Most Small Medium Enterprises (SME’s) face tough choices on how-to-grow:
keep ticking over and consolidate the current business but be limited by own funding access or seek investors to grow into new markets and/or develop new products and services.
Seeking, and eventually accepting investors, means ‘giving up’ control. This may be hard to swallow for business owners. On the other hand a pro-active investor may bring highly sought after expertise into the business.
This decision point is a tricky one for business owners – I would recommend to consider the following 5-steps before embarking on finding investors:
1 Set your goals
What is your ambition? Are you prepared to relinquish some control?
I have worked with businesses that sought investors but were not quite clear why they were considering getting investors on board. To fix negative cash-flows or reducing debt may not be the best motivation to engage investors.
Set 2-3 main goals on why you want to get investors on board, e.g. do you want to set up business in a different location because you believe (and can demonstrate) that you can create value with your unique business proposition? Or do you want to develop more digital products and need an investor with expertise in that particular field so you can complement your non-digital value proposition?
2 Be clear on your strategy
Position your business clearly by naming your 3-5 key strategies going forward based on your performance to date.
“The investor of today does not profit from yesterday’s growth” W. Buffet
State what was achieved so far and what the future may hold – point out the growth potential and support this with research and a suggested marketing strategy.
This will ensure that any potential investor can see that you have thought about the future and that it is build on a solid foundation and market research. It is vital to convey confidence in your value position and this in turn will give any potential investor a level of comfort too.
3 Do your housekeeping
‘Housekeeping’ is often underestimated – meaning getting your internal processes in order, e.g. fully understand your internal activity chain, streamline your financial reporting, fine tune your business dashboard (if you use one) and your personnel management.
Once a potential investor is showing interest in your proposition, you want to put your ‘best foot forward’ and and demonstrate that your to date performance is no fluke – your business processes are ok. Sure they can be improved but they are good enough for now.
Again, you are more confident and the investor is also getting more confident in you and your business.
“Price is what you pay. Value is what you get” W. Buffet
Be realistic when you value your business – There are many approaches in establishing an accurate valuation for your business. Finding the best method for your business will provide you with the best measure of value.
4 Sell the dream
Now you are ready to add a little passion to your investment proposal – you have the foundation work done and are now getting into marketing mode.
Stay away from clichés such as ‘unique opportunity’ and ‘once in a life time…” etc., bring your own flavour or secret sauce into it – Convey the energy that made you set up the business in the first place, including the sacrifice, struggle, the joy and commitment and of course the future opportunities.
5 Have an exit door
Always leave the exit door ajar – an investor will jump on the wagon or may jump off.
Consider you own future in the business. Perhaps you wish to reap the benefits of your
hard work and increase your personal liquidity, or maybe you would like to retain a minority interest as a shareholder and hand over the management.
Think about the 5-steps before thinking about getting investors on board.
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