“LALA” – A short lesson in marketing

Focus upon you as marketing genius

Let’s focus not upon the process of marketing and positioning, but on you.  How should you become the best marketer you can be, even if you are a first-time entrepreneur or a seasoned CEO?

There’s an answer for that.  The title of this insight helps us find a formula: LALA.

Memorize your use of “LALA”

Listen! 

The first rule of marketing and positioning is to listen to the marketplace.  Interview potential customers, hold focus groups, meet with existing customers.  Hire consultants. Attend trade show education sessions. Ask you field representatives to debrief you about what they are hearing.  But listen!

Adapt! 

Create, change, throw out, tweak or put more resources behind those efforts or campaigns that are working.  Listening does no good without action.  And the first thing in marketing is to adapt your product or service to the needs of the marketplace.

Learn!

[Email readers, continue here…]   Measure the results of your changed program in as many ways as possible. Create metrics for customer acquisition, retention, conversion, reach, or anything that helps you to better understand the effects of your changes to the program.

Adapt (again)!

It’s not unfair to reinforce the cycle by again adapting to the market after learning from your changes.  Start the cycle all over again, and never stop.

LALA:  Listen, adapt, learn, adapt.

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Posted in Positioning | Leave a comment

Four ways to create marketing excellence

First, let’s recall the four “P’s” of marketing

Marketing is a science devised to help drive customers to your door.  There are lots of ways to define how to market well, including the four P’s of marketing (1): product, price, promotion and place.  This is considered to be the producer-oriented model. These are still the driving focus behind most marketing courses, and deserve to be so.

More we are taught in marketing classes

Then there is the four C’s, the consumer-oriented marketing model (2).  The four Cs: Consumer, cost, communication and convenience.  This makes sense too, and surely deserves time.

Oh boy. Then there’s the compass or cardinal definitions model for marketers:   N=needs, W=wants, S=security, and E=education.  We can go on forever.

But I have my own model that is even simpler.

I’ll call it my IDCL model, just to fit into the scheme of the conversation.

I= increase revenues.  Find a way to position the company and the product to be wanted so much that it moves into the needs column for the consumer.  Use all the techniques you learn in marketing classes to drive demand.  Higher demand results in higher prices – if there is limited supply.  Or, with or without limits on supply, higher demand results in greater revenues, satisfying the “I” in the formula.

[Email readers, continue here…]   D=Decrease costs.  With greater demand comes the option to increase production and gain efficiencies of scale, driving costs down in the process.  Even without higher demand, reducing costs should always be a focus for management to provide breathing room for increased profits.

C=Customers, and more customers.  Marketing should provide a pool of ready to listen customers, no matter what the price or complexity of the product.  More importantly for management, finding a way to focus on extreme customer service will be the most inexpensive, effective marketing tool of all.  Existing customers have low acquisition costs, addressing the “D” in the equation.  Extremely happy existing customers are the greatest marketers you will ever have.

And finally, L=Low touch-no touch.   The world has turned upside down with COVID-induced worries about touching any kind of surfaces, and for good reason, even after we exit from the pandemic period.  How can you differentiate yourself from others with a no touch product, if you are a producer of a product that must be pushed, handled or driven to make it produce results?  Are you behind others or ahead in thinking of ways to market a unique experience that fits into this new era?

Increase revenues, decrease costs, better serve customers, and think low touch-no touch.  IDCL:  that could be a motto or even a manifesto for any good management team.  And it’s a good place to start a focus upon positioning.

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Posted in General, Positioning | 5 Comments

Could you achieve ten percent net income each month?

How planning is done today

Most entrepreneurs and managers, when modeling their business operations using a spreadsheet, start with expected revenue by month.  Then they calculate cost of sales, and then project their expenses, to find the bottom-line profit or loss each projected month.

One way to think for tomorrow

There is a rarely used twist that makes lots of sense.  Add a new row at the bottom of the spreadsheet.  Project your revenues and costs as in the original exercise.  Then consider that an operating entity should be able to generate a ten percent operating profit based upon revenues – and add a row to your spreadsheet immediately below “operating profit” that calculates 10% profit from sales each month.

Something new emerges

Compare that with the operating profit as calculated, which surely will be lower, probably negative, for months or even years.  The difference is something new – a target for reduction of expenses or addition to revenue for each month in which the calculated number is lower than 10% of revenues.

Why this is different and powerful

[Email readers, continue here…]   We are not taught to think this way, but rather to find the month in which we break even in our plan, then calculate the accumulated losses to that point, add all the cash needed for investment in fixed assets, and end up with the amount needed to finance the business through equity or debt financing.  This new tool gives you that number plus the amount needed to make the business a viable entity with a chance of long-term survival and growth.   The longer the time it takes to break even or get to that magic ten percent net, the higher the number of dollars needed.  Sometimes, the difference is a reminder to consider a reduction of expenses if revenues cannot be raised from projected levels.

The ultimate reminder

And sometimes, this exercise is just a reminder that we are all in business to make money, not to just break even.  Just like assuring that your own at-market salary is included in a forecast even if not drawn in cash during the earliest periods, the 10% target reminds us all that the target must be higher than merely breaking even, even if that means reassessing all expenses until the target is met or exceeded.

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Posted in Growth!, Protecting the business | 1 Comment

Can you defend your plan without being defensive?

When meeting with investors or even your board, during the period devoted to feedback after your presentation, you will hear comments and recommendations that don’t resonate with you. Some will be from a misunderstanding of your explanation. Some listeners will challenge your assumptions.  Some will seem to ask just plain show-off questions, in which the questioner wants you and others in the room to know that s/he knows more than you do.

Are you the plan’s salesperson?

You are in a vulnerable position in that room, the salesperson looking for money or approval to proceed with your plan before individuals who have nothing to lose but risky profits far in the future.  You cannot appear to be standoffish, or above responding to some of these inappropriate questions.

The right way to defend

Defend your position when appropriate. But listen carefully.   Although you may be completely right, the questioner’s comment may indicate that you are not getting your points across.  That’s just as valuable for feedback as hearing a good, new idea.

Learning from the experience

[Email readers, continue here…]    If you are looking for investors or need to present to ever-higher levels for approval, sometimes, you will have an opportunity to present to several levels of the organization. Plan to incorporate the appropriate responses to earlier questions in the presentation to avoid those being repeated. Show that you are both humble and adaptable.

And gaining insight from feedback

Investment groups including venture capital fund managers will tell you that the very process of defending your plan will help you better think through the rough spots, better launch the business with fewer holes in reasoning, and better connect with resources that can be used to accelerate your growth to breakeven and beyond. The process is always time-consuming and grueling.  But approached correctly, the time is well spent and the results almost always positive, even if money doesn’t come from the present effort.

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Posted in General, Growth!, Raising money, Surrounding yourself with talent | Leave a comment

Don’t get hung up on early stage valuation.

Here’s the “what.”

I can’t tell you how many times I’ve walked away from deals where the entrepreneur insists on a start-up pre-money valuation that is so high, no angel could expect to make a return upon the investment, even with a reasonable sales price for the company down the road.

And here’s the “why.”

There is always another attractive deal at the ready, and most have reasonable expectations of valuation.  Why fight about valuation, or disappoint the founder at the outset?  The real focus should be on smart planning, finding ways to launch and build the business with smart but frugal use of money.

More of my stories

Let me tell you two stories that are linked.  The first is of a 2004 startup that I cofounded and led the investment group for several early rounds, then VC rounds. The company had grown to forty employees and a healthy eight figure gross revenue run rate but has absorbed over $36 million of angel and VC money to do so, and without yet reaching breakeven.

[Email readers, continue here…]   The second story involves the same founder.  This one is using outsourced development, support, outsourced customer relations and more.  The total capital raise was under $600,000, and the founder retains majority control of his baby through this and even one optional future round.

Lessons founders learned

For the first, company, the founder’s remaining portion is under 4% after all the subsequent rounds, and not yet at breakeven. The second company, with the same founder, finds him with majority control even if the original raise is not enough.  For the founder to see any return at all in the first company, the ultimate selling price must be above $40 million.  In the second company, better planned, the founder would be made pleasantly wealthy at a selling price of $10 million.  The chances of the latter occurring are much greater than the former.  This founder was not hung up on valuation for the second company, just upon efficient use of capital.

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Posted in General, Ignition! Starting up, Raising money | 1 Comment

Please don’t overestimate your audience’s knowledge

Ask the important question first

When making a presentation to a new audience, the smart thing to do, if there is an opportunity, is to ask your audience by show of hands, if they have some knowledge of your industry or space.  And if you are making a one-to-one presentation, don’t start without a conversation about the other person’s knowledge of your space.

Asking the important question creates a connection

With that question you create an immediate connection with your audience even before beginning to present, and you know better how much explanation you will need to accompany your most elementary statements.  And you will not insult the industry experts by appearing to talk down to them.

How I ask the question

When I give a keynote address, I often start by asking my audience, by raise of hands, to tell me how many of them are angel or VC investors, how many are entrepreneurs, and how many are service providers such as attorneys.  Immediately, I can tell how to orient the explanations behind my pre-cast slides, based upon the response.  It always works, and the audience should appreciate that the speaker takes the time to orient the talk to the audience, not the other way around.

 What to do with a split audience

[Email readers, continue here…]   If your audience is composed of PhD’s in organic chemistry, would you want to explain the most elementary teachings in the field?  On the other hand, it is most often true that only one or a few of your audience members might be knowledgeable in your area of expertise.  Address them directly with “I hope you will put up with me as I spend a few moments explaining some of our elementary knowledge to the others.”  That makes these experts a part of your presentation, able to nod their heads when you do explain these things to the others, instead of looking a bit disdainful that you don’t recognize that there are experts in the room.

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Posted in General | 1 Comment

Raising money? Find your champion.

Increasing your chances of success

If you seek funds from an organized investment group such as an angel fund, venture capital entity, or even an investment club, the first thing you want to do is to find one person to buy into your vision, become excited by your enthusiasm and be willing to become the internal champion for your fund-raising effort.

Finding the gatekeeper for your funding effort

In some groups, if you cannot find such a person, you cannot even find the way to apply for funding, as some groups make it imperative that any introductions come from the inside, from a member or partner.   In others, if you cannot find such a champion after initial presentations to a subset of the entire group, you will not be permitted to move from initial application to the next stages of due diligence and final funding.

How to waste your fundraising effort

And in all cases, simply sending in an executive summary of the business plan via email or filling in an application for funding on a website lowers the chance of success to near nil.  If you cannot find someone on the inside, network with accountants, attorneys and bankers to find a name of an influential member or partner.

Differentiating yourself from others

[Email readers, continue here…]    You may have the most impressive plan in the world, but these organizations see tens of these each week, and often cannot be expected to understand the vision and potential of any at first glance at a document.   I receive three hundred unsolicited executive summaries a year, and my investment group, Tech Coast Angeles, sees over one thousand.  Together we fund, maybe, twenty-five of these.  Although much more than half are disqualified because of geographical location, industry, or amount of money needed, that still is a small percentage of funding to applications.

Even bankers aren’t exempt

Banks and lenders often are the same way. Although anyone can walk into a bank and apply for a loan, those who are recommended by a trusted source are treated much more personally and have a greater chance of success.

Spend time finding your champion.  Create time to network with members of these groups at their public events.  Seek out names from your trusted sources.

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Posted in General, Raising money | Leave a comment

Have you heard the rule of the thirds?

It starts with sharing the opportunity and upside

Think of startups and early stage businesses whose entrepreneurs you know. How many of them, particularly in technology, were able to start a company, supply all the funding, and share no management tasks or equity with others, and still grow the company to any significant size, worthy of a multi-million-dollar opportunity to cash out at exit?  Nearly none, if statistics and experience are key to the answer.

The sum of three parts

We should think of the creation and growth of a high valued company as the sum of three parts, with three distinct classes of participants helping to make real value out of a raw start-up.

One: The entrepreneur

First, there is the entrepreneur, the visionary, and force behind the venture from start to finish.  The reward for the entrepreneur, after years of effort, time and sacrifice, is measured by what portion of the total pie s/he retains at exit, how much the person continues to participate through that time, and how many other resources are brought in to get to that point.  Most importantly, the reward is measured by how much added value the total process creates over time.  It is the old story of “100% of nothing is worth far less than 10% of a large number.”

Two: Co-management

Few entrepreneurs can do it alone, with subordinate hired help and no expert management to share the burdens, skill sets, and efforts involved in growing the enterprise. So, co-management is the second group to share in the bounty upon a liquidity event.

Dividing equity among those that fill the management gap

[Email readers, continue here…]    Often, if not co-founders, this group is rewarded through issuance of stock options from a pool of available options that usually totals 15-20% of the total company’s equity divided among all employees.  Those who receive options but leave the company before a liquidity event may either purchase those shares represented by the options upon exit from the company, or lose the right to those shares, often 60 days after their exit.

Three: Outside investors

The third group is made of the total number and types of investors, other than the founder(s).  From friends and family early on, to angels that are not related to the founder(s), to venture capitalists for larger opportunities, these investors have risked their money in the venture for only one reason – to eventually profit from a liquidity event.

How much equity to early investors?

It is normal for the first round of organized angels to expect to purchase between twenty and thirty-five percent of the company with their investment.  Second rounds, if needed, often drive the founder(s) into a minority position, unless the company has grown significantly by that time and can command a higher pre-money valuation, giving less stock for the same amount of investment.

Reward for early risk

Investments in small companies involve a much greater degree of risk than investment in public companies, which provide immediate liquidity if needed and a ready measure of value at any time.  That risk deserves reward if there is a profitable sale or even an initial public offering, rare as that event is.

So, remember that there are three slices to the pie to consider when creating your company and again when considering a sale or liquidity event.  All three deserve recognition for the risk, time and effort in driving the company to its ultimate value.

Think of it as the rule of the thirds.

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Posted in General | 2 Comments

Financing with grants, not equity or debt

First, an example of grant-based financing          

I was chairman of a company that, for twelve years never took a dollar of outside investment.  The company was funded entirely by grants from the National Institute of Health, amounting to millions of non-dilutive dollars in all.  The company created a product that could be delivered as a service to medical clinicians anywhere in the world, enhancing their ability to understand their patents’ problems and needs in less time, using the expertise built into an AI expert system created by the best minds in many medical specialties.  And we should not forget that non-profits of all types depend upon grants for a significant amount of their funding, often employing professional grant writers on staff or as consultants.

No dilution to shareholders or the founders

A company like this grows in value to its customers and to prospective buyers of the business, but without any dilution of control or ownership for the founders.  How refreshing!

How grants are considered

In general, grants are made to individuals, companies, businesses, organizations or institutions that are working toward serving the greater good or a greater cause.  These grants include funding to educational institutions, researchers, research centers, colleges and universities, or private companies that are researching or developing leading edge solutions in several categories including agriculture, education, energy, health, medical, space, science and technology to name a few.

The effort to write a grant request is not trivial

[Email readers, continue here…]   Grant writing takes skill and immense amounts of time.  Often, grants require that you partner with other organizations to deliver the results or measure the effectiveness of your special project.  And often, grants come with detailed accounting and reporting requirements.  If you can finance your enterprise through grants rather than equity or debt, you retain control and when it is time to sell your interest in the business, a lower sales price will create a higher return on your personal investment.

Other sources of grants

There are some grants available even for one person shops, from cities, corporations and even non-profits for just your type of business, especially if you support a social cause, can employ more people, or help turn around a geographic area in need of upgrade.

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Posted in General, Raising money | 1 Comment

Use creative fundraising instead of equity or debt?

Use creative fundraising instead of equity or debt?

By Dave Berkus

First, my story as an example

Let me tell you the story of how I raised $100,000 to fill a gap needed to purchase a new home for my young family years ago.  I had located a beautiful home that would be a stretch to finance and had arranged for a first mortgage from the bank, and a second from the seller. Home values were rising so fast that I knew I had to move quickly.

So, I went to visit several customer CEOs, told them my story, and asked them to advance some amount against their future billing from me.  In return, I said, I would give them more time than originally contracted for, and certainly would treat the relationship as special from that moment on.  Corny?  Every one of the CEOs said “yes.”  And I closed escrow on a home I could not otherwise afford, and which I continue to live in, after its value shot through the roof during the subsequent years.

Out of the box ways to pay the bills

I sometimes counsel CEOs to consider consulting to their prospective customers or in their industry while they are simultaneously developing their product for market. Consulting fees pay the bills, reduce the stress, and give people confidence in the business.

How about your suppliers as partners?

[ Email readers, continue here…]   If you are already purchasing raw materials or services such as development or programming, consider asking your supplier to be a paperless partner, showing confidence in you and your future business by granting you deferred payments.  You might be surprised at the positive results, if your needs are real and you treat the relationship well by following through on your promises.

A common way to “eat your meal before its time”

How about offering prepaid licenses to your product or a package of prepaid hours, or a discount for prepayment of purchase?  All of these create special relationships with your customers, who show their faith and trust by advancing money to you before receiving products or services.  Just remember that you must deliver as promised, and you are eating your meal before its time.  You will have later expenses to pay when the revenues have already been received and presumably spent.

How about strategic partnerships?

Strategic partnerships with suppliers, customers and others sometimes are an attractive way to share the risk and fund an operation.  Creating a new company to do this is often a time and money drain, even if it seems easier to do this than to create a relationship within existing organizations.

These are just some of the ways to creatively raise funds without offering equity or taking on new debt.  Since some entrepreneurs are completely averse to sharing equity, and some greatly fear taking on any form of debt, creative fund-raising is certainly worth considering.

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Posted in General | 1 Comment