Transcript Zero to One Million: How to Build a Company to $1 Million

How to Build a Company
to $1 Million in Sales
Presented By
Ryan P. M. Allis, CEO Broadwick Corp.
Author of Zero to One Million
October 4, 2005
Carolina Entrepreneurship Club
Speech Introduction
• What I’m Going to Talk About
• Quick Personal Background
• Business Background
• Email Marketing Software
• Web Marketing Consulting & SEO
• 19 Employees, 2900 Clients
• 7 Employees
• $1.6M in Annual Sales
• $350,0000 in Annual Sales
• How to Build a Company to $1 Million in
Sales
How to Build a Company to $1 Million in Sales
1. Decide what to sell
2. Evaluate your Idea/product
3. Decide which type of company to form?
4. Raise funding, or…
5. Bootstrap and grow organically
6. Determine your market positioning strategy
7. Develop your marketing & sales strategy
8. Build your team
9. Become a good manager
10. Build strong systems
11. Scale the Model
Deciding What to Sell
Four methods for coming up with business ideas:
1. Continuously be aware of the products you use everyday. How can
they be better? What need or pain do you have that could be fulfilled by
a product or service that is not currently being provided?
2. Go to local networking events, seminars, conferences, etc. You may
find someone with a good product or a good idea that is looking for
partners.
3. Read magazines and publications that cover the industry you are
interested in.
4. Intern or get a job at a company in the industry you are interested in.
Work there to get experience and build contacts. Many times you will
see product ideas in the course of your work that your company will
choose not to pursue.
Product/IdeaEvaluation
Evaluation
Product/Idea
The key questions:
1. Does this product or service fulfill a real need?
2. Is the need that this product fulfills worth the price you plan to charge?
Other Questions to Ask:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Does the product increase pleasure, increase utility, or reduce pain?
How valuable are the benefits the product gives to the customer?
Must the product be reordered?
Can a back-end for the product easily be developed?
Can it be obtained or produced for a low cost so as to support a high margin?
What is the current demand for the product?
Is this demand expanding?
How many other competitors are selling the same or similar product?
How many serious competitors are there?
What are the sales figures of these competitors?
How can the product be differentiated from competing products?
Product/Idea Evaluation
MAR Model for Opportunity Evaluation
MARKET
ADVANTAGES
RETURN
Need
Barriers to Entry
Investment Needed
Pricing
Cost Structure
Time to Breakeven
Market Structure
Intellectual Property
Expected Profitability
Market Size
The Team
Exit Strategy
Timing
Business Strategy
Expected Investment
Return
Which Type of Company?
Three Key Questions to Ask Yourself:
1. Do I want to start a lifestyle business or high potential business?
2. Should I incorporate the business?
3. If so, which type of entity should I choose?
Lifestyle or High Potential?
Category
Exit Strategy
Ownership
Financing
What is Sold
Family Members
Entity Type
Market
Failure Rate
Founders Makes Money
From
Board of Directors
Systems
International sales
Lifestyle Company
High-Potential Venture
None
Acquisition or IPO
Founder is majority owner
No majority owner, CEO owns 5-30% of company
Bootstrapped, organic growth, or selffinanced
Angel investors or venture capitalists for seed round.
Additional rounds until cash flow positive or sold
Services or products with low differentiation
Products with proprietary intellectual property or based
on recent changes or new technology or high margin
and value add services.
Often part of business
Infrequently part of business
Sole proprietorship, partnership, LLC, or S
Corporation
C Corporation, usually incorporated in Delaware
Local or regional
National or international
High
Very High
Net profit disbursements
Liquidity event and sale of equity
Composed of company members
Composed of investors, industry leaders, and one or
two company insiders
Fewer processes or systems. Often only
make money while open.
Many processes and systems. Make money even while
owners are sleeping or operated around the clock.
Few
Many. May be international offices and/or
manufacturing operations.
Should You Incorporate?
Incorporation has many benefits. The three most important are:
1. Reduction in personal liability
2. Tax advantages (pay taxes on net profits not net income)
3. Prospects, suppliers, and investors will think you’re for real
If you intend to take your business seriously, get incorporated.
What type of entity?
Ask an attorney for advice on whether you should form an LLC, S corporation, or C
corporation and what state to form it in.
Some rules of thumb based on my experience:
An S corporation is good for a smaller business and has some tax advantages,
especially if you intend to be a lifestyle business.
However, if you want to raise investment capital, be taken seriously by venture
capitalists, or ever sell your company, it will likely benefit you to be a C corporation.
As far as location goes, Delaware is the most common state to incorporate a
business in if you plan on starting a business that will be seeking investment or
ever plans to go public or be acquired. If you plan on starting something smaller,
your home state is usually fine.
If you are starting a company with just yourself and money is an issue, you may
wish to use an online service like incorporate.com. The cost is about $250.
If you are starting a company with multiple founders or one in which you plan to
raise investment for, use a law firm. The cost is around $2500 but it will be worth it.
Raising Funding: Debt vs. Equity
The first step is to determine if you will need outside money to get your
business going. If you do, you have to determine how much is needed and
decide whether to seek debt financing or equity financing.
With debt financing, your company is loaned money that it will have to
pay back over time with interest. Main sources are family and friends,
your own contacts, and the bank. If you qualify, the SBA can be a big
help with loans.
With equity financing, your company is given money it will not have to
pay back in exchange for percentage ownership in your company.
Calculating ownership percentages:
Current value of company (Pre-Money Valuation) :
$40,000
Investment Amount:
$10,000
% You Own After Investment:
80%
% Investor Owns After Investment:
20%
Where to Get the Money
Usual sources of funds at different levels…
If you’re looking for
$1,000 to $25,000
$25,000 to $250,000
$250,000 to $1.5 Million
$1.5 Million+
You’ll most likely get it from
Friends, family, your contacts, bank
Angel investors, bank in some cases
Group of angel investors
Venture capital firms
Sections of a Business Plan
If you’re looking for any substantial amount of money, you’ll need a business plan. Here
are the sections that are in a usual business plan:
• EXECUTIVE SUMMARY
• THE PRODUCT OR SERVICE
• BUSINESS STRATEGY
• USE OF FUNDS
• MARKET OVERVIEW
• MARKETING PLAN
• CHALLENGES & RISKS
• THE TEAM
• COMPANY PERFORMANCE TO DATE
• APPENDIX A – REVENUE, PROFIT, & BREAKEVEN PROJECTIONS
• APPENDIX B - MONTHLY BUDGET FOR NEXT 12 MONTHS
• APPENDIX C – QUARTERLY BUDGET 3 YEARS OUT
Bootstrapping & Growing Organically
It is certainly possible to create a successful company without any initial
investment other than time and energy. This is often the only option
available to young entrepreneurs. Here’s what you can expect if you go this
route.
1. Be prepared to work 60+ hour weeks for a year or more without any
salary.
2. Be prepared to wear multiple hats including CEO, CFO, COO, VP
Marketing, VP Business Development, and Chief Executive Janitor
3. Be prepared to offer ownership in your company (equity) to purchase the
intellectual property rights to the product you want to sell if needed.
4. Be prepared to offer ownership in your company to other team members
until you can pay them a market salary
5. Be able to look at creative ways at getting legal and accounting advisors
to provided discounted help including offering them a small piece of the
pie.
Market Positioning
To develop you marketing positioning strategy, ask the following questions:
1. What is my unique selling proposition? What will make my product so
different that customers will buy it rather than competing products?
2. What do I want my brand to stand for?
3. Do I want to have a low cost, competitive cost, or high cost strategy?
Common methods of differentiation include a lower price, better service,
easier to use, a new feature, a new technology, or a better business
model.
Marketing & Sales Strategy
It doesn’t matter how good your product or service is if no one knows about it.
To get started on your marketing and sales plan, ask yourself these questions:
1. How will the product be sold? In a retail store, online, by direct mail, by
catalogs, by infomercials, through distributors, or by a combination?
2. Will you sell your product at wholesale, at retail, or both?
3. Is your main market businesses or consumers?
4. Where do customers go to look for the product?
5. How can we be positioned so that we’re in these places?
6. Could the price point support a telesales force?
7. Could the price point support a direct sales force?
Building a Web Positioning Strategy
Selling a product online can be a great way to reduce costs and
have your product exposed to a large market. Start by building your
web site, getting a merchant account, and getting a shopping cart or
order form running. In terms of positioning your company and
product online, there are four areas to look at
1. Search engine marketing
2. Email marketing
3. Affiliate marketing
4. CPC/CPM advertising
Building Your Team
Initially, it might just be you or you and a partner. As your company
grows, you’ll need to hire staff to help you. If you never hire anyone you’ll
be doing all the work yourself and be creating a job rather than a
business.
I look for five things when evaluating candidates:
• Experience in the needed areas
• Communication skills
• Ability to take initiative
• Aligned goals
• Fit with company culture
Becoming a Manager
Once you have employees, you will have to learn how to manage them.
Here are some tips.
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Have a Vision and Communicate It.
Show Respect.
Share Your Success.
Don’t Be Too Serious.
Work With Your Employees.
Have Your Door Open.
Listen.
Build Relationships.
Commend More Than You Criticize.
Reward With Praise as Well as Salary.
Building Systems
Investors invest in systems. Just as a human body is made up of a number of different
systems, so is a healthy business. You will need to put in place systems in the following
areas:
• Human Resources
• Billing
• Marketing
• Product Development
• Employee Training
• Accounting
But what are systems? They are just formalized rules, policies, and procedures that
trained individuals are able to repeat time and time again as your company expands.
Key Question: Will your business be able to make money while you sleep? All highly
successful businesses do.
Scaling the Model
Once you’ve found a business and sales model that works, think about how
you can scale it. If you’ve been able to build your company to this point
without outside capital, now may be a good time to get some outside capital
and put your foot on the accelerator.
Ways to Scale:
1. Set up sales offices in other areas and expand the business in those
locations.
2. Either find partners or set up new offices overseas.
3. Considering franchising your business if applicable.
4. Bring on better talent that may have additional knowledge on how to
open up new routes to market.
5. Expand spending on advertising efforts that have shown to be effective.
Where’s the Exit?
If you’ve been able to create a successful company with paying customers, an
in-demand product, an experienced team, and solid systems you’ll be well on
the road to reaching the $1 million mark in sales. Although this is a worthy goal,
the end goal for many is an exit event which may take quite a few years longer
to reach.
A company can exit in just three ways:
•
Get bought by or merge with another company
•
Get bought by the general public by having an initial public offering
•
Go bankrupt
For many entrepreneurs with high potential businesses, being acquired or
going public is the end goal. It generally takes at least five years to reach this
point, although the time can be less in certain situations.
Avoiding Failure
While getting acquired or going public is often the goal, the outcome of a business is
more often bankruptcy.
According to a longitudinal study conducted by the United States Small Business
Administration, approximately 60% of small businesses shut down within the first six
years. Small businesses fail for numerous reasons. The most common reasons are
because they:
• Have a poor concept;
• Are not good at marketing or sales;
• Fail to plan;
• Start the company without enough money to get to breakeven;
• Have an inability to differentiate;
• Lack control of their finances and books; or
• Don’t build systems and processes.
Spending the time in the beginning making sure you’re selling something the
market wants and making sure that as you grow you bring on a good team and a
good set of advisors can greatly increase your chance of success.
Principles for Entrepreneurial Success
1. Have a Bias Toward Action
2. Don’t Be Afraid of Failure or Mistakes
3. Work Your Butt Off, But Keep a Balance
4. Write Goals Down & Follow Up Monthly
Some Final Words of Advice
1.
Being an entrepreneur is not for everybody. But if you find it for you,
and you can find a way to succeed, it is extremely rewarding.
2.
If you presently do not have the financial resources, the experience, or
a good business idea, intern at or get a job at a company in an
industry you are interested in and start building your network and
gaining experience.
3.
Always focus on building relationships and expanding your network.
Remember that it’s half what you know and half who you know.
4.
Don’t be afraid of failure or mistakes.
5.
Get out there and do it. Take the initiative and have a bias toward
action. Get experience however you can, have confidence, and be in it
to win.
6.
Write down your goals and frame them. Aim high. Follow-up monthly.
7.
Get started today.
Recommended Books
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The Lexus and the Olive Tree by Thomas Freidman
Reinventing the Bazaar by John McMillan
The Commanding Heights by Daniel Yergin
New Venture Creation by Jeffrey Timmons
Zero to IPO by David Smith
Rich Dad Poor Dad by Robert Kiyosaki
Rich Dad’s Guide to Investing by Robert Kiyosaki
The Tipping Point by Malcolm Gladwell
The Idea Virus by Seth Godin
The Anatomy of Buzz by Emanuel Rosen
Think and Grow Rich by Napoleon Hill
The Seven Habits of Highly Effective People by Stephen Covey
How to Win Friends & Influence People by Dale Carnegie
For More Information
• Visit www.zeromillion.com, my web site on
entrepreneurship
• Visit www.ryanallis.com, my personal web site
• Check out my book Zero to One Million,
available on amazon.com
My company sites:
• Broadwick – www.intellicontact.com
• Virante – www.virante.com
Questions?
Q&A