Enthusiasm, Process and Liquidity Events

The Business Process Management Life-Cycle

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How important in the development of ideas into commercial reality is talent? And how important is persistence, determination and hard work?

They used to say: “1% inspiration and 99% determination”.

The thing is that there are a lot of steps along the way to launching a business, launching a product, or launching a company. At each step of the journey a different mix of things is required. There are also a lot of catalysts that help success manifest – human ones…

Talent on its own is not enough. And process without talent is worthless. A balance has to be found. Enthusiasm, talent, structure, hard work, capital – and a host of other things go into building something that is enduring, successful, fun, profitable….

A lot of people think that they understand the entrepreneurial process. But my experience is that unless you have “been there”; until you have the scars and have had to do the hard yards… its hard to imagine how you would really understand how it truly feels, and what success truly needs.

One very old friend who is a leading venture capitalist in Australia told me years ago that the biggest challenge that he found in business was modeling the mix of talented entrepreneur and rational and logical business planning. He told me that regardless of how well his team, who were seriously bright, analysed the business case, ultimately there was a piece of “magic” that made the difference… Sometimes that magic can be really infuriating to work with. In that respect its not that much different to developing acts in the music business.

A couple of weeks ago I attended a workshop to explore how to help new and emerging entrepreneurs. The thing that I found most disturbing at the end of a full day workshop was the fact that so few of the people attending the workshop actually had any personal knowledge of starting a company. Lots of experience in business from people who really had quite a lot to contribute, but very little understanding of what it feels like to be living it.

Many of them were people who work for large institutions and have done all their lives. How would someone who has only ever worked at a big accounting firm or in the administration of a city know the reality of how it feels to go out trying to raise money for an idea? To me they were like Catholic priests advising their parishioners about birth control. That may be a bad analogy, but you get my drift…

Seriously though – there are some things that new and emerging entrepreneurs should be able to do without any advice fromĀ  an old warhorse: Developing a Customer Value Proposition is one of the major things to do that is all to often forgotten in amongst the enthusiasm for an invention. Identifying customer pain, understanding what the competition is doing, ensuring that you don’t get caught up in a fantasy of how cool your idea is without also getting a hard and cold reality check…

The reason why this is important is that you have to realize that when you go out to raise money, the investors are also your customers. Customers of a quite different complexion to your transactional customers its true, but customers nonetheless.

Your investors are people who are buying into your dream. But they don’t want to buy into a nightmare. The thing that they purchase is paper that comes straight off of your laser printer in the form of share scrip. In return they hand over a different kind of paper in the form of bank notes.

Their expectation from the product that they purchase is very simple. They want it to be worth more when they sell it, than when they purchased it.

To deliver on their expectation, you have to be able to coherently articulate not only to them but to yourself, how you are going to achieve that, and by what date you figure you can do it.

Normally, that process involves reaching a milestone event in the business’s history. The irony is that this value inflection point is normally the point at which you need more cash injected into the business. The difference is that by now you have achieved something (in the form of customers, technology development, etc) that validates the approach that you have taken. As a result, the perception of new investors is that your business is expanding, and is therefore worth more now than it was a year ago.

This simple concept is one of the least understood ideas behind building a business, because it is this idea that means that it is imperative to not overvalue your business when you start off. If you do, it makes it so much harder to deliver a positive result to your initial shareholders…

This of course then leads to one of the biggest questions: How do you determine the right value? How do you determine it at the beginning? And how do you determine it at the time that you undertaken the next capital raising? And even more importantly, how do you determine it at the time that you exit the business through a trade sale or other so-called “liquidity event“?

That is the end game… The key here is to get started. To get started does require process. But it also requires first hand knowledge of the pitfalls in order to reduce the pain.


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