BusDev and the SME. Part 2. Why should I buy from you?

Developing a killer value proposition.

I’m going out on a limb here, but I’m assuming you might not know how a Weibull Distribution might impact your business! Neither did I.

Microsoft Research analysed 205,873 different Web pages and crunched through more than 2 billion page visits to ascertain that the average time people take to decide if they wish to remain on a web site is 10-20 seconds. And that page dwell pattern conforms to a Weibull Distribution!

one second

Tick Tock. Tick Tock.

Combine that information with another study that describes where B2B buyers gain the information that makes them buy. The 2012 Buyersphere survey established that the top two information channels for European B2B buyers are supplier websites and web searches.

Bottom line, if you cannot:

a. Be found by the inquisitive B2B buyer and

b. Retain that person on your site for more than half a minute…..

…..game over!

This is why your business needs a killer value proposition and you need it on your web site……now!

The Proposition

The Proposition (Photo credit: Wikipedia)

a. What is a Value Proposition

It’s not an advertising strapline or slogan, such as: “Because I’m worth it” (L’Oréal) or “It’s the real thing” (Coke) or “Ah, Bisto” (er Bisto!).

A Value Proposition is a brief, simple, jargon-free statement explaining how your product solves their problem and why they should buy it.

It’s the benefit statement, the point of differentiation, the unique selling point. A sentence or small paragraph that stops the potential customer from hitting the go-back or X key in those crucial early seconds on your site.

b.Value Proposition characteristics

It should be believable, unique (or at least different) and contain the promise of something important that is of real interest to the potential customer, such as: a solved problem (no more downtime), a key benefit (improved RoI) or an appeal to status (buy the brand leader).

c. Value Proposition examples

Here are some examples of well structured value propositions:

Dropbox syncs your important work across all your devices. Your files are backed up and you can even return to older version or restore deleted files. And getting started with your team has never been simpler.

Evernote makes it easy to remember things big and small from your everyday life using your computer, phone, tablet and the web. Capture anything, access anywhere, find things fast.

Pret A Manger creates handmade natural food avoiding the obscure chemicals, additives and preservatives common to so much of the ‘prepared’ and ‘fast’ food on the market today.

ARM provides efficient, low-power chip intelligence making affordable, easy-to-use electronic innovations come to life. Our technology powers over 95% of smartphones. It breaks down the barriers of time and space, enabling limitless sharing of people’s lives to transform the way we communicate, work and play.

d. Now what?

I’m tempted to say, just get on with it, but my experience is that developing a good value proposition does not come easily to many business leadership teams.

1. Agree at a senior level that this is important.

2. Define your customer segments.

3. Clarify the problem(s) you solve and/or the benefit(s) you deliver to your customer. Establish the points of differentiation with your competitors. Thinking in terms like “We help Client X do Y by providing Z” may free up this creative process.

4. When you think you’ve developed a workable Value Proposition, trial it with a few prospects and see how they react. Did they “get it”? 10-20 seconds is all you should need remember! Think “elevator pitch”.

5. Integrate it into your web site landing pages and incorporate it into other marketing media and channels.

Look at other companies in your space and you will notice that very few clearly articulate the benefit they provide to the customer. If your business presents a clear value proposition to casual enquirers, you immediately have an advantage as you distinguish yourself from the competition. 

In the next few blogs we’ll take a look at how to become more visible online.

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BusDev and the SME. Part 1. Where are you going in 2013?

The younger of my two sons has been persuaded to participate in a charity boxing match next month.

Men on gym in Stockholm 1927

The gym can be a killer!

Consequently he has embraced a serious training and nutrition regime to get in shape and is already showing the benefits of multiple gym sessions, no alcohol and a controlled diet. I’m beginning to pity his opponent on the night.

This has led me to reflect that a successful business needs to be lean, responsive and agile if it is to survive the rigours of competitive life. This is the first in a series which I hope will provide the business owner or leader with some insights into how to tune and revitalise the business to enhance organic growth.

There’s a story of a traveller who becomes lost and asks directions from someone he meets on the road. The man looks at him wistfully and says with a curious grin,

Confused

You want to go where?

“Well now, if I was going there, I wouldn’t be starting from here”.

Being successful in business is fundamentally about getting two things right: strategy and execution. Sure, there are many other elements involved, but if our vision or strategic plan is flawed, we will fail no matter how brilliant the execution; or visa-versa. The unfortunate recent demise of a number of UK high street brand names such as HMV, Blockbuster, Jessops and Comet is illustrative. Each one may have been a superb retailer but were eventually brought down by other players selling the same products, in the same space, but through a completely different strategy.

Developing a sustainable strategy means we need to understand where we are and think about where we want to go. We may think we know our location, but often we need additional data to be certain. Finding the answers to the first question  is a start. We can then apply the energy and vision of our leadership team to the second question; where do we want to go?

1. Where are we? (our start point)

  1. Who are our customers?

    Compasses

    Where are we right now?

  2. How often do they buy?
  3. What is our customer retention rate?
  4. What is the customer sales cycle?
  5. What kind of conversion rates do I achieve (enquiry/proposal to order)
  6. Are all my customers equally important? Are some more valuable to me than others?
  7. What products are popular/unpopular and likely to grow/subside?
  8. What are the key metrics (or key performance indicators) that create the sales, margin, profitability and return on investment results? Where is profit made?
  9. How visible are we online?
  10. What are the trends in our part of the economy?

2. Where do we want to go? (our destination)

  1. What is our vision or ambition for the business in, say, 3 years’ time? What does success look like?
  2. What is our value proposition? How will we differentiate ourselves?
  3. What is the right business model to adopt?

    strategy

    What’s your vision?

  4. In which geographic markets will we be present?
  5. In which market sectors or segments will we be active?
  6. What products or services will we be selling? Which of these exist today?
  7. Which routes to market will be available to us?
  8. What kind of organisation, resources and skills will be required to deliver this?
  9. Will we be working in partnership with other organisations or individuals?
  10. What financial results will we expect?

Leaders of mid-sized and smaller businesses sometimes believe that it’s not possible to address these two questions. They do not have the time or resource. There is an element of truth in that sentiment, but it’s really a mindset that reinforces the status quo; the inner voice telling us “we’ve been successful for years, so why change now?”

Over the past six months I’ve been involved as a Growth Accelerator* Coach working with a number of SMEs and Start-ups to guide them through this strategic landscape. It’s been encouraging to see that the results are overwhelmingly positive. So before you let that inner voice distract you, start working on the data to establish your current position. Then make a date with your management team to think about the journey your business will take, so that you can plot a successful future. If you need some help with these questions, you could always give GrowthAccelerator a call.

Part 2: Developing a killer value proposition

*GrowthAccelerator is a national service, supported by £200m of Government funds, to help ambitious SMEs boost growth and potential. Visit http://www.growthaccelerator.com

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Top 10 UK Business Predictions for 2013

1. There’ll be a bit of an economic recovery. According to the European Commission the UK will be the fastest growing, major European economy in 2013 with a forecast growth rate of 0.9%, compared to a contraction of 0.3% this year. Don’t hold your breath though given the accuracy of economic forecasts. Maybe we can do our bit by refraining from “talking the economy down”.

2. The cost of borrowing will increase. Interest rates are likely to rise in the second half of 2013 from 0.5% to 1% with inflation softening from 2.7% to 2.3% according to PWC.

3. Fraud is expected to increase dramatically with the most common being “card not present”

4. Mobiles will overtake PCs as the most common way to access the internet, according to Gartner, becoming an integral part of the full digital experienceGoogle’s Android operating system will be UK’s #1 spot with 60% smartphone market share. Brands will begin to integrate the experience across devices, platforms and situations.

5. The retail bloodbath is set to continue in 2013 with double-digit insolvencies expected. However, corporate insolvencies have declined in 2012 and are likely to remain fairly static into 2013, depending on interest rate levels.  It isn’t going to be pretty in the Newspaper sector either!

6. Crowdfunding, the best thing to happen to financial services or a legal disaster waiting to happen? Either way, it’s here to stay in the UK, unless the government starves it at birth through excessive regulation. Globally it’s going to hit $6bn in 2013!

7. Device convergence continues. Your mobile device will become the remote control of your life.

8. B2B catches up with B2C and data analytics will be key.

 9. Manufacturing fights back against the web coders, through innovation and close-coupled logistics.

10. Developing a high performance team never seemed so important.

Kick start your business with these 7 strategies for success in 2013:

1. Cash trumps profit. Ensure your (entire) cash collection process is finely tuned.

Money

Cash v Profit

2. Retain your customers – it’s easier (and cheaper) than getting new ones.

3. But….don’t fish in the same pool. Extend. Innovate.

4. Clarify your (customer) value proposition and deliver on it. Be awesome.5. Be visible online. Like it or not, the internet is here to stay and for some (if I may use the term, “old dogs”), there are lots of new tricks still to be learned.

6. Change the pace. Up the tempo. Create urgency within the business, even if things are going well right now. Be as hungry and focused as a start-up (or possibly your competitor!). Adopt daily briefings, weekly targets and hackathons to name a few start-up tactics.

7. Celebrate your successes. I hope you will enjoy many of those in 2013.

P.S. What do your CEO peers think about the coming year? Find out by completing this (short) Business Owner Survey.

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Successfully Raising Angel Funding-Part 4

“Capital isn’t scarce; vision is.” Sam Walton

This is the final part of a short series of blogs on raising funds from Angel investors. We’ve looked at the Angel investor market in the UK, how to connect with them and some key points for a winning pitch.  However, the process can only be regarded as successful once funds are in the company bank account. In this final blog we look at:

Closing the Angel round

Successfully completing an investment round, with multiple business Angels,

Angry Birds vs Angry Cats

can be the equivalent of herding cats! Here are 12 steps to make the process less protracted and painful.

12 steps to success

1. Establish a group of angels who have indicated an interest in investing in the opportunity to form the syndicate for the round.

2. Ensure that you are in direct contact with all the syndicate members, have validated their ability to invest and know the amount they are prepared to invest.

3. Identify and gain the support of a lead investor for the syndicate. This individual is ideally the angel with most investment experience, who has specific and relevant domain or sector experience, who is sufficiently known to other members of the syndicate such that they gain additional confidence from his/her involvement. The individual is likely to be a significant investor in the venture and may become the investor representative on the board.

4. The entrepreneur will need to be ready and able to respond to due diligence

The Machine Room

Organise your DD data

information requests. This process may include the provision of various scenarios on revenues and costs as the syndicate validates forecasts initially presented. Establishing an online data room beforehand will streamline this process.

5. In the absence of a term sheet being presented to the entrepreneur by the syndicate, agree a term sheet with the lead investor and present it to the syndicate.

6. The term sheet is a legally binding document, once signed, and should include the following elements:

a. Offer terms, such as:
1. Company, founder and investor details
2. Amount to be invested
3. Pre-money valuation
4. Type of security and structure

b. Conditions, such as:
1. Satisfactory completion of due diligence and references
2. Enterprise Investment Scheme (EIS) qualification
3. Service contracts

c. Terms of the agreement, such as:
1. Board composition & decision making criteria
2. Rights and restrictions for shareholders
3. Representations, undertakings and warranties of the founders
4. Professional fees and costs
5. Exclusivity period and timescales

d. A capitalisation table showing the post-investment ownership structure of the business to include founders, option pool and investors in the current round.

Term sheet templates are readily available online from various sources and can also be provided by the legal adviser of the entrepreneur or angel syndicate.

7. Once the term sheet items are agreed, secure the signatures of the syndicate and the founders to create a binding document.

8. Instruct legal advisers to begin the documentation process, having earlier established and agreed the fees involved. Both parties will need legal representation, but the angel syndicate should now operate as one with a single legal adviser. The documentation process will include a shareholders agreement, articles of association, disclosures and various board minutes and filings for Companies House.

9. Maintain communication with the syndicate, through the lead investor, throughout the documentation process. Confirm the expected date for funds transfer and completion to ensure that angels will have transferred funds to the legal adviser beforehand and are available for document signature.

10. Respond to documentation queries and change requests raised by the investor side promptly. Don’t fight unimportant issues.

Arm wrestling in Bricklane II

Don’t fight unimportant issues

11. Ensure the business continues to make progress and, especially, meets any expected milestones. If at all possible provide the syndicate with some good news to reflect progress, increased traction and momentum.

12. Do not under-estimate the difficulty of gaining signatures on documents if multiple investors are involved. Many business Angels travel regularly and can often be difficult to contact.

Completion itself is likely to be something of an anti-climax, with the exception of the knowledge that the funds are now in the company bank account.

Conclusion

Raising funds from business Angels may be difficult, time consuming and even frustrating but for the right founder with the right venture it may be the preferred option. Your chances of success are likely to be enhanced the more you align with the approach and guidelines discussed in this blog series.

F1 podium - Silverstone 2007 - And now the Cha...

And now the Champagne!

And if you do manage to successfully conclude your Angel round, you will have started the really hard work of…….delivery.

Successfully Raising Angel Funding, Parts 1-4 is available as a single document download on Slideshare

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Successfully Raising Angel Funding-Part 3

Do you want to spend the rest of your life selling sugared water, or do you want to change the world” Steve Jobs

In the first two parts of this blog series we looked at the Angel investor space in the UK and how to interest them in your venture. This blog focuses on how to make a winning investor presentation.

Pitching to angel investors is a sales process. The objective is to create an appetite to invest in your business opportunity.

1. Capture attention
Tell them about you, your killer team, the problem and your awesome product, the traction gained and the (significant) potential. In more detail explain your business model, how you add value to customers, how you plan to obtain customers, distribution and revenues and where, how and why you are better, different or protected from competitors.

Audience

2. Create interest
The best way to create interest is to demonstrate traction; that customers are buying the product/service in increasing numbers. If it helps investors understand the product or technology then a demo, mock up or screen shots may be helpful.

3. Build desire
Show how revenues and cash can be developed in the near term, and what sort of value could be built over a 3-5 year period.

4. Confirm action
Summarise the funding that is required and how it will be used, showing any relevant milestones. After positively responding to questions, connect with those who are interested, agree a next step and follow up promptly.  Don’t forget to qualify their level of interest and their ability to participate in a funding round in the timescales proposed.

Do not:

  • Provide technical detail about the product
  • Provide financial detail

    Map-of-complexity-science

    Keep it simple!

  • Overuse jargon or catchphrases
  • Misrepresent the facts
  • Use phrases like “if we can just get 1% of the market….”
  • Use phrases like “likely trade buyers are Google or Facebook”
  • Tell your life story
  • Talk to the slides or read from a script

Do:

  • Provide a summary of annual revenues, costs and profit over a 3 year periodAWESOME
  • Indicate when you expect to break even and achieve significant milestones
  • Explain how much money you are raising and commitments made to date
  • Clarify how these funds will be used
  • Draft, re-draft and practice the pitch
  • Keep it to 10 slides max, some say 6!
  • Be focused, passionate, engaging and clear
  • Make it memorable…..for all the right reasons!

The final part of this blog series will focus on how to take the investor enthusiasm you have created to a completed funding round. It doesn’t have to be like chasing chickens in the back yard!

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Successfully Raising Angel Funding-Part 2

In Part 1 we looked at the UK Angel investor community and where such investors might be located. In Part 2 we focus on how to gain their interest, the tricky aspect of:

Motivating Angels

“No one does anything from a single motive”. Samuel Taylor Coleridge

Regrettably the sentiment expressed in the 1966 pop classic, “Reach out and I’ll be there”, does not apply to the entrepreneur and the business angel community unless a number of conditions are fulfilled. The risk of failure for start-ups is high and so it is in the interest of the start-up team to reduce as many of these risks at fund-raising stage as possible.

Angels assess investment propositions across a number of dimensions. Hygiene factors will relate to things like location, industry sector, the amount being raised, stage of development, and timing. However, the real motivating factors will include:

a. An inspiring team
Views differ on what constitutes the optimum team and useful insight may be provided in online discussions on the subject. Investors value sector or domain experience, technology skills and execution capability. In the absence of any prior success, interest is also increased if the entrepreneur comes with a recommendation or referral from known investors. It’s called “social proof” and should work both ways in the start-up/investor relationship.

b. A problem solved, or a new product/market created
Given that truly new product/market innovations are thin on the ground, the venture must solve a real problem. This can be achieved by being “disruptive”, bringing a new approach to an existing business model, or being considerably cheaper/more efficient/better quality at delivering an existing product or service.

Propositions such as bottled water for pets (thirstycat), online currency alternative to cash and credit cards (flooz) and the infamous attempt by the world’s largest beverage company to introduce “New Coke” in 1985 are examples of products looking for a problem.

“When the solution is simple, God is answering” Albert Einstein

c. An awesome solution
The problem may be clearly articulated but the solution has to be realistic, affordable, and capable of generating enough revenue and profit, and deliverable within a timescale acceptable to investors.

Proposing yet another online hotel reservation business may not capture investor imagination, but suppose you could create a business that connects people who have space to spare with those who are looking for a place to stay? That’s the proposition of airbnb, started in 2007, in response to the problem of a lack of hotel space, now offering private accommodation in 186 countries, and valued at $1.2bn.

d. Some form of competitive advantage.
Occasionally referred to as a “moat”, to reflect the difficulty for a competitor to gain entry to the market. This may be evidenced to investors through the company’s intellectual property (IP) which may be in the form of patents applied for or granted or other forms of technical advantage.

“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” Sam Walton

e. Traction
A great team presenting a wonderful solution to a clear problem will look even more attractive to investors if customers are already on board or have made commitments to use/buy the product or service. It’s called traction and investors love it because it is the best demonstrator of the inherent potential value of the business.

f. The size of the prize
The target market needs to be capable of delivering a customer base of sufficient size to enable enough value creation to reward investors for the risk taken. At one extreme is the world’s most successful start-up, Facebook, incorporated in 2004, which has 800+m active users and a current valuation of $41bn. Your start-up is unlikely to be a global play, but if you can steer clear of “very small market niche” that will work in your favour.

g. Valuation
The best advice that can be offered to the entrepreneur on the thorny issue of valuation is: “be realistic”. If you are bringing all the above criteria to the table, are revenue generating, have patents granted in all key markets, are likely to be profitable in year 1 and have a large target market, then the argument for a higher valuation is more easily justified.

Valuation rules of thumb are many and varied and are typically lower in UK & Europe than North America. Generally, the angel investor community operates in the £100k to £1m pre-money valuation range and wishes to secure a meaningful equity stake, which means between 25%-35% of the business.

In the concluding third blog we will unpick the critical success factors required to secure Angel investors and successfully complete the funding round.

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Successfully Raising Angel Funding – Part 1

“There is joy in the presence of the angels.” Luke 15:10

Business angels have been recognised as an important source of finance for entrepreneurial businesses for nearly 20 years in the UK and for even longer in the USA. But angel investment activity is difficult to identify and track. In the 2011 report on the UK business angel market the British Business Angels Association (BBAA) reported that the 1,800 active angels within its network had invested £32.2m of the £98.3m raised by 245 companies. This analysis formed part of the authors’ estimate for total UK angel investment of £318m.

Angel investing is inherently risky. The 2009 NESTA/BBAA research report “Siding with the Angels” analysed returns suggesting that 56% of angel investments exited at a loss, with most losing the entire investment, and 44% at a gain. The average exit multiple was 2.2x the original investment in 3.6 years, although 9% of exits were made at a multiple of 5x or more. Overall the result was a gross IRR of 22%.

The primary motivation of the business angel is to make at least 10 times their investment over, say, a 5 year period, ideally in a tax efficient manner. This equates to an internal rate of return (IRR) of almost 60%, to compensate for the risk involved.

They may also be motivated by the satisfaction of being involved in a new venture, keeping up to date with technology or trends, and the potential excitement of being part of a real success story.

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” Thomas Edison

Entrepreneurs should ask themselves three questions before approaching investors:

a. Do I have the tenacity, determination and enthusiasm to raise funds? The process may take 3-6 months and is likely to become all-consuming. You will be rejected more than accepted and are more likely to fail than to succeed. Angel groups across the BBAA network received almost 10,000 business plans during 2009/10 of which only 8% were deemed of sufficient quality or interest to pitch to members and only 1/3rd of these, or 2.5% of the original submissions, secured funding.1

b. Do I need angel finance at all, given that many startups do not receive investor funding? Is it possible to bootstrap my new venture? Could I finance my embryonic business with the support of some co-operative clients, a helpful supplier or maybe a modest, friendly loan from the “bank of mum and dad”?

c. Is my startup something in which I would invest, if the roles were reversed? Is it just another mousetrap or something truly innovative that changes the way people buy or use mousetraps or approach the mouse-catching problem?

“It is not known precisely where angels dwell – whether in the air, the void, or the planets.  It has not been God’s pleasure that we should be informed of their abode.” Voltaire.

Where to find angels? A useful resource is the British Business Angels Association which has a membership of over 100 organisations and angel networks. Individual angels can be more difficult to identify and may be found at investor network or pitching events, or online through personal blogs or social media platforms such as LinkedIn, Twitter or Google+.

Exposure to angels may also be achieved through the increasing number of accelerator programmes, incubators or competitions, such as Tech Entrepreneurs Week, that have developed over the past years. Table 5 of the NESTA report, “The Start Up Factories”, provides a list of 12 UK-based accelerator programmes.

A recent innovation to help connect UK high-growth businesses with investors was launched by the Government in mid 2012, GrowthAccelerator Access to Finance (A2F). For a modest fee an A2F expert coach works with the business to help make it “investment-ready” and with the guidance of the GrowthAccelerator investor relations panel, facilitates introductions to three potential investors.  It’s early days, but at the time of writing almost 1,000 business have signed up with GrowthAccelerator.

In Part 2 we’ll look at what makes an Angel stop and look!

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