Business

There's no business like show business, but there are several businesses like accounting.



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Other posts that may be of interest:

Entrepreneurial Law - Developing a Good Business Model
Culture of Private Equity
A World of Private Equity
Rules of Funding
Entrepreneurial Law - Proof of Concept & Proof of Scale
Fatal Flaws in Leadership
Keep the Good Ideas Coming but Stay Focused
Business Law - 10 Common Negotiation Mistakes
Funding Law - Presentations to Investors

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I have heard this "problem" stated several times from private equity investors angel investment groups over this past year, "We are just not seeing any good deals lately."  The Halo Group, an Indianapolis-based angel investment group focusing on emerging technology companies, canceled its March meeting due to a stated lack of deal flow. 

Halo members, like most private equity investors, want to invest in businesses with proven markets and executives.  They, like most investment groups, also want...Read More »

I wrote a post a few weeks back on B2B, B2C and C2C technology companies in Indianapolis.  Here are a couple of paragraph excerpts:

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In my recent blog series, Entrepreneurial Law - Developing a Good Business Model, I addressed how an entrepreneur needs to work through three prongs in order to develop a sustainable business model developed for growth: Market Opportunity; Management Team; and Capital Structure.

Private equity investors asses the same prongs when determining whether to make an investment in an emerging company, but I find that investors tend to set the prongs in their own priority ranking.  I think all three must...Read More »

This is the fifth and final post in a series on developing a good business model for an early stage company.

3.  Sound Capital Structure.

I am not sure that enough could be said about this point, but I see so many business plans that only address market opportunity (with all the MBA highlights) and how smart the management team is but then ignore financial structure that I feel it must be addressed in some detail. 

A good financial model is one that starts with costs and then approaches revenue.  After all, for almost every early stage company, most costs can be fixed.  A good financial model should be able to nail expenses for 1st year operation within 5% of the budget.  This takes discipline – both on uncovering assumptions and implications when budgeting and in living to the budget after it is set.  Most variable costs should be tied directly into revenue (i.e., when revenue increases, these costs increase in proportion).  So, we don’t care as much about those.  In my first year of operating Alerding Castor Hewitt, I missed my expense projections by $27 – and it was not that hard to be that close. 

Revenue projections are harder.  Once you have good expense model, you develop your product price point and do your market research, you should be able to develop a reasonable break even analysis and first year revenue projections.  That is goal one.  You will need to talk to customers to develop the POCP (see my earlier post in this series about Proof of Commercialization at Profit under Market Opportunity) - ignore the hoopla but focus on what customers will actually write a check for.  Address every assumption and implication in your financial projections.  For every number you should be able to explain the story underlying that number.

Depending on the capital structure developed, you will need to address your strategy.  Most companies fall into one of three capital strategies: (1) Boot-strapping, (2) debt financing, or (3) raising private equity.  Don’t be too quick to jump to #3.  Raising capital from private equity firms, angel investors or venture capitalists is a hard process.  It will take over your life for a period of time and is a variable that is outside of your control.  I have seen many business die in this stage.  Only take on investors if you NEED investors. 


See also:

Entrepreneurial Law – Developing a Good Business Model – Part I

Entrepreneurial Law – Developing a Good Business Model – Part II

Entrepreneurial Law – Developing a Good Business Model – Part III

Entrepreneurial Law – Developing a Good Business Model – Part IV

I was told this past year that I am a "numbers guy".  Honestly, I think it was intended offensively, but I didn't take offense to it.  I was reminded of this recently when I read, and laughed at, this quote on Twitter:



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Other posts that may be of interest:

A World of Private Equity
Two Types of Violations in Private Equity Offerings
Rules of Funding
Entrepreneurial... Read More »

This is the forth post in a series on developing a good business model for an early stage company.

Here are some additional points to consider when structuring a management team:
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This is the third post in a series on developing a good business model for an early stage company.

2.    Solid Management Team

I have heard it said that more businesses fail due to cash flow than anything else.  I completely disagree.  I say that more businesses fail due to management team issues than any other reason.  If a company dies because of cash flow, it is usually because the wrong person was at the helm and poorly planning and/or making bad decisions – either market opportunity was not...Read More »

This is the second post in a series on developing a good business model for an early stage company.

Proof of Scale and Proof of Commercialization (at Profit)
 
Following POC, you want to prove that your concept can scale under a viable business model.  Proof of Scale and Proof of Commercialization (at profit) work hand in hand as each is often dependant on the other.  POS refers to the ability for a concept to scale in terms of sellable units in the marketplace and business growth requirements....Read More »

Any good business model includes: (1) a strong market opportunity; (2) a solid management team; and (3) a sound capital structure.

This is the first in a series of posts that will outline each point. 

1.    Strong Market Opportunity.

This is more than just finding a market opportunity that you want to address.  It involves development of a detailed model of what the opportunity is (“IS”), how you can address it better than anyone else (“HOW”), and how you can be profitable in doing so (“PROFIT”)....Read More »

I just returned from the Masters.  What a thrill.  Augusta National is quite possibly the most beautiful place on earth, and the golf was stellar.  My dad and I spent much of the two days stationed around Par 3s.  We spent Saturday on the 16th green where we were 20 feet from the golfers as they putted.  You could see the green of hole 15 and the tee of for hole 17 from our spot.  On Sunday we spent the morning at hole 6 and the afternoon on amen corner – just beside the tee on hole 12 where...Read More »

I had the privilege of speaking at the Rainmakers Incubator event this morning.  I thought the Rainmakers team did a nice job organizing the event - even with a last minute change in location due to factors outside of their control.  Thank you guys for the opportunity to join you this morning!

The topic given to me was "Three Things Every Entrepreneur Should Know."  My legal practice focuses on entrepreneurial law, funding law, SaaS business law and securities law.  In these fields I see a lot of...Read More »

I love Indianapolis, but I find it a difficult place for emerging companies to raise capital through private placement offerings.  More established companies have less trouble, but earlier stage companies often are caught in a chicken/egg situation – they need capital to move to the next business stage, but private equity investors don’t want to invest until they are through that next stage.

Part of what makes Indiana so great is that we are very fiscally conservative. In fact we were one of only...Read More »

What happens if you do not follow securities law procedures to a "T" in private placement offerings?  The answer is messy.  In large part it depends on what type of securities law violation you are talking about. 

The first type of violation is procedural.  Examples may include a company relying on a 4(2) exemption but offering certain securities to non-sophisticated investors (which is a Section 4(2) requirement).  Another example may be simply failing to make, or untimely make, a securities...Read More »

Last week I wrote a post entitled What Your Company Needs for Execution which addressed a business' ability to seize opportunities when they arise.  In this months Harvard Business Review, Donald Sull addresses seven points to consider on whether your company has good business execution practices.  Last weeks post addressed the first three.  Here are the next two:

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This last week has been a whirlwind including trips to Scottsdale, AZ and Newport Beach, CA.  I first attended an ABA private equity conference in Scottsdale.  The focus was on securities regulations for exempt offerings.  Sounds boring, I know, and parts of it definitely were.  But this area of law is the foundation underlying my partnership with clients in their strategic growth and capital phases. 

Raising capital is both an art and science.  The art is in the structuring of capital...Read More »

Does your business take advantage of opportunities when they arise?  Or, like most businesses, do you watch competition seize opportunities before you consider or execute on them? 

There is a good article in this months Harvard Business Review by Donald Sull on a business’s ability to execute on opportunties.  It is a worth while read, but I will summarize the key points in the next three posts.

What your company needs for execution:

1.    The ability to spot new opportunities.  This requires...Read More »

There is a good article on the Mercury News Blog today on How dot-com start-ups have changed 10 years later.  The article addresses the maturity of both technology companies and US private equity investors over the last decade.  It is an interesting read.

There has been a lot of activity in angel investor groups and venture capital investments in Indiana technology companies over the last few months.  2010 has definitely started with a bang at Alerding Castor Hewitt where we have helped five...Read More »

A few years back, sometime in the mid 1990’s, while an undergraduate business student at Purdue University, a fellow classmate and I entered the Burton Morgan Entrepreneurship Competition.  We were the only undergraduate students chosen as top 10 finalists in the event – an accomplishment for which I am still quite proud. 

I remember the program as being challenging, informative and humbling.  Following rounds of having our business plan reviewed and commented on by professors, we presented to a...Read More »