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Monday, April 17, 2017

Lesson #263: Having Laser-Focus Increases Odds of Success

Posted By: George Deeb - 4/17/2017

Do you remember the scene during the credits of the movie Forrest Gump , where the feather was floating through the sky, being carried i...



Do you remember the scene during the credits of the movie Forrest Gump, where the feather was floating through the sky, being carried in whatever direction the wind would take it?  That is a perfect visual of what not to do, when trying to build a business.  Business success requires an almost religious level of focus on the goal at hand, and not letting the whims or pet projects of our customers, investors or employees blow us in different directions.  The entrepreneur that can keep the team focused, and not easily distracted, is the one that will most likely and successfully get to the finish line.

WHAT IS FOCUS—A PERSONAL CASE STUDY

The best way to define focus, is to give you a personal example of what focus is not.  Yes, even yours truly has fallen victim to a loss of focus during the early days of my executive career.  And, this example from my iExplore days will pound home the point.  iExplore was a consumer portal to research and purchase adventure tours, where our primary strength was consumer marketing online, relying on ground operator partners to run the trips.  But, in our early days, we got lured into the corporate incentive travel business by one of our customers.  The idea of selling 100 passengers per booking, instead of 2 passengers per booking, sounded like it was worth it, to a startup trying to scale its business.

But, in chasing that business, we quickly learned that the corporate incentive business is driven by a B2B sales team, not consumer marketers (and we didn’t have the right team with meeting planner relationships to be successful).  And, the skillsets required for customer success, were a lot more than marketing; we need professional event planners and boots on the ground to be really successful.  And, that just wasn’t our consumer model (since we didn’t actually have to run the trips ourselves).

Attempting to get into the corporate incentive business for iExplore, was the equivalent of me leading the team down a rabbit hole.  That “flavor of the month” looked like a good move, based on the financial upside of a business like that, but without the right sales and operations team involved, it was simply a fool’s errand.  Which ultimately distracted us from focusing on continued success in our consumer business.  So, the point here:  don’t let your “flavor of the month” lead you down any rabbit holes, as those rarely bear fruit long term.

DON’T CONFUSE FOCUS WITH BEING STUBBORN—CASE STUDY PART 2

Continuing with another story from iExplore, there was a major pivot point in our history, when iExplore began to sell advertising on our website.  I really wanted to stay focused on being a travel revenue business only, as I thought the ads were going to clutter up the site and hurt the user experience.  But, my fellow executives passionately made their case to do a small advertising test on our website.  And, the result was a  new found revenue stream and a 75% profit margin business that far exceeded the 10% profits margins we were getting from our travel revenues.

The point here was, had I stay solely focused on being a good travel business, we would have missed an even bigger opportunity to evolve the business into a big travel media business.  Once we learned that 30% of our revenues were driving 75% of our bottom line profits, the team shifted directions on what we saw as the future of our business success.

YOU CAN ONLY BUILD ONE BUSINESS AT A TIME—CASE STUDY PART 3

Once iExplore made the decision we were shifting our focus to being a media business, from a travel business, that changed everything from a website design perspective.  And, that ruffled a lot of feathers internally from our travel department, that thought that the media business was actually hurting the company.  There was a constant tug-of-war between the travel business and media business fighting from prominence and positioning on the web pages, as what was good for one, was bad for the other.

I actually thought having the two business lines fighting with each other would create a good balance on the website, in terms of not letting the user experience get too gummed down by too many ads on the page.  But, what I should have done, was pulled the plug on the travel business altogether, and let the high margin media business drive the train.  The media business required less people to build, drove 3x the profitability and was very sticky with a high level of repeat clients.  Hindsight is 20/20, but we should have had better focus on that one business line to truly maximize our success.
But, it was a scary thing to do, exiting the core of the business of which the company was founded.  Don’t be scared to make the right business decision, even if it means killing your sacred cows.

DEFINING THE GOALS TO FOCUS ON

In order to define the key business goals that the management team needs to focus on, that requires a more formal strategic business planning process.  And, most entrepreneurs don’t know how, or don’t take the time, to run that process.  Here is a link to how to run a strategic planning process like this.  Even if you do it in an abbreviated fashion, taking the time to define your strategic plan, will make sure the voices of all stakeholders are heard and ensure you are truly focused on the right objectives to maximize success for your business long term.

KEEPING THE TEAM FOCUSED ON THOSE GOALS

And, once the plan is set, your job as the CEO is to make sure your entire management team is staying focused on hitting those goals and not running down any new rabbit holes that come along over time.  At least until your next strategic planning process, where all new ideas can be considered at that time.  You can’t have your CFO building a sedan, your COO building a minivan and your CTO building an SUV, when you all agreed during the planning process you were going to build a luxury coupe. Focus, focus, more focus, will help you achieve your business goals a lot faster.

For future posts, please follow me on Twitter at: @georgedeeb.



Friday, April 7, 2017

The Art of the Follow-Up

Posted By: George Deeb - 4/07/2017

Given how important good selling techniques are to driving revenues, I am shocked how many entrepreneurs and salespeople are just bad at...



Given how important good selling techniques are to driving revenues, I am shocked how many entrepreneurs and salespeople are just bad at working their leads. This includes things like not following up on leads (or following up too much) and not knowing how to break down barriers, to get the lead to actually listen to your pitch. This post will help you become a master at properly working your sales prospects.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.


Lesson #262: A Venture Capital Playbook Over Time

Posted By: George Deeb - 4/07/2017

I read two terrific articles this month that summarized venture capital trends over the last several years.  The first was Pitchbook'...



I read two terrific articles this month that summarized venture capital trends over the last several years.  The first was Pitchbook's 2016 VC Valuations Report and the second was CB Insights's Venture Capital Funnel.  They are a must read for anyone thinking about going down the venture capital route, in terms of financing their growth.  Read together, they help you better understand what you can expect along the way.  Below is my summary of these two articles that are most relevant to you.

Starting with the CB Insights data, they looked at 1,098 companies that raised seed stage capital between 2008 and 2010, and then tracked the outcome of those companies over the following years.  Approximately 46% raised a following Series A, 28% a Series B, 14% a Series C, 6% a Series D and 2% a Series E round.  And, of this group, only 28% of them got to an M&A exit for their investors.  And, of those exits, 71% where under $50MM, 10% were $50-$100MM, 8% were $100-$200MM, 6% were $200-$500MM, 3% were $500MM-$1BN and only 2% were over $1BN.

So, what's the conclusion from this data.  Entrepreneurs think they have the best idea in the world and they are on their way to building the next unicorn level company.  But, only 1% do.  So, know going into the process, that there is a big drop off from one step of your growth to the next, with a lot of headwind along the way.  The odds to getting to a huge payday is very low.  And, the odds to getting to any exit are not great, with only 3 in 10 getting to that point.  So, most of you are going to end up either with self sustaining businesses that can't be sold, or more likely, out of business.  A pretty depressing concept before you even get started!!

Now moving on to the Pitchbook data, I put this chart together to help me better look at it:


There were so many nuggets to learn from this chart.  First of all, you are going to have 1-2 years of history before you raise penny number one from professional investors.  So, be prepared to bootstrap finance your business until you get to your proof-of-concept point the investors are looking for.  Second, look how fast the process moves, which says two things: (i) buckle your seat belt, it is going to be a helluva ride; and (ii) you are never going to get out of fund raising mode, which sucks if you prefer to be focusing on the business.  Third, you get some good data here on how much you should raise and how much you should value your company for, at each stage of its development.  And, lastly, when you add up all the dilution from the multiple rounds, the founder's stake is going to dilute itself down from 100% day one to 33% after the Series D.  And, if there are multiple founders that gets split between you.  So, you will be doing a ton of work that the investors are going to see 67% of the benefit.

There were some other interesting data points in the Pitchbook article: (1) valuations are pretty lofty right now, steadily rising in each round level since 2010 (up about 2x over the last several years)--that can't last for much longer; (2) flat or down rounds make up a healthy 26% of the market, so even if you are raising new funds, valuations don't always go up; and (3)  if you have a strategic corporate investor as part of your investor group, the VC's like that, as evidenced by them paying a 54%-65% premium valuation for companies with a corporate backer vs. companies without one (so figure out how to get a corporate investor to take a liking to your business, if you can).

So, there you have it--everything you need to know to in terms of raising venture capital for your business over time, and what to expect along the way.  What do you think?  Still interested in taking the leap, after studying this data??

For future posts, please follow me on Twitter at: @georgedeeb.


Thursday, March 30, 2017

Lesson #261: Leadership 101--Narrow Your Say-Do Gap

Posted By: George Deeb - 3/30/2017

I recently was in a client’s office and they had an interesting collage of words and images hung on their wall, trying to summarize the ...



I recently was in a client’s office and they had an interesting collage of words and images hung on their wall, trying to summarize the culture they wanted to create for their employees.  One section stood out to me, it said, “Narrow Your Say-Do Gap” next to the word “Commitment”.  Not only did I think that was a great way to manage your team’s expectations by, it must be working, as the company has a “love affair” with their leadership team, as evidenced by their employees long tenure with the company and the very high reviews of their CEO on Glassdoor.  There are some juicy nuggets in here, that we can all learn from in trying to be good leaders with a narrow Say-Do Gap.

WHAT IS THE SAY-DO GAP?

Let’s first define the Say-Do Gap, so we know exactly what we are trying to narrow.  Just as the name suggests, as a good leader and fellow employee, it is important that you “practice what you preach”.  If you tell your team you are going to do something, DO IT!!  The better you follow through on your stated promises with visible actions, the narrower your Say-Do Gap.

WHY A WIDE SAY-DO GAP IS BAD?

A lot of bad managers may give lip service to saying they are going to do something, and never follow through.  And, all that does is irritate everyone in the office that was relying on that project to get completed.   While at the same time, delivers a deadly blow to your credibility as a leader.  If your employees can’t trust you to honor your word, they will never remain loyal to you.  Companies with a wide Say-Do Gap typically have a very poor morale in the office and experience high levels of employee turnover, as employees become disgruntled by mismanagement of unrealized expectations.

A WIDE-GAP CASE STUDY

I have been exposed to a lot of poor leaders, during my work at Red Rocket.  The relationship with that CEO typically starts out fine.  They say they have a problem they want to fix, and they are committed to doing whatever is necessary to fix the problem (e.g., capital investment, new incentives, new hires).  But, after the project starts and recommendations are made, when it is time to pull the trigger they never follow through.  And, worse yet, they say they are working on it, but really have no intention of actually doing it.

Maybe they are concerned about the resulting dilution to their ownership that would come from a financing or new stock option plan, or maybe they are debt averse, or maybe they just don’t agree with their team’s recommendations and prefer to avoid conflict.  Whatever the reason, they get the “engines of change” up and running, which gets their team excited.  But, then when push comes to shove: no actions are taken, and their entire team ends up disappointed in the process.

A NARROW-GAP CASE STUDY

On the flipside, let’s remember my case study from my time at iExplore, right after 9/11/01 with the travel business imploding in the wake of terrorism.  I was always honest with my team, both in good times and bad times of the company.  And, I always followed through on any promises I had made to the team over time.  If I told them we were going to raise new capital, we did.  If I said we would sign a new partnership, we did.  And, that history of a narrow Say-Do Gap between 1999-2001, gained me the trust of our team over time and earned me what would become much needed “trust me capital” when we crap hit the fan on September 11th.

More specifically, iExplore should have gone out of business.  Revenues stopped coming in, as people stopped traveling.  We had a large burn rate carrying a staff of 35 employees.  And, our investors went running for the hills.  So, when I had to terminate all employees, and ask 12 of them to volunteer their time for three months, on the hopes of me raising a new round of capital and getting their volunteered back-pay funded at that time, that would have been a monumental ask of most employees in most any other company.  But, our team was passionate about our business and they trusted me to follow through.  Which I did, getting a new funding round closed in January 2012 and all their earned pay from their volunteered fourth quarter of 2001 repaid in full, at that time.

The point here is not how we saved the company.  The point here is I would have never been given the opportunity to save the company by my team, if I had anything other than a narrow Say-Do Gap in the two years leading up to that event.  Trust matters in being a good leader, perhaps more than anything else, especially when things start to go wrong, and you need your team the most.

WHAT DOES THIS MEAN FOR YOU?

Do a critical assessment of yourself.  How many times do you promise to do something?  And, compare that to how many times you actually followed through?  If that answer is close to a 100% follow-through rate, you are a “Narrow Say-Do Gap Jedi Master”.  But, the closer you get to 80%, or God forbid 50%, the damage you are doing your leadership credibility may be too insurmountable to overcome.  Don’t let this be you.

For future posts, please follow me on Twitter at: @georgedeeb.



Tuesday, March 21, 2017

Lesson #260: Where to Find Businesses for Sale

Posted By: George Deeb - 3/21/2017

As many of you know, I have been looking for businesses to buy, over the last few months.  Primarily in the digital technology space.  T...



As many of you know, I have been looking for businesses to buy, over the last few months.  Primarily in the digital technology space.  There are plenty of resources that I am leveraging in this process, from my personal network to business brokers to online websites.  I figured this would be a useful post for any of you looking for businesses to buy, as part of setting an M&A strategy for your business.

YOUR NETWORK

When looking for a business to buy, you need to be well connected to people that know about businesses for sale.  This includes people like lawyers, accountants, bankers, venture capitalists, private equity firms, consultants, etc.  So, be sure to let these types of professionals know you are on the hunt, and what specifically you are looking for, and they may know of current opportunities.  Or, at a minimum, hopefully, they will keep you on their radar for future opportunities that arise over time.

BUSINESS BROKERS

Business brokers or investment bankers are companies that are engaged by a seller, to help them sell their business.  They prepare all the marketing materials, reach out to prospective buyers and act as an intermediary between the buyer and the seller of the business.  Business brokers come in all shapes and sizes, from "one man shows" to big companies, and they typically have a specific area of focus.  Some focus on big companies, others focus on small companies.  Some focus on the Midwest, others focus on the West Coast.  Some focus on the technology industry, others focus on manufacturing.  All as examples.  So, find the business broker that that best serves your target company size, industry and location.  Doing some searches on Google should point you in the right direction (e.g., "business broker Chicago technology").

As a few examples of some of of the better ones I have worked with, focusing on smaller businesses in the digital technology space, reach out to the partners of firms like these:

Corum Group (based in Seattle)

Digital Exits (based in Los Angeles)

Exit Strategies (based in Silicon Valley)

Peakstone Group (based in Chicago)

Petsky Prunier  (based in New York)

Progress Partners  (based in Boston)

Valley Biggs (based in Tampa)


ONLINE WEBSITES

There are a plethora of websites promoting businesses for sale.  Some do a ton of volume, and others are smaller.  Some are the front end of a business brokerage, and others are simply an online marketplace.  But, these are all good places to start your search--many with easy tools to search by location, industry, revenues, cash flow and beyond.  Just understand, on these sites, there will be lots of other buyers looking for the same types of opportunities as you.  So, be prepared to move quickly, as you see new stuff hit the market.  If you see listings that have been hanging around for a while, that can either mean "buyer beware" or use it as an opportunity to "make your best offer".  Be sure to sign up for their newsletters or automated search listing announcements, so you don't miss any new listings that get posted over time.  I have put a star next to the ones I use the most.

Acquisition Station

Acquisitions Direct

Alpine Business Brokers

App Business Brokers

BizBuySell (**)

BizQuest (**)

BusinessBroker.net (**)

BusinessesForSale.com (**)

Buy Sell Website

Empire Business Brokers

Empire Flippers

Enlign Advisors

FE International

Flippa/Deal Flow

iAcquisitions

Latona's (*)

Quiet Light Brokerage

Raincatcher

Store Coach

Sun Acquisitions

Sunbelt Network

W3 Business Advisors

WebsiteClosers.com (*)

WebsiteProperties.com

Woodbridge International


Hopefully, you are now "in the know" on how to find a business to buy.  So, whether you are an established business looking for tuck-in growth extensions or additional market share for your business, or an entrepreneur looking for a base platform to invest in as your next venture, M&A can be a great solution for you.  And, worth mentioning, the more recurring cashflow the target company generates, the easier it will be to help you finance such acquisition from traditional banks or SBA backed lenders.  The acquisition financing is out there for good deals, so don't think you need to fund this entirely by yourself.


For future posts, please follow me on Twitter at: @georgedeeb.



Wednesday, March 15, 2017

[NEWS] Red Rocket to Open Raleigh-Durham Office

Posted By: George Deeb - 3/15/2017

We are excited to announce that Red Rocket will be opening an office in the Raleigh-Durham area in June 2017.  We have been networking w...



We are excited to announce that Red Rocket will be opening an office in the Raleigh-Durham area in June 2017.  We have been networking with the growing technology ecosystem there over the last few months, and have been very impressed with the companies, executives and professionals we have met.  If you are based in the Triangle area, we will have "boots on the ground" starting in June 2017, and we look forward to exploring opportunities together.  And, for those of you in Chicago, it will still be business as usual for any needs you may have, as we will be serving both cities.

If you know any great companies in the Triangle that we should be connected with, we welcome all introductions as we start to build our local network.  Feel free to contact us via the form at the bottom of this page.

For future posts please follow us on Twitter at: @RedRocketVC.


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