Tuesday, May 23, 2017

Raleigh-Durham Venture Capital Firms & Angel Investor Networks

Posted By: George Deeb - 5/23/2017

Below is a list of selected venture capital firms and angel investor networks that invest in the Raleigh-Durham area.  Most are split bet...


Below is a list of selected venture capital firms and angel investor networks that invest in the Raleigh-Durham area.  Most are split between a technology or life sciences focus, although many invest in additional industries, as well.  Please research them at their linked websites, to see who may be the best fit for you.  I organized this list in terms of stage of investment focus, from early to late stage investors.  So, please don't reach out to VC's if you do not fit their target criteria.  And, be sure to research their specific technology focus on their websites (e.g., healthcare, education, digital media, SaaS), to make sure your business is a fit for them.  Also, as a reminder, don't blindly cold call these companies.  It is always best to have a warm intro into one of their partners, where Red Rocket or others may be able to help here.

ANGEL INVESTOR NETWORKS IN RALEIGH-DURHAM

Carolina Angel Network --  UNC angels for UNC related entrepreneurs

Carolina Seed Investors --  life sciences focus

Duke Angel Network --  Duke angels for Duke related entrepreneurs

Investors' Circle --  impact investing

RTP Capital Associates --  technology centric, or low-tech execution driven


SEED STAGE (Up to $250K checks from $0 revenues)

Cofounders Capital --  software focus

Contender Capital --  technology focus

Full Tilt Capital --  technology focus

Inception Micro Angel Fund (IMAF) -- generalists

Madison River Ventures -- ecommerce, SaaS focus

Southeast Interactive Technology Funds -- technology focus

Solidarity Capital Group --  social impact (community dev, economic dev, sustainable agric., energy/environmental, social finance)


EARLY STAGE (Up to $1MM checks in up to $1MM revenues) 

IDEA Fund Partners --  technology focus

Bull City Venture Partners --  software, internet focus

Southern Capitol Ventures --  software, e-commerce, digital media, healthcare IT and mobile


SERIES A STAGE ($1MM-$5MM checks in $1MM-$5MM revenues)

Cato BioVentures --  life sciences focus

Cherokee Investment Partners --  real estate, environmental, energy, others

SJF Ventures --  impact investing


SERIES B  STAGE ($5MM-$20MM checks in over $5MM revenues)

Hatteras Venture Partners --  life sciences focus

River Cities Capital Funds --  healthcare and technology focus

True Bridge Capital Partners --  into funds early or mid-to-late stage direct, tech focus


ALL STAGES

Echo Health Ventures --  healthcare focus

Pappas Ventures -- life sciences focus


STARTUP STUDIOS

8 Rivers -- sustainable infrastructure innovations in future-critical areas

Excelerate Health Ventures -- healthcare focus

Golden Pine Ventures --  biotechnology and biomedical focus

Rex Health Ventures --  UNC related, healthcare focus


OTHER NORTH CAROLINA FIRMS WHO INVEST IN RALEIGH-DURHAM

Asheville Angels (seed stage, Asheville)

Blue Ridge Angel Investor Network (seed stage, Asheville)

Charlotte Angel Fund (seed stage, Charlotte)

Double Time Capital (growth stage, Charlotte, sustainable energy)

ECU Investor Network (seed stage, Greenville)

Frontier Capital (growth stage, Charlotte)

Lowe's Ventures (all stages, Mooresville, emerging tech, retail tech, home tech)

North Carolina Innovation Funds (Charlotte, state fund co-invests behind other VCs)

Piedmont Angel Network (seed stage, Winston-Salem)

SunBridge Partners (early stage, Charlotte, technology with global applications)

Wilmington Investor Network (seed stage, Wilmington)


OTHER FIRMS

I would also recommend reaching out to investors outside of North Carolina who are open to investing in the region.  So, research venture investors in the surrounding states in the Southeast.  Or, even further beyond, as I know a lot of Chicago venture capitalists are open to investing in smart companies, wherever they are located, and for the right companies, Red Rocket can make introductions to our relationships there.


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


Monday, May 15, 2017

Lesson #266: Managing for Net Cash Flow vs Net Profit

Posted By: George Deeb - 5/15/2017

As many of you know, Red Rocket has been looking for a businesses to buy.  We have previously written about all the challenges that come...



As many of you know, Red Rocket has been looking for a businesses to buy.  We have previously written about all the challenges that come with buy-side mergers and acquisitions work.   But, there is a new wrinkle we have been running into, that is worth talking about.  Most businesses we have looked at were managed to maximize net profit, which is typically a good thing.  But, when trying to attract an acquirer, they really should have been managed to maximize net cash flow.  As at the end of the day, that is really want matters most to investors--getting visibility into a near term return of their invested capital, that hopefully can pay back in 12-18 months, not 4-5 years.  Let me explain further.

DEFINING THE DIFFERENCE BETWEEN NET PROFIT AND NET CASH FLOW

Net profit is a pretty straight forward calculation; it takes all the revenues of the business collected from customers in a time period and subtracts all the expenses of the business in that same period.  Those expenses include things like the cost of goods sold and all the selling, general and administrative costs of the business (e.g., marketing, payroll, home office).  Net profit is an income statement output.

Net cashflow is a cash flow statement output.  It starts with the net profit calculated above and then adds back non-cash items like depreciation and amortization, and then subtracts other longer term investments made in the business, like build-up of inventory for future months' sales, research and development costs made for future product offerings and other capital expenditures (e.g., for new equipment or capitalized software investments).

WHY MANAGING TO CASH FLOW MATTERS

Let's say we had a business with $5MM in revenues generating $800K in profit before taxes and $1MM in EBITDA when you add back $200K of non-cash items, like depreciation.  Since most businesses are valued on a multiple of EBITDA, this business may be worth 4x cash flow, or $3.2MM to a potential acquiror, depending on how fast it is growing.

But, then the potential buyer of that business starts to peel back the layers of the onion on the cash flow statement, and uncovers the business is making $1MM of off-income statement investments to support their growth, into things like building up inventory for future months and R&D investments into future products.  That takes the net cash flow of the business down to zero.

So, with most acquirers looking for businesses with high net cash flow, with which to attract bank financing and to have funds from operations with which to pay down their loan and interest over time, this presents a major challenge for the buyer.  Instead of getting a business that they thought was generation a lot of profits (which is valuable to them), they are getting a business which is cash flow neutral (which is not that valuable to them, given the nature of their business).  What worked well for the entrepreneur in growing their revenues at the expense of short term distributions, does not work well for most private equity investors or acquirers of your business.

WHEN THIS IS NOT THE CASE

Obviously, if you are not trying to sell your business, making potential investors or acquirers happy doesn't matter.  You can do what you like in those cases.  And, the reason most businesses don't care about not driving huge positive cash flow, is because they are more focused on re-investing all cash flow into the company, to help propel the business to new heights in future years (not caring about the impact to profits or cash flow in the current year).  Amazon is a great example of a company that has had major success with a strategy like this, although it ruffled the feather of many of their early investors as a public company, since it was counter to the norm of maximizing near term profits.

CASE STUDY

We were studying the potential acquisition of an ecommerce seller of branded shoes.  They were showing very impressive revenue growth from $5MM to $10MM to $15MM over a three year period, and net profits were growing right along with it, from $1MM to $2MM to $3MM.  That would attract the excitement of most any investor or buyer.

Until, we looked at the cash flow statement in more detail.  And, we learned, they needed to invest the full $3MM of profit into their future inventory investment required to support the next year's expected revenues of $20MM.  With a 50% cost of sales ($10MM) and a 3x inventory turnover ratio ($3.3MM of inventory needed for next four months), they needed every penny of the prior year profits, and more, to fund their growth.

So, yes, if the plan was to shut off the growth at $15MM, and milk the $3MM of profits out of the business in perpetuity, that would appeal to certain buyers.  But, if the plan, was to grow a $15MM business into a $50MM business, all while distributing a portion of profits to the shareholders or the lenders along the way, this business wouldn't attract anyone.

WHAT THIS MEANS TO YOU

Yes, profits are important and should be maximized.  Especially since they are the root driver of EBITDA which is relied on heavily in valuing companies.  But, if at the same time, you are not being sensitive to maximizing cash flow during growth periods of your business, you are going to have a hard time attracting new investors, lenders or acquirers for your business.  At the end of the day, there has to be enough cash left to distribute out to the investment partners in a business (e.g., banks, private equity firms), along the way, in order to get their upfront attention.  So, plan accordingly.


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


Friday, May 5, 2017

For Startups, Do You Bet on the Jockey or the Horse

Posted By: George Deeb - 5/05/2017

There have been several articles written that talk about how venture capital investors prefer to bet on the jockey (the entrepreneur), o...



There have been several articles written that talk about how venture capital investors prefer to bet on the jockey (the entrepreneur), over the horse (the startup idea). As I have often said, I would much rather invest in an A+ team with a B+ idea, than a B+ team with an A+ idea. So I agree with this premise of the jockey being more important than the horse, usually. This post will tell you when one outweighs the other.

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

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


[NEWS] Red Rocket Looking for Broken Businesses To Fix

Posted By: George Deeb - 5/05/2017

Spring cleaning time is the perfect time to fix broken businesses.  Is your business broken?  Revenues not scaling?  Team not gelling?  ...



Spring cleaning time is the perfect time to fix broken businesses.  Is your business broken?  Revenues not scaling?  Team not gelling?  Product keeps breaking?  Getting bad customer reviews?  Can't attract capital?  At your wits end and contemplating throwing in the towel?  Pretty much sounds like most early stage businesses!!  But, there is a way out.  Red Rocket is looking for broken businesses to fix.

We are looking for companies that:

  • Are preferably a B2C company (although we would consider B2B)
  • Have a solid product or service offering that is up and running (not a piece of paper startup)
  • Have some base level of customer adoption (e.g., $1MM of revenues)
  • Sales & marketing is the company's biggest weakness (revenues not growing)
  • Has compelling unit economics--high average ticket/high margin vs. marketing costs
  • The business must be cash flow neutral--not burning cash today
  • Can be a newer company trying to scale, or a turnaround of former high flyer

We are looking for scenarios where we can:

  • Invest our time as the new "proven CEO" of the business
  • Invest our cash, as needed, for scaling sales/marketing needs
  • Get a material (and preferably majority) stake in business we are excited about
As we have written about in the past, sometimes the best medicine for a broken business, is a fresh set of eyes.  If you are open to handing "your baby" off to a more experienced team to help you raise it, we want to talk to you.  It is always better to own 50% of a potential home run, than 100% of a potential strike out.  And, Red Rocket can be that Babe Ruth for your business.

If interested in learning more, please contact us via the form at the bottom of this page.  Be as specific as you can about your business, revenues, unit level economics, painpoints, team, location, etc., so we are can be sure we can help.  We won't be able to work with everyone under this model, and we appreciate your understanding, if we can't get to the finish line together.

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


Wednesday, May 3, 2017

Lesson #265: Top 10 Traits of Good Sales Managers

Posted By: George Deeb - 5/03/2017

I was recently introduced to Kevin Davis , the author of The Sales Manager’s Guide to Greatness , a new business book currently availab...



I was recently introduced to Kevin Davis, the author of The Sales Manager’s Guide to Greatness, a new business book currently available on Amazon.  Kevin is the President of TopLine Leadership, a sales management training company, and is an authority on the sales management topic.  Kevin identified 10 key traits of good sales managers, summarized below.  He was kind enough to allow me to share them with all of you in this post.
_________________________

1. Managing and leading a sales team requires a completely different mindset from selling.

It’s a common refrain from sales organizations: “We promoted our top salesperson to sales manager, and it didn’t work out like we thought it would.” Being a leader of a sales team requires different skills and mindsets from being a successful sales rep. The first step is identifying sales instincts that may be holding you back as a manager. 1) I want to be a player. But sales managers are not put in the job to keep selling. They are put in the job so they can help others become the best salespeople they can be. 2) I’d rather close than coach. But that instinct for the chase and closing deals can lead us awry once we’re in management. 3) I’m very focused on getting stuff done. Not so fast. A sales manager who is overly task oriented can spend too much time making sure mundane to-do items get done while ignoring the development needs of their salespeople. 4) I don’t care how people get results, as long as they get results. The dilemma for sales managers, however, is that a constant push to reach a sales number can keep them and their teams so focused on end goals that they miss opportunities to identify problems with skills and processes so they can improve future results. To be a more effective sales manager, you have to replace those attitudes with more powerful leadership mindsets. Whether trained or untrained, novice or experienced, all sales managers run the risk of falling back on old habits and acting more like a super-salesperson than a leader. Learn how to think more like a proactive leader and less like a reactive firefighter.

2. Time = Priorities

The single most common complaint from sales managers: “I don’t have time to coach.” In one company, 85 percent of the sales managers’ responsibilities were related to sales coaching. In interviews, this company’s regional sales managers said that in reality, none spent more than 10 percent of their time coaching. These managers, like most sales managers, spend 90 percent of their time involved in activities unrelated to their highest priorities. Being able to manage time (and thus your priorities) effectively is a prerequisite for being a great sales team leader. You simply cannot achieve your full potential as a sales team leader if you spend the bulk of your time in reactive mode—solving everyone else’s problems, holding ineffective meetings, shuffling through papers, or dealing with any other number of timewasters. You need to make sure you have plenty of time to plan, coach, measure, and manage. These are the priorities for sales management leadership.

3. Drive Rep Accountability for Breakthrough Sales Performance

It is impossible to hold reps fully accountable for their performance unless there is a clear description of what exactly excellence should look like. High expectations that are well communicated to your team are an essential component of a high-performance culture. You need a success profile that captures both the skills and wills needed for success in your company, plus a third element: the performance standards you want to establish for sales results and activity levels. When you are clear about what reps need to achieve, you can communicate more effectively with sales reps about what they need to do to improve.

4. Hire Smarter

Address the fundamental dilemma all sales managers face, namely that the best coaching in the world is not going to rescue someone who is ill-suited for the job. You have to evaluate not just the skills and wills of likely candidates but their cultural fit and their coachability. Why? While it’s true that some sales reps are naturals and likely will succeed in almost all situations, those self-driven top performers are more the exception than the rule. Most reps require sales coaching to attain top skills and performance levels.

5. Insert the Customer In Your Sales Process

Every company has a sales process whether or not it’s formalized. Ideally, a sales process provides salespeople with a consistent, repeatable path to follow that leads to a higher probability of sales success. But though many sales organizations think of themselves as customer-focused because they truly care about the customer, their sales process is seller-focused. Further, their systems—sales models, CRM, funnel structure, and pipeline—are set up to track sales rep activities, not customer actions. What too few companies realize is that selling activities are an inaccurate metric of progress because sales reps are so often out of sync with customers’ views. It’s not necessarily that salespeople are doing the wrong things. They could be doing the right things—identifying needs, delivering proposals, doing demonstrations—but at the wrong time in terms of the customer’s buying process. In short, any tracking or forecasts based on a selling-focused model are actually based on sales rep intuition, not on evidence that a prospect is making progress toward a decision. And it’s this disconnect between “sales rep actions” and “customer actions” that contributes to lost sales and missed forecasts. 

6. Be more strategic about your coaching time

When it comes to coaching, most sales managers have natural instincts to either rescue the worst players (because obviously they need the most help) or gravitate to the best players (because they will likely have the biggest, most exciting deal opportunities). If either of these sounds like you, the results of a study reported in the Harvard Business Review might come as a surprise. “In research involving thousands of reps, we found that coaching—even world-class coaching—has a marginal impact on either the weakest or the strongest performers in the sales organization.”That’s right. Your biggest payoff from coaching will come from working with the people you might think of as your “B” players. Your mindset needs to be focusing your one-on-one coaching time on the people with the biggest potential, not those with the biggest problems or biggest deals.

7. Commit to consistent coaching

Think about the best manager or coach you’ve had, whether in or out of sales. The answer that occurs to most people is someone who was truly committed to their success. People don’t remember a manager or coach so much for the step-by-step coaching process that person used (though they probably had one). They remember coaches more for how those managers interacted and communicated and the effort they put in to connecting with their team.

8. Motivate the Demotivated

The vast majority of sales managers that I deal with think as high as 75 percent of the performance issues on their team are due to bad attitudes or “willingness problems”. Deficiencies in will—a rep’s attitude and mental approach to the job—are much more difficult to solve, and this is perhaps one reason why they get ignored so often. Yet taking action is imperative. Just one bad apple can bring a team’s performance down by more than 30 percent, no matter how good the rest of the group is. Poor behavior has a much stronger negative effect on a team than the positive effect of good behavior. Dealing with this wide range of willingness problems takes finesse. You can’t send someone to a class to improve an attitude. You can’t force someone to be more motivated simply by telling them what to do or cheerleading from the sidelines. Instead, you have to think about what will motivate—or what has demotivated—the person. Focus on the difference between motivators that raise the natural level of motivation (providing incentives for people to improve and get better), and demotivators that rob people of their enthusiasm for the job. As a manager, you have to be able to distinguish between these two so you know whether your job is increasing motivators or trying to diminish the impact of demotivators.

9. Increase Win Rates with Buy Cycle Coaching

When a company adopts a buying-process focus, part of a sales manager’s responsibility becomes reinforcing that perspective in their dealings with sales reps. See the process through the customer’s eyes. Learn to appreciate the steps a customer goes through when making a buying decision. And, resist the urge to “prematurely pitch.” Talking about features and benefits of a solution does no good if the customer has not even decided to buy yet. Pitching benefits too soon is one main way that reps get out of sync with customer buying. And, do so as a "helper", not a "critic", to not make your sales rep defensive and preserve your relationship with them.  Usher the person to the intersection of choice. Be very clear about consequences: negative if the person does not change, and positive if they do. Focus on questions that get at the customer’s go-forward actions. Ask reps the questions those reps should be asking themselves, such as “Where is this prospect at in their decision-making process?” and “What does this customer need to learn in order to take their next buying step?” and “What action do I want the customer to take after this call (or meeting)?” You can’t improve closing ratios by going in at the end of the sales process. You have to fix what your salespeople are doing at the very beginning—what they are doing to understand the customer’s buying process. Those first few meetings are when a customer decides whether they have a problem that you can fix and whether it’s worth their time to fix it. It’s also where, from the customer’s perspective, the size of the sale is determined. 

10. Think and Act Like a Champion

David Epstein, author of The Sports Gene, has devoted much of his career to studying the behavior of elite athletes and champions. He discussed a pattern he noticed in how champions set their goals. All of the champions he studied, said Epstein, have major goals they want to accomplish, such as winning a race or an Olympic medal. But on a daily basis they aren’t thinking about that end point. Rather, every day will be devoted to something very specific, such as “today in my workout, between mile three and four, I’m going to push hard.” In other words, these champions are really good at setting proximate (near-term) objectives that tell them what to do today. How can you do the same?


Thanks again, Kevin, for sharing your wisdom with our readers.  Hopefully, you are all now better educated on how best to manage your sales teams.  Be sure to read Kevin’s full book, for more details.


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

Wednesday, April 26, 2017

Lesson #264: Financing Mergers & Acquisitions

Posted By: George Deeb - 4/26/2017

We have previously talked about How to Set Your Mergers & Acquisitions Goals .  But, once those goals have been set, and targets hav...



We have previously talked about How to Set Your Mergers & Acquisitions Goals.  But, once those goals have been set, and targets have been identified, how exactly do you fund those transactions?  As you will read, financing M&A activity is very different than funding stand-alone growth with venture capital, as the investors are largely very different--mostly banks, private equity firms and family offices, instead of venture capital firms.  This post will help you better learn your M&A financing options.

EQUITY ONLY--NO CASH NEEDED

M&A activity doesn't always mean that cash needs to trade hands.  Sometimes you can implement a merger by basically using your equity as a currency, and negotiating a pro rata stake in the combined company.  For example, if you have two equal sized businesses both valued at about the same valuation stand-alone,  you can merge the companies together and your original shareholders would own 50% of Newco and the other company's shareholders would own the other 50% of Newco.  If they are not the same size, use a metric like relative revenues or relative EBITDA and set the relative ownership that way (e.g., if one business generates 75% of the combined profits day one, they could own 75% of the combined equity in Newco).

CASH ON HAND OR COMPANY PROFITS

If cash is needed, maybe your business has cash on its balance sheet or it is generating material profits, and you can fund your M&A activity that way, with no outside capital.  Since companies are typically valued as a multiple of EBITDA,  you may need to save up a few years of profits, in order to afford the other company you are trying to buy, if they are the same size as you.

SELLER NOTES

The easiest way to finance an M&A transaction is to have the seller agree to not take all of their cash up front.  As an example, maybe you pay them 80% at closing, and  you pay them 20% in a seller note a year or two down the road.  Any seller that has confidence in their business, should be willing to agree to at least a small amount of seller note to help you afford the upfront transaction.

SELLER EQUITY

In many scenarios, having the seller involved with the future of Newco can be very helpful.  Maybe you don't know their industry very well?  Or, they bring some specific skillset to the table, and they would enjoy keeping part ownership and future involvement in "their baby".  That helps them to get some upfront liquidity by selling a large portion of their ownership, but at the same time, let's them participate in the long term growth that is created, as a minority shareholder.  So, as an example, if you give the seller a 10% stake in Newco, you only need to fund the 90% of the company's valuation upfront.

BANKS & SBA BACKED LOANS

Banks are often the first call for funding M&A.  But, with banks, there are several hurdles you need to get through.  They need to like the industry, the team, the historical cash flow trends, the underlying assets of the business they can secure, the financial covenants, etc.  And, the more cash flow you have as a combined company, the higher odds a bank with lend to  you.  There are some banks that will lend to companies as small as $500K of cash flow, but the vast majority don't really get excited until you are generating $2-$3MM in cash flow.  So, look for targets that can help you get to that threshold, to simplify your M&A fund raising efforts.  And, keep in mind, bank finance will be the most senior loan in your capitalization table, and banks will need to be repaid within a couple years (and will be senior to any other note holders, including the seller note above).  So, plan accordingly.

In addition, the banks are often conduits to loans backed by the Small Business Association, where they will lend up to 90% of the transaction.  But, the price is steep with the mandatory personal guarantees that will be required, putting you personally on the hook for any defaults by the company.  Personal guarantees can often be avoided in typical bank loans for companies generating enough annual cash flow, so only go down the SBA-backed road if it is your only option.

PRIVATE EQUITY FIRMS

The lion's share of the capital needed for M&A will most likely come from private equity firms or family offices, likes these linked examples in Chicago.  There is a shortage of really good companies for sale, and these investment companies are more than willing to back good teams building good ideas, assuming the combined company is generating a lot of cash flow (which they can take to the banks and finance a portion of the deal with debt, to reduce their equity investment need).  Again, because they are looking to the banks for help, they too will bias companies with over $2-$3MM of combined cash flow (although many will look at deals smaller than this, if only investing equity).  Before you reach out to PE firms, make sure to research if they like to invest in deals within your industry and revenue stage on their websites.

EXAMPLE DEAL

So, let's put this all together in an example deal.  Let's say you found an ecommerce company to buy, that is generating $2MM in cash flow.  Assuming that company is growing 20% a year, it could be worth 5x cash flow, or $10MM.  You think it is important to keep the founder involved, and you are willing to have him take a 10% stake in Newco, so you really only need to finance $9MM to buy the 90% stake.  That could be funded $3MM by a private equity firm, $3MM by a bank and $3MM by a seller note (if amenable to the seller).  And, the private equity firm would most likely want you to have some "skin in the game", so maybe their portion is split $300K from you and $2.7MM from them.  Ninety days and lots of negotiations later, you should be ready to close.  This is an example only, as the multiples, amounts and percentages can vary substantially by deal, company, growth rate and industry.

Hopefully, you are now ready to put on your M&A hats, and get that transaction funded.  But, don't forget about all the potential M&A pitfalls along the way, as we have discussed in the past.  At all times, buyer beware, and exercise conservative caution throughout each step of the process.

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



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.


Tuesday, March 14, 2017

[NEWS] The Red Rocket Blog Passes 1,000,000 Reads!!

Posted By: George Deeb - 3/14/2017

We just logged in to write our next blog post and were pleasantly surprised when we got an alert that the Red Rocket Blog just passed th...



We just logged in to write our next blog post and were pleasantly surprised when we got an alert that the Red Rocket Blog just passed the 1,000,000 reads mark!!  We are so excited our reader base continues to grow and keeps coming back, month after month, for our growing list of lessons in entrepreneurship.  Thank you so much for your continued readership, and helping us spread the word to your entrepreneurial colleagues.

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

Monday, March 13, 2017

Lesson #259: With Human Talent, You Get What You Pay For

Posted By: George Deeb - 3/13/2017

I get it.  Most startups operate on fumes, in terms of available cash resources.  So, the natural instinct of most entrepreneurs is to p...



I get it.  Most startups operate on fumes, in terms of available cash resources.  So, the natural instinct of most entrepreneurs is to pay as little as they can for most of the expenses in their business.  And, I agree with that for most all expense categories, except one: human talent.  Building the right team for your startup is the single most important thing you will do in terms of putting your business on a path toward success or failure.  You try to cut corners with your talent decisions, and you are toast!!

WHEN HIRING EMPLOYEES

There are many ways startups try to save payroll costs.  Sometimes they find the candidate willing to do the job for less money.  Sometimes they downgrade the position (e.g., from a VP of Marketing to a Marketing Manager).  Sometimes they try to avoid paying expensive benefits or giving out dilutive stock options in their business.  Each of these examples are filled with opportunities to fall on your sword.

You have to ask yourself these key questions before going down one of these routes.  Why is that person willing to work for less money than their peers; maybe they are desperate, hopping from one job to the next?  Who has the most experience to help you achieve your desired goals; the first timer experimenting with your business, or the proven veteran that can shorten the learning curve making fewer costly mistakes?  Do you really think you are going to be competitive to attract the best talent up against other high-flying startups when others are offering meaningful benefits and upside incentives and you are not?  As you can see, hiring talent has much higher potential costs, than just their line item in the budget, if you make the short-sighted, cash-saving decision.

WHEN ENGAGING PROFESSIONALS

The same holds true when you are engaging professionals (e.g., accountants, lawyers, consultants).  If one professional is saying they will do the work for $100 per hour and another is quoting you $200 per hour, your instinct shouldn’t immediately jump to the one offering the lowest price.

As an example, maybe the higher-priced solution has the learnings from a 20 year career vs. a 5 year career, to help you avoid more known pitfalls that you don’t even see coming.  Or, they have helped 20 clients succeed in similar situations, vs. 2 clients succeed (the ones they tell you about) and 10 clients not succeed (the ones they don’t tell you about)?  Or, the higher priced consultant can afford to charge those rates, because their time is limited and everyone is fighting to get his or her involvement with their business because they are simply the best?  Again, not all professionals are created equal, and you need to peel back the layers of the onion far deeper than just jumping to the lowest-priced solution.

WHEN SEEKING MENTORS

As a mentor myself, I am very selective with my time.  There are only so many hours in the day, and I have to prioritize with whom I invest my limited time.  In any given year, there may be hundreds of startups looking for free help, and less than 10% percent of them have any chance for long term scalable success.  And, from those dozens that have a fighting chance, the best mentors typically only have time to work with a couple.  So, to the extent you can offer them a good reason to pick your business (e.g., stock options, advisor fees), you want to make sure you break through the clutter, to ensure they work with you.

Equally important, make sure the mentor is qualified to be advising you on that specific topic at hand.  Getting free mentorship on marketing ideas from your lawyer, is probably not as effective as getting professional marketing advice from a proven marketer, even if you have to incentivize that mentor to get it.  So, don’t go down the cheapest route looking for advice, go down the best route.

WHEN RAISING CAPITAL

I have often said that venture capitalists would rather invest in an A+ team with a B+ idea, than a B+ team with an A+ idea.  First of all, that is not a lot of margin for error in your hiring decisions, so it is critical you get it right in order to get investors excited about your business.  And, secondly, when doing your budgeting work, you can’t only look at the talent as an expense line in your payroll; you have to think about if that talent can help you open up additional investment resources that otherwise would not be available to you.  Said another way, you need to invest money in experienced talent that investors are looking for, to help you raise money, that will help take your business to new heights.  So, stop thinking about talent as simply line items in your budgets, as their value can help you many other ways than simply doing their job.

PAYROLL MISTAKES ARE THE MOST COSTLY

Hopefully, what you have seen in this post is: (i) decisions around human talent will be the most important ones you will make; (ii) going down the cheapest route, is often times a recipe for disaster; and (iii) the costs of making a talent mistake can often end up being materially more expensive than the originally monies you were trying to save in the first place.  To pound home this last point, you hire the wrong enterprise sales guy, trying to save a short term buck, and you lose precious months of selling time and revenues, and potentially just put yourself out of business.

So, long story short:  don’t think cheap with your talent decisions; think the best, even if it comes at a higher cost.  What you are losing in short term cash, you are more than going to make up for in long term success.   As the old adage says: you get what you pay for!!

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



Friday, March 3, 2017

Building a Hard-Working Team Starts With You

Posted By: George Deeb - 3/03/2017

Startups require a lot of hard work, with no rest for the weary. Since you need to be moving at light speed to gain first-mover advantag...



Startups require a lot of hard work, with no rest for the weary. Since you need to be moving at light speed to gain first-mover advantage, it often means a lot of late nights in close quarters alongside your fellow team members. The founding team must be able to thrive in that environment. Capital will be tight and you will need to stretch your human resources as far as you can, without breaking the bank.

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

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


Thursday, March 2, 2017

A Successful Career--But My Best is Yet to Come!

Posted By: George Deeb - 3/02/2017

I recently passed my 25th year of being in the work force.  Most careers span around 50 years, so at the midpoint in my career, I figu...



I recently passed my 25th year of being in the work force.  Most careers span around 50 years, so at the midpoint in my career, I figured I would do a little self-reflecting on where I have been, where I am, and where I would like to go, to see if you guys can help me better achieve my goals in my next 25 years.

WHERE I HAVE BEEN

Credit Suisse First Boston (8 years).  My investment banking days in New York were pretty amazing.  It really honed my financial, strategic, fund raising and M&A skills.  And, as an expert in the retail industry group, it was exciting to work with the CEO's and CFO's of some of the nation's largest retailers (e.g., Home Depot, Babies R Us, Saks Fifth Avenue, Pep Boys).  It was really a meteoric rise for me, starting as a financial analyst, getting promoted to associate without needing an MBA (the only person in my class to do that) and ultimately rising to the level of Vice President.

I loved the big paychecks for a guy in his 20's.  But, the transactions started to become routine (e.g., the 4th IPO was no different than the first three).  And, all I could think was, I would rather be the entrepreneurial CEO of the companies I was taking public, that grew their business from zero to $250MM in sales, and got a huge financial windfall by taking their companies public.  I was too creative and entrepreneurial, and needed to make a change, even at the expense of cutting off my "golden handcuffs" in terms of compensation.

Overall experience:  A
Overall happiness:  B+

iExplore (10 years).  With the dot com boom in full swing, I figured the timing was right to make my leap from investment banking to building a startup.  I was a passionate adventure traveler, and new the process of booking a trip was very cumbersome, and that the internet can make it better.  And, apparently, we struck a chord with other travelers, as we ultimately attracted over 1.3MM unique visitors per month to our website.  We cut a deep strategic relationship with National Geographic, and powered the adventure travel sections of many large travel sites (e.g., Expedia, Travelocity, Starwood, Fodors, Frommers, Lonely Planet).  My creative and entrepreneurial juices were constantly flowing, and I really loved what I was doing.  It was here where I honed my business, marketing, branding and product skills.

But, the travel industry was very cyclical.  And, when times were bad (e.g., after 9/11/01), they were really bad, making it tough to scale, especially when consumer marketing was so expensive in the crowded online travel space.  And, having raised venture capital from outside investors, I needed to get them an exit at some point.  So, we ultimately sold the business in 2007 to TUI Travel PLC in London, the largest seller of leisure travel in the world, with over $25BN in sales.  I lasted two years with TUI, before the politics, procedures, processes, travel time and slow speed of a big European company tooks its toll, and I moved on to my next business.

Overall experience:  A+
Overall happiness:  A+

MediaRecall (2 years).  I didn't found MediaRecall, a B2B digital video technology and services company.  Their founders had already built a great product and needed help scaling their company.  So, I acquired a third of the business and became their CEO in late 2008.  We had a strategic relationship with Getty Images, around the clipping and monetization of stock footage, and had established customer relationships with many of the large film and television content owners, or their partners (e.g., National Geographic, BBC, Deluxe, Johnny Carson, Oprah Winfrey).  It was here where I built my enterprise B2B sales and SaaS experience.

One of our customers liked us so much, they ultimately wanted to buy the company.  As we were deep in digital services, where their strength was in film services (which was not the future).  So, Deluxe made us an offer we couldn't refuse in 2010, and we sold the company to them (including an earnout with the potential of a 10x return).  I was expecting another five year run when I joined the company, so we sold a lot sooner than I thought we would.  But, I found myself with time on my hands, and not knowing what to do next.

Overall experience: A-
Overall happiness:  B+  (liked B2C of iExplore, more than B2B of MediaRecall)

WHERE I AM

Red Rocket (7 years).  I founded Red Rocket to find another business to invest in and become CEO, as I did with MediaRecall. I never intended it to become a business.  But, with the success of the blog readership (almost 1,000,000 reads to date), leads started coming in and I have been staying busy full-time helping clients with their growth strategy, execution of financing needs.  I have been approached by over 800 companies during this time--in the $0-$20MM revenue ranges--including the good, the bad and the ugly.  A few bigger clients got me engaged in more longer term, outsourced CMO roles, which were my favorite projects to work on.

But, consulting to CEOs is not the same as operating as a CEO.  As a consultant, (i) clients are typically looking to you for solving a specific project-based painpoint (e.g., 3-6 month fixer upper, not long term engagement), and (ii)  you do not have any control over the upsides or the outcomes, as you are not the one "driving the bus" (which makes taking equity-based roles hard to do, unless you really trust the CEO you are working with).

Overall experience:  A-
Overall happiness:  B

WHERE I WOULD LIKE TO GO

Red Rocket will be a great thing, when I am closer to retirement age and looking for fun projects to stay busy and keep me intellectually stimulated.  But, with me on my mid-40's, I still have way too much energy left.  And, I feel like I haven't done my best work yet.  I am driven to building something really big and great, where there can be a big financial pay day at the end of the build (as I am never going to create long term wealth as a consultant).

So, to that regard, I have been on the hunt to get back into the CEO chair (or CMO chair for a more established growth stage business where I trust the CEO).  I have been exploring all avenues to getting there--buying a company, executive recruiters and working my network of relationships.  I would consider B2B or B2C companies, but as I mentioned above, B2C are a lot more fun for me.  And, as for geography, I would look at acquisitions anywhere, if easily relocatable, and executive roles primarily in the major technology markets.

The goal is to find something where I can get my experience and happiness factors to both score an A+ again.  I need that adrenaline rush again, like I had at iExplore, this time driven with all the business learnings and experience I wished I had had the first time around.

CHALLENGES

As you can see above, my experiences have been all over the place--investment banker to Fortune 500, CEO of early stage startups, advisor to growth stage companies, outsourced CMO, etc.  Across a wide range of industries--retail, internet, travel, media, services, technology, ecommerce, SaaS, etc.  So, people looking at my background cannot label me in any one bucket, which puts me at a disadvantage versus executives that have only been doing one specific thing over their career.  All, I know is, I am a quick study on anything new I try, and I have been largely successful at everything I have ever done.  My smarts and natural business instincts have always served me well.

MY ASK OF YOU

Think you or someone you know is building greatness, preferably in the B2C space.  Is your company willing to take on a new growth-driven partner in your adventure, preferably as CEO (or CMO for the right company).  Or, are you willing to sell your company to a new investor group, lead by Red Rocket.  Are you large enough that you are not a broke startup, but actually have over $500K of profits for me to apply my sales and marketing magic to help scale the business, without the need for raising outside capital?  If this sounds like you, let's talk!!  Feel free to email me via the contact form at the bottom of this page.

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



Wednesday, March 1, 2017

The Top 3 Selling Techniques--Which Is Best For Your Business?

Posted By: George Deeb - 3/01/2017

Not all products or services are created equal in terms of how you sell them. And, not all customers are created equal, in terms of how...




Not all products or services are created equal in terms of how you sell them. And, not all customers are created equal, in terms of how sophisticated or needing they are for a product or service.  And, selling into different levels of an organization, often requires different types of selling techniques, in order to get their attention.  This post summarizes the three most typical selling techniques used today.

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

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


Monday, February 27, 2017

Lesson #258: How to Roll-Up Several Companies Into One

Posted By: George Deeb - 2/27/2017

I recently wrote about how to set your strategies around mergers and acquisitions , but I wanted to go into more detail about one typ...



I recently wrote about how to set your strategies around mergers and acquisitions, but I wanted to go into more detail about one type of M&A strategy: the roll-up.  A roll-up is when you plan to buy multiple businesses within one industry.  And, there are many potentials ways to implement a rollup, which I will detail herein.

ROLL-UP STRATEGIES

You need to figure out exactly what your goal is from the roll-up, much more than simply growing revenues and market share.  For example, you may be rolling up geographies for an expanded footprint of boots on the ground: taking you from Chicago alone, into New York, Los Angeles and Miami too.  Or, you could be rolling up products:  taking you from a one product company (e.g., search marketing agency) to a multiple product company (e.g., adding email marketing, digital advertising and social media marketing).  Or, you could be rolling up industries to sell into:  adding automotive, retail and consumer products, to your original insurance focused business.  Or, you could be rolling up talent:  if your marketing driven business is able to add a strong sales team or strong technology development team into your arsenal. Whatever is most needed for your business, and positions you for long term success when you are done.

ROLL-UP FINANCING

One way you can finance a roll-up is simply using your company’s equity as a currency.  For example, you own 100% of one business today, but you might own 25% of the company, after four businesses are rolled-up, with the shareholders of the other businesses owning the other 75%.  Although most sellers like to see some cash at the time of sale.  The other way to finance a roll-up is by finding a private equity fund to help you with the needed cash, with the fund making an investment in your company.  Not all private equity funds do roll-ups, so you need to find the funds that prefer roll-up strategies in your industry (and can guide you through the typical pitfalls to avoid, which they have learned over the years).  And, assume the fund will not be financing the roll-up entirely with equity, so make sure the rolled-up businesses will have at least $3MM of cash flow with which to pay any debt-related payments which may be involved.

ROLL-UP INTEGRATION

My number one mantra from a roll-up of businesses is to “Do No Harm”!!  Do not try to fully-integrate these businesses day one, given the various personalities, company cultures and skillsets involved.  I try to think of it in three sequential phases: (1) phase one is simply rolling-up the financials into one entity, keeping the businesses largely running the same as they were before the deal; (2) phase two is integrating all the back-office functions across all companies (e.g., payroll, insurance, overhead); and (3) phase three is integrating the front-office functions (e.g., cross-selling products, cross-training sales teams, centralized brand).  Don’t try to do it all at once, as it will most likely not work out, as planned, and could result in disgruntled staff quitting and revenues falling far short of plan.  Phase it in over a couple years.

ROLL-UP PITFALLS

There are a lot of potential pitfalls with any single M&A transaction, which I won’t repeat here.  But, when you are rolling-up multiple M&A transactions, the opportunities for pitfalls are multiplied and compounded.  For example, merging two company cultures is hard enough, yet alone merging ten company cultures.  And, although the growth is exciting, the employees may not like the combined Newco company ,as compared to how things used to be at the stand-alone Oldco company.  So, get ahead of those issues and start pre-selling the future vision and culture across the organizations from day one, and make sure each company is involved in the creation of whatever plans are discussed.  And, often times, small businesses are dependent on their founders, so make sure they are locked-up as employees of Newco for some mutually agreeable transition period (e.g., at least one year), to ensure a smooth transition and limited impact to revenues post transaction.

ROLL-UP ECONOMICS

I have previously talked about shooting for 1+1=4 economics from M&A transactions.  For example, two complementary products, selling into two different industries, gives two $10MM revenue businesses the chance to get to $40MM together, after they start cross-selling their products into the other company’s clients.  But, those economics don’t hold up when only rolling-up geographies, as example, where 1+1=2 in a best case scenario of nothing going wrong.  And, as we learned, the opportunity for things to go wrong is quite high.  So, build in cushions into your combined company revenue plans.  Perhaps build in a 50% haircut on the target company’s revenues when building your models and negotiating your deals (giving the seller an earn-out if things go to plan, but not overpaying if they don’t).

SUMMARY

Roll-ups are often easier to transact than they are to execute post deal, so get good advice and mentorship along the way from professionals or colleagues that have lived through that battle before.  But, assuming you will get ahead of the potential pitfalls and are successful in your execution, it is a way to quickly grow your business and market share in a short period of time.

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


Thursday, February 16, 2017

Help Red Rocket Improve Its Product Offering

Posted By: George Deeb - 2/16/2017

We are trying to improve upon Red Rocket's product offering, and we need the input of our users.  Please read to the end of this post...


We are trying to improve upon Red Rocket's product offering, and we need the input of our users.  Please read to the end of this post, to better understand our history and desires, and let us know your thoughts.  Much appreciated!!

HOW RED ROCKET GOT STARTED

Red Rocket was founded in 2010 after George Deeb sold his last company, MediaRecall, where he was CEO.  The intent was to see what interesting companies called looking for help, for George to find a good one to invest in and become CEO again.  The intent was never to build a business.  But, as George began writing this blog in 2011, traffic started to grow with the inbound traffic from Google, now approaching 1,000,000 reads over the last six years (which we are proud of--as many entrepreneurs are finding the content really helpful to growing their businesses).

In Red Rocket's early days, the positioning was all around being a "startup consultant".  That got the phones ringing for sure, with 100-200 companies calling a year.  But, in terms of quality, the leads were pretty low-quality--only 10% of the companies calling had an interesting business, team or idea that were "venture ready for prime-time".  They were mostly starving startups who couldn't afford cash consulting services and weren't exciting enough for us to want to work for equity.

THE EXPERIMENT WITH ENSEMBLE

So, if startups were only willing to pay cash for certain expenses (e.g., technology development, digital marketing), we thought we would create a solution which bundled a package of those services together into one-stop shop for startups.  Red Rocket and four other specialist agencies in Chicago launched Ensemble in 2013 to do exactly that, bringing an innovative "startup excubator" model to market.  This "digital services suite" included startup strategy, fund raising, web development, public relations, search marketing and social media marketing, powered by an all-star team of expert agencies in each of those fields.  Everything a "do-it-for-me entrepreneur" would need to succeed in one phone call.

The reaction was very positive, as we had a lot of publicity and 100 calls in our first month.  There was clear demand.  But, again, the problem was the startups didn't have any cash to work with.  And, even with us offering a 40% discount on the bundled service, that wasn't good enough.  Startups wanted to pay us zero dollars, and instead, give us a big equity stake in their business.  But, that model didn't work for the partners of Ensemble, who had lots of employees to pay.  And, we didn't want to raise a venture fund to give the startups the capital they needed to afford the services.  So, Ensemble got shelved and put on the back burner.

REPOSITIONING AND PRODUCTIZATION

The next effort we made was to de-emphasize startup related services, to try and attract more later stage businesses with capital to spend.  We took most of the "startup consulting" words off the website, and replaced it with "growth consulting" (for companies of all sizes).  Our tagline changed from "venture consulting and capital" to "growth strategy, team and capital".  And, we created a one-stop shop for growth--(i) growth strategy; (ii) growth execution from outsourced CMOs; and (iii) access to growth capital through partner VC and PE firms.  We also added in other services like business coaching, M&A advisory and corporate innovation, trying to throw out a wider net of products, appealing to bigger companies.

That certainly helped.  The volume of leads from zero revenue startups materially declined, and we started to get more calls from more later stage companies in the $5-$20MM revenue range, which typically were large enough to afford paid services.  But, it didn't knock our doors down.  And, of the three legged stool of services we offer, fund raising was still the largest driver of leads.  And, frankly, fundraising is the most mundane aspect of our business, and we only like to do it when we think it is a "layup" to getting to the finish line, which isn't all that often.  We would much rather focus on the strategy and marketing execution work, which were like needles in the haystack of leads coming in.  And, even with paid Google marketing support, the phones were not calling as much as we wanted.

WHERE WE NEED YOUR HELP

Following our own advice, we need a fresh set of eyes to help us assess our offering from a buyer's perspective.  Are Red Rocket's services even ones you want?  What services should we be offering that we are not offering today, preferably from a recurring revenue perspective over time?  As an example, a one-off consulting project (e.g., a business plan), is less exciting than a long-term service you need (e.g., an outsourced CMO or business coach to help you grow you business over the years).  The outsourced or part-time CFO companies seems to prosper pretty well, but we are surprised the demand for outsourced or part-time CMOs hasn't caught on, in comparison, given how important sales and marketing is to driving revenues.  And, what would you be willing to pay for any of the services you are recommending?

We have invested hundreds of hours of work into maintaining the Red Rocket blog, giving the content away for free, as our contribution to the entrepreneurial ecosystem. But, we need to figure out how to scale the business with a winning product offering and revenue model.  Especially, since we don't think putting up a subscription-based pay wall in front of the blog content is the right thing to do.

So, to all of you loyal Red Rocket users that have benefited from our free how-to lessons over the years, now it is your turn to advise us.  Why are you not buying our current services from us?  What products or services do you think we should offer, that we are not offering today?  Do you know any later stage companies that can benefit from our current service offering, and are you willing to make introductions for us?  Depending on the answers we get here, we are also looking for interesting growth-stage companies to buy (over $500K in profits) to get more deeply involved with long-term management--is that something worth talking about together, either for your business or others you know?

Anyway, thanks for putting your thinking caps on, and providing us your feedback in the comments section below.  Or, if you prefer to privately send them, use the email contact form at the the bottom of this page.  Much appreciated!!

For future posts, please follow Red Rocket on Twitter at: @RedRocketVC.


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