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Raising Capital and Business Building options

This article was written in preparation for a symposium covering capital raising choices and business building strategies. The following ideas are only that... my personal ideas based on my personal experience so please take that into consideration as you consider the ideas and principles I explain.

Start with the end in mind
Like all good business books I agree with the adage that goals must be clearly defined and realistic. One of my favorite business books is Business Corps a book of lessons from the US Marine Corp and one of its key concepts... the visualization and clear definition of the end state. Where you want to be.

But this is easier said than done. With options ranging from boot strapping and organic growth, to a fully fledged VC backed market entry to tapping into government business development and R&D assistance programs, it's hard to know what combination of approaches best suit your business and opportunity.

I wish I could give you real-life examples of the pros and cons of each approach and speak from experience, but I can't.

On the other hand I, like you, are looking at these same options for my own inventions and prospective businesses and can at least share with you my gut feelings and instinct on how to choose a good combination for a wide variety of businesses and opportunities.

This brings me back to the key thought "start with the end in mind". This is such an important step you need to bring all your emotional and logical resources together to make a good solid decision that has a good probability of success, requires some courage (which also makes it fun) but is also realistic.
So let's start the process

For your business to be a major success will it eventually have to be based overseas? Maybe in the US? Are you prepared to go there for a decade? How much investors money are you willing to spend to learn to be a CEO of your company? If you haven't done it before then don't presume it is something you will just get the hang of in time.

To help further clarify, I find that business success is the combination of three main elements.
  • A great idea or technology from determined founders
  • A great execution team that have done this kind of business before.
  • Money from quality investors
These three things are the core of success as far as I can see. The weaker the core idea, the harder it is to sell in turn making it hard to execute for even the best team with tons of money.

But a killer idea will die on the vine if the opportunity window passes while the founders try and learn how to build and run a business... and even with the most supportive investors who may have the deepest pockets you run risk of spending a lot of money and not getting anywhere.

My magic formula is this:
  • A strong new idea with a value that is readily appreciated by the target customer. The idea need not be commercialized but it has to be baked, not still in R&D.
  • A CEO who has sold something like this before. Someone who knows exactly who to sell to for how much and can build a business plan that is based on real experience.
  • An investment group that is familiar with the market you are entering and may even be known to the CEO so that the decision to move is fast and the confidence in the business plan is well founded and reasonable.
  • The next thing is to be realistic about your end goal, what we called earlier the "end state".

An example 
For example, you may have a health care technology that may have international market opportunities but you know in your heart that if you can get adoption in major hospitals in every state of Australia you will have executed your plan to your satisfaction.

Unless you have already sold some technology to every major hospital in Australia, I'd start looking for someone else who has. Beg, borrow and steal. Do whatever it takes to find, the guy... or gal who has been there before. 

Someone who knows how to deal with state health departments and hospital management.  This may sound slow but going off half cocked and trying to start market entry yourself will take much longer than you think and could quite possibly kill the opportunity.

Kill the opportunity? Yes. I am a firm believer in opportunity momentum. It's the magic that happens when great people work on a great idea and are backed by the right resources.It's happened to me before and now that I know what it feels like I'll never try and run my own company again.

So you find someone to lead your team to your goal and now you need funding. They may love your idea and your aspirations, but what do they want to get out of it? What does your CEO want to get out of it?

Isn't the goal for both your team and your investors to build the business and then cash out? Is it realistic to expect a market entry maestro to spend the rest of his or her days maintaining the business and for investors to be happy with a quarterly dividend?

How does everybody exit?

The answer to these questions is the reason why the most important question to answer regarding the end state is "How does everyone exit?" What does your CEO , your investors and your family want in terms of an exit?

When you get your head around this it completely changes your game plan. Put plainly:

Your end state, your ultimate goal is your exit strategy.

It sounds crass and capitalistic to some of you I know, but it is a reality. It is the only way to execute your plan, and the earlier you decide what you want to do the easier it will be to execute a good plan. So here are some options to consider.

Example Exit Options

IPO - not for the feint hearted. Almost certainly requires a stellar VC backed US market entry and you better have a killer product and be ready to live in the states for a decade.

Acquisition or Merger - Have three target acquirers in mind from day one. Know what they need and how not only your product but your business plan and execution will fit with them as you  get ready to put your self on the market.

Back in California I was privy to the antics of a couple of quintessential entrepreneurs called the Steelburg brothers. They had tea shirts printed up for their shareholder meetings with "Google, Yahoo or Microsoft?" printed on the back that everyone was encouraged to wear. I don't think there was any doubt as to what their exit strategy was. They subsequently sold to Google in record time.

So there you have it... I hope these ideas are helpful. But please remember these are only the personal findings of moderately successful inventor who dabbles in entrepreneurship.

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