starting up.

That first year and a half would cost me ~100k in people resources.

So, here's the question: how much share and how much money should I be asking for?! I understand investors won't invest if the owner is not investing in his own business, I would be ok to put 30k of my own savings up-front.

30k is how much risk I can tolerate in exchange of great returns (~500k vs ~150k) that first year.

I am looking at realistic 1M - 3M turnover (a lot of it "profit", because the cost of selling information is very low) in 2-3 years.

What would then be the contribution to ask of my investor partner? For how much share?

PS: Maybe this helps you craft a better answer, I am 25yo, I have a good paying job and almost 100k in savings (30% would be ok to pursue fastlane business). I want to spend 1 more year in the industry because with my new job I get more credibility once I start this planned business.

 

[Kak]

I understand the concept of finding investment to turbo charge growth, but aren't the hard lessons the essential parts of growing a business?

I had a small service company a couple of years ago. I move around $500k in sales in a few months. I never figured out a good hiring pipeline, and in the end that failure cost me a lot of money and forced my hand at shuttering. I don't know if having $500k would have solved that problem, but it would have more likely have just added months to a losing process.

That being said, that hurt bad enough that I've been scared to enter another business since, miserly hoarding cash to the tune of $100k+ for no good reason. Whenever I do find something worth obsessing over, I know that I will be very carefully estimating the risk.

Surround yourself with people smarter than you is my only real answer to this.

This to me is more a matter of having an incomplete plan and management problem rather than a problem from capitalization. Money isn’t going to fix every problem.

Having wise counsel can prevent problems.

 

[garyfritz]

@Kak, great stuff as always. You have lots of contacts, and investors would likely throw money at you because of your track record. How would you advise someone without your Rolodex or experience?

 

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[Kak]

@Kak, great stuff as always. You have lots of contacts, and investors would likely throw money at you because of your track record. How would you advise someone without your Rolodex or experience?

Thanks Gary! To address this I think I should first address what I have raised to date. The answer is way way less than I would on my next venture.

My next business won’t be a deal for an in-network angel investor, “that’s a good idea and I want in with you” type of thing; it will be a deal with a larger firm that has 10s of millions ready to rock for this specific purpose.

So... I would sit down at my desk, start researching VC firms in my area and calling them. Ask them the kind of deals they like to do. Ask them if they are interested in something like you have planned, if yes find some time to go present it! Make it happen and don’t stop until you have what you are looking for.

We have POWER in our ability to connect via phone and have a conversation in a matter of seconds. It is a modern marvel that many take for granted. You can literally strum up tons of business just for picking up the phone one time. Oh and email sucks unless you want to share data or schedule a meeting. Keep it to calling or texting for quick interactions.

Also... for those that don’t have a network... build one... I have done well with golf and charitable organizations.

 

[Jade.backer]

It's an awesome thread. I wanted to know different people's option. glad I'm here

 

[amp0193]

So @Kak What sort of "strings attached" can come with investment money?

Is it typically a loan with set payment terms?

Or is it just cash that you can spend as you wish, returning to them X% of Y results? Like, if the Y results never materialize, and the business folds, you're off the hook, and they're out the money?

 

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[jpmartin]

So if I were to start today... I would think bigger. I would come up with a damn good plan. I would use that plan to raise a ton of money. I would use that money to buy every damn resource I always wished I could afford. I would take a stranglehold of the bottom line and make my investors as well as myself rich.

It’s not one size fits all, it’s not the only way, it’s just how I would do it.

Welcome to the club!

 

[Hai]

Agreed to the premise of the thread.
Thinking big enough and getting funding is a great way to build a great team, product and huge company and make hundreds of millions.

If you are just looking for some retirement money, then doing it solo can work just as fine.

It really depends on your goals. Bigger goals require different action paths.

 

[Kak]

So @Kak What sort of "strings attached" can come with investment money?

Is it typically a loan with set payment terms?

Or is it just cash that you can spend as you wish, returning to them X% of Y results? Like, if the Y results never materialize, and the business folds, you're off the hook, and they're out the money?

Strings attached can go both ways. It is 100 percent in the negotiation. I currently maintain contractual control of 60% shares in a company I only own 28 percent of.

It is NEVER a loan. There are NEVER monthly payments. This would basically be offering corporate bonds. No one does anything for today’s low market interest rates. It’s no surprise all of the hoops some people have to jump through to get a mortgage. A bond arrangement is by definition debt and they wouldn’t be getting ownership.

Yes it is pure equity. They want in and own a piece. If the business goes nuts They win big like you.

 

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[amp0193]

Yes it is pure equity. They want in and own a piece. If the business goes nuts They win big like you.

Awesome, thanks!

 

[Kak]

Agreed to the premise of the thread.
Thinking big enough and getting funding is a great way to build a great team, product and huge company and make hundreds of millions.

If you are just looking for some retirement money, then doing it solo can work just as fine.

It really depends on your goals. Bigger goals require different action paths.

In my experience... The only people who say they are ok with their smaller goals are people who don’t believe they can make the bigger goals happen.

The only downside is you give away some of the company.

The upsides are-
-Less risk to you.
-More likelihood of a profit.
-More likelihood of a large profit.
-Less work for you because you can staff the business.
-I put some of my investors on my advisory board, sometimes I want their wisdom.

 

[hungryhippocampi]

Thanks for sharing this information Kak -- it is invaluable to have a "been-there done-that" person share wisdom!

Do you think when putting together an investor package it is critical to have conducted and included quantified results of your market validation if you have not gone-to-market yet?

I actually think I can bootstrap the development of my app and have a decent, workable prototype once I'm done with my market validation. So I'm wondering, which comes first the chicken (see if the market likes my secret recipe) or the egg (get the funding after validation but prior to development)?

 

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[ApeRunner]

My experience is that if you even have the faintest thought that the individual needs to go, trust your gut. Start making provisions to replace them. I say this because every time I have been there, I didn’t, and I was caught with a hole in my organization because I fired them hard for something else soon thereafter.

Gold. If you can't thrust 100%.

Also, over the years, when someone has given me a 2 week notice, I cut them a check and show them the door right then and there. I send them off with my sincere best wishes. If they no longer want to be there, I don't want to prolong the pain of them leaving. It's kinder to them and to me. Life goes on with or without them...

Can be difficult in some situations, but it's a good principle.

 

[Guest06196]

I witnessed a @Kak style business today.

A couple of brand new minibuses park outside of my train station. They bear the official symbols of the state government so I always thought they are like normal buses, except being smaller & newer. When I approached them for a ride, the friendly driver patiently explained they're not part of the usual public transport system: They are government-licensed (the state official mark) Uber.

Basically, it's just like Uber-You download their app and it will handle the payment & pick-up. The only difference is they only stop at bus stops. Of course, they charge more than a bus but less than Uber.

In this business, the entrepreneur aspiring to be Kak would first come up with this great idea. Then hire a lobbyist to sell this idea to the government. (as Kak said, to convince government officials, tell them how you can make their jobs a lot easier and their wait for retirement is more enjoyable. I'd use cost-saving for the government. Better customer service, less waiting time for riders & environmentally friendly small cars. all cards to play during an election.) Once the buyer (government) is on board, find a venture capitalist who will put up the cash. The last step is easy. Hire a few drivers & minibus (or simply partner up with an owner in the transport industry). Get someone from Upwork to do the app and then scale up to other states.

So good to be Kak.

 

[Talisman]

Heh, great validation of my current process and progress - thanks Kak.

Having said that - I wouldn’t have had the balls to take that approach without the last few years of execution and experience (as bio alluded to).

 

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[The-J]

I have a friend who, at the age of 20 (he's my age), just decided to jump head first into the world of venture capital. Did Draper University, got $500k in funding for his first business, and said 'F*ck it, I'm going big'.

His first business got acquired for an undisclosed amount. He now runs a marketing agency. I don't know why he went that route, but he did.

At the time, I felt like he was going too big too fast. My feelings were based on, I don't know what I'm doing therefore he must not know either.

Now here I am with a business that pays my bills, but there he is with an acquisition under his belt and another business with funding.

It's not too late for me. I've made some decisions that put me in 'bigger' territory. But surely, my path will be slower than his because he went big when I was scared to.

 

[Lucid Tech]

Great points @Kak

Just to chime in a few thoughts, as someone who's raised a bit over $3 million for my current venture.

You'll get a huge boost from the laws of Entry (raising millions is tough) and Scale (you can go big very fast) but you might lose out on Time and Control depending on how your business is structured. There are a lot of people on this forum who can travel 6+ months out of the year since their businesses are fully automated and they have no shareholders to answer to.

If I tried traveling that much for fun, my board of directors would crucify me before they fired me. Sometimes the grass is greener on the other side. Your mileage may vary.

Regarding when to start raising money, this is going to depend a lot on your previous track record of success. If your last name is Zuckerberg, Musk, or you are someone with a track record of building and selling companies you can raise money just with an idea. No prototype, no customers, no problem.

If you're in this thread, more than likely you're not there yet. In my experience the best time is immediately around the time you've gotten your first customer (if you're B2B or B2G). If B2C, maybe you have an MVP and initial set of customers with positive feedback and you can sell the vision of the hockey-stick growth curve.

This tends to be the point of highest optimism, and the message of hope & promise goes a long way. If you wait too long, you'll be judged on what you've actually done, but if you do it right away you can paint a picture of optimism that increases your valuation.

In our case, we had seed funding to build our prototype and were involved with a statewide grant to implement this in several hospitals.

Our message was: "We have {state grant} to be in {x, y, and z hospitals} and we separately are starting a pilot at {University}. We have these well known people behind our product and will soon start our full commercialization plan."

Bam, series A.

Good thing too, since the subsequent sales took longer than expected. After a couple months with no follow up sales, raising the same amount of money would have been far more difficult.

You don't want to be raising $ in the desert of desertion.

 

[Kak]

Great points @Kak

Just to chime in a few thoughts, as someone who's raised a bit over $3 million for my current venture.

You'll get a huge boost from the laws of Entry (raising millions is tough) and Scale (you can go big very fast) but you might lose out on Time and Control depending on how your business is structured. There are a lot of people on this forum who can travel 6+ months out of the year since their businesses are fully automated and they have no shareholders to answer to.

If I tried traveling that much for fun, my board of directors would crucify me before they fired me. Sometimes the grass is greener on the other side. Your mileage may vary.

Regarding when to start raising money, this is going to depend a lot on your previous track record of success. If your last name is Zuckerberg, Musk, or you are someone with a track record of building and selling companies you can raise money just with an idea. No prototype, no customers, no problem.

If you're in this thread, more than likely you're not there yet. In my experience the best time is immediately around the time you've gotten your first customer (if you're B2B or B2G). If B2C, maybe you have an MVP and initial set of customers with positive feedback and you can sell the vision of the hockey-stick growth curve.

This tends to be the point of highest optimism, and the message of hope & promise goes a long way. If you wait too long, you'll be judged on what you've actually done, but if you do it right away you can paint a picture of optimism that increases your valuation.

In our case, we had seed funding to build our prototype and were involved with a statewide grant to implement this in several hospitals.

Our message was: "We have {state grant} to be in {x, y, and z hospitals} and we separately are starting a pilot at {University}. We have these well known people behind our product and will soon start our full commercialization plan."

Bam, series A.

Good thing too, since the subsequent sales took longer than expected. After a couple months with no follow up sales, raising the same amount of money would have been far more difficult.

You don't want to be raising $ in the desert of desertion.

Nice post and viewpoint! Thanks for joining in.

 

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[LateStarter]

If there's one thing this post has shown me, it's that my 9-5 is killing my brain.

(Good) Ideas for me have always been hard to come by. When the day job isn't busy I have times where I'm creative and things are clicking and ideas are flowing. Then like a wave, it passes and just stops. It's not that I'm thinking small, I just stop seeing opportunities.

Does anyone else experience this? Any tips to break out of it? Being part of a mastermind was probably the closest I've come to breaking the cycle. Similarly, when I'm actively working on a business idea as a solopreneur, it's easy for me to get tunnel vision.

Rep+! Thanks for shaking me up with this post @Kak . It's clear that I need a change. Hopefully, the Summit can help get me realigned.

 

[Woodsman81]

If there's one thing this post has shown me, it's that my 9-5 is killing my brain.

(Good) Ideas for me have always been hard to come by. When the day job isn't busy I have times where I'm creative and things are clicking and ideas are flowing. Then like a wave, it passes and just stops.

The first thing I do when I get a new idea is put it in a note book app on my phone. Then when I have a free moment I can open the note book be reminded of my ideas and start researching and it's easy to put notes below your idea.
I have the opposite problem I have so many ideas that I am having a problem focusing on one. The more I read in the forum the more I have.

Thank you for the great thread Kak!

 

[Real Deal Denver]

OK Kak - here is your anything that I'm going to ask.

It is extremely important. More important than a product - or marketing. It's cash flow.

I am going to be launching several products. Let me outline two scenarios. I would like you to analyze the how to part of getting the second process going. The examples below will speak for themselves...

1) I produce a product. It is well received and sells well. I have customary net 30 billing to my customers. After 30 days, my cash is replenished, and I continue on - growing at 10 to 20 percent a month in gross sales.

2) Same situation - except no net terms. None. I'm like a supplier in China, or Amazon. You order the product, pay for it, and then receive it. Now my turn time goes from 30 days to, um, well, one. My cash replenishes within 24 hours, instead of, say 24 dayyyyys. Huge improvement. I can now grow my business AT LEAST 30 times faster. And reduce losses from bad accounts - and save time chasing money. I love it.

So, why doesn't everyone use method two? Cause they're chicken sheets, I guess. Cause none of their customers would "stand for it" perhaps. Who knows? Chinese suppliers do it this way and it seems to be accepted - even expected.

That is the super steroid plan that will shoot my business into orbit. Overnight.

This is such a revolutionary concept, I can't imagine NOT doing it. Sure, my business clients won't like it - but I'll simply explain that I can't tie up my capital for 30 days by being a bank for my entire customer list. They, on the other hand, only have to deal with me - ONE supplier. They should be able to stomach that, instead of ME financing 200 customer accounts.

What do you think the acceptance rate for these terms might be?

Rip it apart. Tell me why it's so bad or why it won't work. I want to hear it now rather than later.

Thanks ~

 

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[amp0193]

Rip it apart. Tell me why it's so bad or why it won't work. I want to hear it now rather than later.~

Do all of your competitors offer net 30?

Do you offer something different/better than them to compensate for your inferior payment plan?

Your customers are thinking about their cash flow too.

For what reason would they choose to pay 30 days sooner to you vs going with someone else?


I agree with the sentiment of your post though, cash flow is immensely important to the speed at which you can grow, especially if you’re bootstrapping.
Although, in the spirit of this thread, cash flow matters less if you are well capitalized.

 

[Real Deal Denver]

Do all of your competitors offer net 30?

Do you offer something different/better than them to compensate for your inferior payment plan?

Your customers are thinking about their cash flow too.

For what reason would they choose to pay 30 days sooner to you vs going with someone else?


I agree with the sentiment of your post though, cash flow is immensely important to the speed at which you can grow, especially if you’re bootstrapping.
Although, in the spirit of this thread, cash flow matters less if you are well capitalized.

My products are unique. Nobody else offers what I do, so in a sense I have no competitors. But, then again, my product is one of many, so it is not necessary. Think of offering apple pie in a restaurant. They can get by without my product, even if I'm the only source for it. But having my product would definitely be beneficial for them.

Yes, everyone in this business offers net 30. It used to be that the distributor of the product - me - would also get net 30 terms. But I don't, because the market dynamics have changed so much. I don't like the fact that the dynamics change on my end for me, but not for anyone else. Isn't that the way it always goes, though.

I am reinventing the way I do business. Nothing personal, it's just business. I'm stacking the odds in my favor, for a change. I've done things the old fashioned way. I don't want to keep track of accts receivable. There's no need to - that's not my job. I'm not a lender. The way I see it is, if they want my product, get a business loan and buy my product. That's what I do with my suppliers.

I know some will balk at this idea and be insulted. Balk away. I am, instead, approaching this from a radically different perspective. If I can get only 200 customers, buying 50 products a month, then all will be well and good. Is that better than 500 customers buying 20 a month? Maybe not. But I'll go with the sure thing - and be guaranteed that I'm going to be spending my time in a profitable way - not chasing money or billing.

This is a radically new age we're in. The internet can showcase my product - I can instantly communicate with thousands of customers through a web site - funds can be instantly received. Wow. Talk about a hot bed incubator for business to grow!

AND, the speed of packs of dogs chasing me to steal my product also greatly increases, as well. Everything is increased by a factor of ten or more - wait, except my inventory turns - because I'm waiting weeks to be paid? If at all? Been there, done that. Too many times.

No, I'm taking control. I have superior products that will be very profitable for everyone involved. I want a superior business model that will grow 30 times FASTER than the old way of doing things.

I really can't see me doing this any other way. I'm totally gaa gaa and in love with this business venture. When the dogs do catch my scent and are on my trail, I will be 60 TIMES ahead of them. That means the sixty days I have invested in growing my business will actually be equivalent to 60 MONTHS of growing my business under conventional rules of engagement. That's five YEARS of growth in two MONTHS, because my sale ratio cycle will be one DAY instead of 30 days. Rinse and repeat. Let em catch me and fight over the scraps. I'll be cruising at 5,000 feet by that time. Then, by the time they do catch my scent, I will have SCALE that they won't be able to come close to.

Oooops - I've said too much. If MJ sees this, I've given him the outline for his next book. Fair enough, I guess. I got my outline from his first book...