How Will You Use My Money? - Investors Question

Entrepreneurs looking for investor funding often fail to realize that all money comes with strings. For example, if you have watched the Shark Tank TV series, you probably noticed that the Sharks always ask the entrepreneurs for their intended “use of funds.” Those who respond with one of the wrong answers, such as “I want to pay myself a salary,” usually go home empty-handed.

You may think this question is just an artifact of good television, but let me assure you that in my experience as an angel investor, it’s a standard “make or break” inquiry posed to every entrepreneur. Here are some guidelines that will help you with the right answers, not only in closing your next investment, but in planning when and how much money to ask for:

1. Investors are most interested in helping you scale the business. That means they normally only invest in startups with a working product that has already been sold to at least one customer for full price (beta tests, giveaways and best friends don’t count). They are willing to cover marketing, inventory and scaling, but not product development.

2. Make your focus and priorities clear. A long list of everyday expenses is not helpful here. I recommend that you simplify your use to no more than three items or categories, with a percent allocation to each. An example might be 50 percent for marketing, 30 percent for inventory and 20 percent for staffing. Have backup charts for investors wanting more detail.

3. Funding for founder salaries at this stage is a red flag. Investors expect you to “bet on the future” with them. You may pay salaries to your team, but your salary should come from earnings, when they occur. Taking your cut before earnings exist implies that you are not willing to take the same risk of no return, as you are asking of investors.

4. Make sure allocation amounts are reasonable. These days, even viral marketing requires real money, for events and promotions. Startups whose marketing budget is trivial lose credibility and most likely the investment. Conversely, a huge marketing budget implies an intent to “spray and pray,” in hopes that something works.

5. Use of funds must be tied to projected cash flow negatives. If you ask for a million dollars, your financial projections better show a negative cash flow approximating that number (with a 20 percent buffer). Investors are not interested in giving you money to keep in the bank for backup, for investing in real estate or a fancy new car.

6. Tie use of funds to real traction milestones. A valid milestone might be closing a specific big-name customer or channel, such as Walmart, or it might mean getting your first 100,000 social-media followers, by a given target date. Building a huge inventory before you have a confirmed customer is not a convincing strategy.

If you are really looking for research and development money, and you didn’t sell your last startup for $800 million, professional investors are not the place to start. Hopefully, you can find some friends or a rich uncle who believe in your potential. The other alternative is to find a strategic partner who knows the space well and will benefit from your solution.

Professional investors always look for a proven business model and an existing revenue stream to minimize the risk. Then they look at the people behind the model, the execution status and how they might get their money back. Your proposed use of their funds will be seen in these three contexts. They will look to your business plan for cash flows and specific return on investment projections.

In all cases, your goal must be to explain how the investment will help you scale up the business and become more profitable sooner. You should always be prepared to mention a plan B, if possible, to grow more slowly by reinvesting initial earnings over time. Confessing that you are in survival mode, desperate for money now, will not improve your odds with investors.

Whether it be in the context of a five-minute elevator pitch or a more formal presentation to professional investors, the projected use of funds should be summarized and prioritized into three “chunks.” These must remain focused on scaling the business.

Investors want to be convinced that your use of their money will maximize their returns in the first five years, as well as yours. After that, all you have to do is make it happen. Have fun!

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Successful Entrepreneurs

There is a saying that there are only three types of people in the world: those who watch what happened, those who wonder what happened and those who make things happen. 

Entrepreneurs fall into the last category, of course. They are change agents, people who don’t see the world as it is but as it could be. Entrepreneurs don’t sit on the sidelines and wish for a better world. Rather they go out and create it. They don’t wait for things to be different. They are the difference.

Being forward thinkers, entrepreneurs continually push themselves to become better and do better. They are game changers. They ooze confidence and inspire greatness.

Today is a great day to become an entrepreneur because the price of admission into this elite club is free and yours for the taking.

Do you really want to succeed as an entrepreneur? Follow these five steps and you’ll be well on your way to developing the leadership qualities it takes:

1. Willingly fail and reflect. “Ever tried. Ever failed. No matter. Try again. Fail again. Fail better,” goes Samuel Beckett's line. It's not always easy, the trying again part.

Another important thing is taking time to reflect on what went wrong. In the book The Call of Solitude, Ester Schaler Buchholz says, “Others inspire us, information feeds us, practice improves our performance, but we need quiet time to figure things out.”

In his book, Fail Up, radio broadcaster Tavis Smiley recalls lessons he has learned through reflection. He sheds light on these so-called failures that were, in hindsight, his best teachers.

You’ll only learn by failing over and over again. When you do this, you’re able to grow. And in spite of life’s inevitable setbacks, you’ll come out the victor.

2. Embrace and confront your fears. According to author Brendon Burchard, fear can be categorized in three ways, which all relate to pain. The first is loss pain, which happens when you’re afraid to move ahead because you fear you’ll lose something valuable.

The second is process pain, which inevitably occurs every time you try something new. You have to go through the process of learning to deal with it.

The last is outcome pain. This involves not getting the outcome you desired.

Burchard insists that people need to overwhelm their fears. Just as an army invades its enemy from every side, a person should do the same with fear, attacking it from every side, as if going to war. 

For Shark Tank host Barbara Corcoran, public speaking was her Achilles' heel. But she overcame it by going to war. She volunteered to teach a real estate night course in front of a small group of students to overcome her fear.

3. Practice self-discipline. This is the ability to delay instant gratification and the ability to work hard now to reap benefits later. When Academy Award-winning actor Jamie Foxx was a boy, hisgrandmother routinely made him take piano lessons even though all he wanted to do was go outside to play. He had no idea that those lessons would lead to his eventual success. To this day, he continues to hone his craft and disciplines himself to practice playing the piano for two hours many a day.

No one sees the years of hard work you might put into an endeavor. They only see the outcome. If you want to reap the rewards of tomorrow, you must put in the work today.

4. Get some sleep. Shortly after the debut of her eponymous news site, Arianna Huffington collapsed from exhaustion and lack of sleep. She’d been working 18-hour days because she was so committed to growing her company. When she collapsed, she hit her head against a desk and found herself lying in a pool of blood.

In her book Thrive, Huffington details the ordeal and says it was a painful wake-up call. She knew she had neglected sleep and took steps to correct it.

When you get the sleep you need, you’ll feel more energized, charged and ready to tackle any problem entrepreneurship throws your way.

5. Give to others. In his book, Give and Take: Why Helping Others Drives Our Success,Wharton Business School professor Adam Grant teaches the idea of generosity in a professional setting. 

For centuries, people have focused on the individual drivers of success: passion, hard work and sheer will. But things have changed. Success is increasingly dependent on how we interact with others and how much we give them.

According to Grant’s research, the most successful people are those who consistently give. Grant takes this to heart so much that he not only puts in long hours as a professor, but also as many and sometimes even longer hours giving and helping others. 

That ancient book, the Bible, was right all along: Happiness comes from giving.  

source : link

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Steps To Starting A Business

It’s not how many hours you work nor is it how many hurdles you must overcome, rather business is about getting from point a to point b in the quickest manner possible while maintaining product quality and healthy margins.

Often, when starting a business, entrepreneurs think too much about small, unimportant details. Since time is our most valuable asset, this carries a high opportunity cost.

As a matter of fact, a business can be up and running in a much more timely manner than most think. Here are 7 steps to get you there:

1. Determine your offering and market demand – Entrepreneurship is not about hitting a home run; trying to create the next “big thing” has a very poor risk / return rate.

Instead of long shot, pick a job. Think, what do you want to do for a career? Determine what you want to sell based on what you’re passionate about rather than what you think will make money.

If you love what you do, you’ll find ways to monetize it. Conversely, if you chase money, you’ll end up unhappy and worn-out.

2. Determine your pricing – If you’re a newcomer, don’t be afraid to price yourself under market. You could always raise your pricing in the future, but when you’re “green” you’re a risk to a client so give them some motivation to use your services.

The most profitable businesses that exist today (Walmart, Costco, Amazon) all compete on price while maintaining quality. When I started recruiting, I would severely uncut other staffing companies.

At first, worry about living expenses and getting through the first few months and obtaining those initial clients. Once you get some work under your belt, become more concerned with how much you can charge.

3. Determine how long it is going to take to make your 1st sale – If it is going to take 6 months to initiate a sale, have a year’s worth of income to live off of.

When it comes to budgeting, always play it cautious as shortage of money and chasing after unrealistic goals will lead to significant stress which hurts performance.

4. Determine your differentiators -Besides price, how does your product or service differ from competitors? The nice thing is in a service based business, if you learn how to sell and become an expert at what you do, you can be the differentiator.

I’ve come to realize that in any service based business, self-assurance and trusting one’s intuition is a differentiator in of itself.

In time, you’ll learn what aspects of the product or service are important and secondary to the client. Until then, think price and quality.

5. Determine marketing – (figure out how to get leads) Make it simple and put up a website. Read about PPC and SEO.

If you’re selling business to business services, social media will help your search engine efforts, however you’re not going to be directly making money off of it.

There are some great blogs to get you started on the topic.

6. Learn how to sell – The best salesmen / saleswomen don’t sell. Instead, selling can be broken down into two different parts:

a. Listening – Too often, sales professionals think about what they are going to say next rather than focus on what the other individual is saying. I’ve come to learn that keeping your mouth shut and ears open is about 70% of sales.

b. Knowing what you’re talking about – Running a recruiting firm, I’ve learned the difference between the average and wealthy sales professional or entrepreneur is that they can create realistic expectations for the client through gaining the client’s trust via your expertise.

The entrepreneurs who “Yes” to death end up letting their clients’ expectations get out of whack and, in turn create a relationship where only arguments, not money exchanges hands.

7. Learn how to execute the steps needed to take project to completion – Finally, put a set, organized process in place to take the service or product from start to finish in a predictable manner that yields the desired results. Think: Step A, Step B, etc.

source : www.fordes.com

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