Show-and-Tell for Investors
We've completed a business plan for a new product, and several investors we've targeted have expressed great interest. We'll be making a presentation to offer them equity, so we need advice on how to pull it off as smoothly as possible. Any ideas?
Oak View, Calif.* * *
First, be sure you don't pitch your idea to investors who have a history of not following through on the type of early-stage investment opportunity you're offering. "Know your audience," says John Freyhof, director of venture development at the Enterprise Corp. of Pittsburgh. "Due diligence prevents you and investors from doing the same dance when you shouldn't even be in the same ballroom." Ask potential attendees for three references from the companies they've previously backed, and call those companies to compare notes on investors' integrity, stick-to-itiveness, and optimal level of return.
Professional investors need to know where their money is going and how they're going to get it back, says Dennis Stemp, founder of Pittsburgh's Dennis Stemp Publishing, which puts out a motorcycle magazine. To that end, you should present the investment opportunity in bite-size, easily digestible pieces. Investors need to know that you understand how all those pieces will fit together to generate high returns relative to the financial gamble they'll be taking.
Even the best story can come across muddled if it isn't presented professionally and logically . Greg Stemm, cofounder of Tampa-based Seahawk Deep Ocean Technology, a company that recovers shipwrecks, suggests you begin with a brief overview that gives investors a sense of what you want them to take away from the meeting. Next, reveal your company's money-making track record by walking the investors through the basics: what your company does, how and when it makes money, and how much it costs to make that money. Then you'll need to annotate the market opportunity, and demonstrate the product and explain its unique position in the market.
To help crystallize the investment opportunity in the minds of attendees, you'll need 35-millimeter slides of realistic financial statements of profit and loss, cash flow, income, and cash projections. You needn't spotlight your worst-case scenario. But you do need to paint an accurate, profit-making middle-of-the-road scenario with all its peaks and valleys.
The question-and-answer period will either make you or break you. To win points for sincerity, enthusiasm, professionalism, and the ability to listen -- traits that investors expect -- begin each response with a supportive "Good question." If you can't answer a question, defer to the company principal who can. "You'll leave potential investors with the impression that you have an effective team," explains Tom Weldon, president of Novoste, a medical-devices company in Norcross, Ga.
Practice makes perfect. Weldon urges you to rally a group of mock investors -- including anyone from your neighborhood banker to your public-relations person -- for a dress rehearsal to help you work on your delivery and your responses to thorny questions.* * *
I head a group that negotiates purchasing and supply contracts for several electrical wholesalers. We'd like to start a program for evaluating suppliers. Can you provide a list of issues to consider?
Sarpsborg, Norway* * *
Your first goal is to develop a formal evaluation survey that singles out the suppliers, existing or new, that can offer you the most competitive advantages in your market. To do that, you'll have to determine which supply lines and which supplier characteristics are most important to you. Does it matter much if a supplier often delivers a day late? If we're talking about a roll of electrical tape, that's probably not crucial. But if it's a big-ticket transformer, you may not have enough inventory to cope. And how about innovation? The supplier's responsiveness? Its flexibility? "Since we're replacing 85% of our product line, we focus on a supplier's ability to support us in a changing environment," says Ruth Stolk, senior buyer at Carver, an audio-equipment maker in Lynnwood, Wash. "We want suppliers to grow with us and change as we change."
Now take those optimum characteristics and, using a 100-point performance scale, weight them accordingly. For example, if component quality is paramount, your survey should be loaded with questions such as, "What steps are you taking to become ISO 9000 certified?" and "How well do you manage your own supply base?"
Once the scores are in, you'll be able to spot the winners quickly. If, say, a current supplier scores 70 points -- your passing grade -- you might agree that its status is conditional on an improvement in its score. Conversely, vendors that consistently get high marks deserve to be certified, which may mean their products need no incoming inspection and that they earn privileges such as a larger share of your business.
For a case-study-filled overview of ways to grade suppliers, read Peter Grieco's Supplier Certification II (PT Publications, 407-624-0455, 1993, $49.95). Its 500-plus pages explain how to implement your own selection process, how to survey and audit suppliers, and how to pen partnership agreements with suppliers.
Whether you're selecting suppliers for the first time or merely conducting a yearly checkup, be sure to take your evaluation team (ideally comprising your heads of purchasing, engineering, accounting, manufacturing, and quality control) on a field trip to each supplier's offices. Collect documents as evidence of the vendor's commitment to quality, and base your decision on the amount of proof you get. Consultant Grieco says you can often measure a supplier's depth of commitment to continuous improvement by the substance of its educational and training programs.
For more basic information that will help you assemble a top-notch inspection team, do an on-site evaluation, and collect evidence, read William Obie Ford's Purchasing Management: Guide to Selecting Suppliers (Prentice-Hall, 1993, $69.95). Also call the National Association of Purchasing Management (800-888-6276, extension 401) and the American Production and Inventory Control Society (800-444-2742) for catalogs of their publications and educational programs.* * *
I run a small company, and I'm looking for a networking group of other CEOs. Do you have suggestions?
Burbank, Calif.* * *
You'll find confidants in the local chapters of several national organizations that cater to the needs of top company officials. The hitches? You must meet strict membership terms and be willing to, as one CEO put it, "roll up your sleeves and get dirty." Here's a sampling:
The six-year-old Young Entrepreneurs' Organization (YEO; 703-527-4500; annual dues are $495; the maximum age for members is 40) is a band of founders, owners, and controlling shareholders of companies that gross at least $1 million annually. This educational, international networking group offers mentoring, peer groups, and monthly forums to its 600-plus members. Forums bring together 10 or so members and a moderator. Members of the group, after pledging confidentiality, act as advisory boards for one another.
The oldest professional collective in our sample is the Young Presidents' Organization (YPO; 214-650-4600; fees vary among chapters; international dues start at $1,000), which supports more than 7,000 presidents, CEOs, and chairpersons of companies with approximately $5 million in sales and 50 full-time employees. While its motto, "Better presidents through education and idea exchange," reinforces its commitment to education and networking, the group, according to some, is akin to a country club. To its credit, it extends programs to members' spouses. Many YPO members, once they hit 50, graduate to the World Presidents' Organization, which emphasizes public service.
The Executive Committee (TEC; 800-274-2367; annual fee is $8,400) is a 37-year-old, 3,300-member international educational group for company presidents and CEOs. Chapters offer one-on-one coaching; seminars with world-famous speakers and consultants; and daylong executive sessions at which members have their most gut-wrenching management problems solved (usually) by 14 peers, with the help of a facilitator. Steve Ashton, CEO of photo-image printer Ashton Photo, in Salem, Oreg., and a TEC member since 1988, remembers the meeting at which he shared his financials. "Deciding which growth path the company should take was difficult. Luckily, I wound up with a consensus. You can't beat the feedback; it's wonderfully candid."
The Center for Entrepreneurial Management's Chief Executive Officers' Club (212-633-0060; dues begin at $1,000 annually) is open to CEOs of all ages as long as they're nominated by a current member and run companies with at least $2 million in revenues. Its 400 members, scattered among nine cities, hear influential speakers and exchange company and personal information behind closed doors.
If those organizations don't appeal to you, hunt down local support networks. Many are listed in the yellow pages; others you'll hear about from fellow members of your trade associations. Of course, you needn't limit yourself to your industry's associations: your business problems will, we can assure you, be shared by members of the thousands of groups you'll find listed in library copies of National Trade and Professional Associations of the United States or State and Regional Associations of the United States (both from Columbia Books, in Washington, D.C.) and Encyclopedia of Associations (Gale Research).
Don't ease up in your search for the perfect networking group. Ashton Photo's Steve Ashton met many like-minded, noncompeting company execs through his local chamber of commerce. His active role at the chamber led him to his local economic-development board, where he's now exposed to a larger pool of potential confidants. Alternatively, you could visit CEOs at their own companies; phone friends and business associates; and tap the Lions and Rotary Clubs and the Jaycees. "I used to get a lot out of service clubs and political parties," says Bill Trimble, president of Apex Resorts, based in Vancouver, British Columbia. "Now I turn to YEO and my wife."* * *
We're an environmental start-up, and we're thinking of hiring manufacturers' reps who typically sell to engineering companies. How can we be sure this is the best way to build our business? Where can we locate reputable reps?
Waterville, Maine* * *
You can't be sure that using reps is the most efficient route until you've taken a hard look at your cost and control issues. Sales and marketing consultant Ed Bobrow of New York City says that once you've stated your sales goals -- what product lines you want to sell, to which industry segments, at what price, and with what profit -- you have to figure out how much marketing control you'll need to achieve those goals. To help you think those things through, Bobrow recommends a comprehensive how-to book: Harold Novick's Selling Through Independent Reps (AMACOM, 800-262-9699, 1994, $69.95).
Bobrow urges you to research the sales customs and practices of your industry, noting when reps work and when they don't and why. "I call on some large engineering firms, and it takes a lot of effort. A rep could starve trying to make the right connections. In this business, I've never seen one person in charge of everything," says Gene Witte, a former rep and now the marketing director for Environmental Operations, an environmental consulting and remediation business in St. Louis. "Often these marketing departments are staffed with people with master's degrees in hydrogeology." Witte hopes you've at least hired such a knowledgeable person as sales director.
John Grant, president of the Berlin Group, a marketing consultancy in Hudson, Mass., offers an exercise to help you figure out how economical each selling method -- using reps or hiring full-time sales staff -- is. First, all things being equal, you should pinpoint the sales level at which both methods would cost you the same amount. Let's say that at sales of $500,000 in a specific territory, it would cost you $60,000 to support either a full-timer or a rep. (Here, the full-timer might receive $40,000 in compensation, and you'd have to pay $10,000 for technical support and another $10,000 for travel and entertainment expenses. For the rep, you'd pay a 10% commission, or $50,000, and $10,000 for technical support.)
Now compare your actual sales projection with that break-even point. If expected territory sales are less than $500,000, reps make economic sense because of their fixed cost-to-sales ratio. But if business booms and sales surpass $500,000, you'd probably want to go with a full-timer. When using this model, Grant recommends that you factor in every sales cost imaginable -- the basics listed above, plus vacations, personnel-turnover costs, paperwork, taxes, training, and any other costs that are unique to either method.
If you've decided on reps, you might generate a list of recommended agencies to set up informational meetings with potential customers in hot territories, noncompeting companies in your industry, and manufacturers with similar products. If you come up short, contact the Manufacturers' Agents National Association (MANA; 714- 859-4040) for its annual Directory of Manufacturers' Sales Agencies ($85, which includes a year's subscription to Agency Sales magazine -- a good place to advertise). The directory covers nearly 8,000 agencies, providing contact names, product lines, the number of salespeople each has, the territories covered, and more. For tips on finding the perfect agency, read MANA's special reports "How to Work Successfully with Manufacturers' Agencies" ($10) and "Will Using Independent Sales Agents Meet Your (Clients') Sales Goals?" ($5). n
-- Reported by Karen E. Carney