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New Businesses and Angel Investment

A new business depends primarily on the management skills of the entrepreneur. The most successful entrepreneurs manage their resources by minimizing the amount of capital needed to start and grow their business. Angel investors want all of their investment put directly into making the business grow in order to insure a high rate of return, which should be about 20% to 30% per year on the invested amount. It is often a mistake among entrepreneurs to think that there are no competitors that operate in a similar capacity to their business, and this should be shown in your business prospectus as it relates to starting a company with money from an angel investor. Equity will almost always be required as a negotiating tool as it relates to working with a private third party funding source.

The details of how you will accomplish the goals of your business are described in your business overview documents. Entrepreneurs often have the misconception that a new business idea must be unique in order to be financed by an angel investor. However, this is usually not the case as the most important thing about your business is that it is economically viable. An expanded executive summary can be used to attract the attention of potential investors, and this should be shown within your new business plan.

Angel investors usually ask for less equity than a venture capital firm due to the fact that they require less capital and are less risky. We always recommend that you work closely with a CPA when you’re going through the very complex capital raising process. If it is investors you seek, do what you can to make the opportunity you present to them as attractive as possible. You may wan to find discussion groups for additional advice and support on business plan writing.

The ROI of your business should be more than 20% per year as it relates to working with a professional investor or individual funding source. An organizational business plan will be organized in a similar fashion as any other business plan as it relates to working with these individuals.

Writing a good business plan is one of the most important parts of raising capital as this will put all of your ideas for a business in a document that you can use to raise capital while also providing you with a guideline for how to expand your business. If you are uncertain as to how to put together a business plan specific for an angel investor or venture capital firm then you need to work closely with an appropriate adviser in order to accomplish this goal.

A Tale of Three Business Owners

This is a story about three business owners. They each have a common need of increasing sales in a challenging economy. Kim, Taylor and Leslie will approach the situation differently. Each of these owners knows they must increase marketing and outside sales activity to drive sales. The question is, what will they do and how will they solve their common problem.

Not one of these business owners has a written sales and marketing plan of action. Additionally, they don’t have practical experience in sales or marketing to draw upon. They are the typical business owner that has spent more time in production and developing an efficient operation than on sales and marketing. Now that times are tough times, these owners need to decide what to do now – what would you tell them if they came to you for advice?

Kim – hire a new sales person and expand marketing

Kim is the oldest of the three owners and decides to go the traditional route and begins the search process of hiring a salesperson and increasing the marketing and sales budget. This will become a sizable budget expense over the next few months. However, Kim believes that this is the best course of action based on what started worked in the past. Unfortunately, Kim has not been successful at managing sales people and they usually leave after 9 months just as they are reaching breakeven. None the less, he is determined and decides to focus on hiring someone with more experience that can increase sales right away. Kim decides to hire someone more mature and someone that shares the same viewpoint on sales and marketing the traditional way. Kim’s strategy is to follow an older, but proven method of cold calling, setting appointments and reaching more prospects individually. The rational is that if it worked before, it should work now.

Taylor – embrace technology and use the Internet to expand

Taylor is the youngest of the three owners with a passion for technology. The production facility is state of the art and previous investments take advantage of technology. The business has more than enough capacity with enhanced production capabilities. Taylor decides to focus on enhancing the company website and invest in Search Engine Optimization and with Google ads and ad words to drive customers to the enhanced website. The budget to increase the sales and marketing technology is expensive but this doesn’t require hiring a salesperson. This trade off is one that Taylor can appreciate. Taylor also decides to enhance his sales and marketing program with email marketing, personalized and dimensional mailings that cost more to send but may enhance the overall response of each mailing. The strategy behind Taylors plan is to use the Internet and the power of one-to-one marketing to increase sales.

Leslie – develop a balanced plan and execute the plan

Leslie is the in the middle when it comes to the three owners and decides to spend more time searching for a balanced approach. Leslie doesn’t want to hire another salesperson, because the results didn’t produce a return on investment the last 2 times. Leslie also believes that only some of the prospects will be receptive to a high tech or Internet marketing approach. Leslie decides to survey and evaluate what worked in the past. The survey results indicate that consistent, targeted mailings and staying in touch with clients has worked. The business has grown from referrals and staying in touch with clients. Unfortunately, Leslie is too busy in production and management to perform all the tasks the plan would require. The strategy behind Leslie’s plan is to develop a system that will keep in contact with clients to build stronger relationships, follow-up on opportunities when they develop. Leslie just needs a program that will accomplish this and is affordable.

What advice would you offer?

Since you are reading this scenario from the outside in, who has the better plan? Your answer and perspective will largely depend upon your experience in business, your age and how you approach sales and marketing. Although this is a fictional example, it helps us to realize that there are many options to the same problem and we should examine different options for a resolution. You should begin with a quick assessment and apply corrective action immediately. You should collect information and evaluate what the true nature of the problem is. Determine a way to stabilize the problem and begin implementing a plan of action. As time moves forward, you can modify the plan. Implementation of a plan, any plan is important. Doing nothing – solves nothing.

There is a mix of reality in this article. There are business owners like Kim who haven’t changed sales and marketing strategies. Unfortunately, many of the old sales strategies of cold calling are not effective when performed by themselves in the wrong markets, to the wrong people.

Taylor’s plan of embracing technology leaves out those clients who don’t communicate on the Internet. This could be a fatal error and an investment lost if the target market is not Internet savvy.

Leslie’s plan could work if it is implemented. The challenge is that many business owners are not prepared and experienced enough to create and develop a dynamic sales plan that is balanced for success. This is where working with experts and consultants is a worthwhile investment.

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