Wikipediia defines “Logistics” as the management of the flow of resources between the point of origin and the point of consumption in order to meet some requirements, for example, of customers or corporations.
Here is a fascinating look “under the hood” as to how Amazon does it.
Angel Barbara (not her real name) listened intently as the presenter clicked through his slides and explained how and why his startup is going to revolutionize the industry and change the world.
When he finished, he asked: “Any questions?”
Angel Barbara looked around the table, flipped through the financial projections and SWOT analyses pages and proceeded to make one of the top 5 angel investor mistakes:
1. Not having a model for investing
If you don’t know what you want, everything will look inviting. We see this when angel investors evaluate an investment opportunity in a vacuum – instead of evaluating such opportunity against a rigorously developed checklist. As an investor, you cannot Not Have a guidance system for choosing investments.
2. Treating angel investing as a hobby
Some of the most sophisticated investors focus on the private markets, also known as ‘the dark” for good reasons: you have to know your onions if you’re going to invest in the next Google or Facebook. A casual, retired approach would definitely hurt in the long run.
3. Investing by the numbers
As they say on Wall Street, “If you torture the numbers long enough, they’ll confess.” This too is true on Main Street. Entrepreneurs are optimists by nature – a necessary requirement if you’re going to topple Google. This optimism carries over to the financial projections. Assume the numbers – and entire business plan – are going to be wrong and discount appropriately.
Steve Blank is right: “No business plan survives first contact with the customer.”
4. Being wimpy
I was going to write ‘indecisive’ but ‘wimpy’ captures it nicely. This is derivative of No.1 – not knowing your preferred investment criteria. We’ve seen angels nitpick a business plan to death – as if perfection exists or guarantees a successful business. In investing, I recommend the Derek Sivers dictum: “No more yes. It’s either HELL YEAH! Or No.” Decide.
5. Not investing enough to be worthwhile
Warren Buffet’s No.2, Charlie Munger described this thus: “To be a master investor, bet very seldom. Work hard at finding mispriced assets. Then bet heavily when the world offers you the opportunity. Bet big when you have the odds. And the rest of the time, don’t.” When we see masterful angel investors in action, they’ve usually worked out in advance what they’re looking for, made up their minds pretty quickly about whether or not they’re interested (subject to due diligence) and took a sizeable bite out of the company. In other words, they put their eggs in very few baskets and then kept eagle eyes on them.
So, which of these mistakes was Angel Barbara about to make? Mistake No.3. She took the entrepreneur through a third degree on the numbers and projections even before determining if the opportunity met her investment criteria.
Your turn. What mistakes have you made or seen people made?
NewGate represents a historically profitable firm with partners that have different goals and objectives. Our company was retained to “test the waters” by performing a confidential national (including Canada and parts of Europe) custom search campaign. After reaching out to over 800 qualified contacts from a pool of both Private Equity Groups (these groups have portfolio companies that look for add-ons) and Industry specific firms, we short-listed two prospect companies that submitted letters of interest. On the subjective side, our client likes these prospect companies and believes their respective cultures are quite compatible.
Now came the hardest and final issue: Is the Client better off without a Merger and does any transaction really make sense? This is a very difficult juncture in the life of any company owner when considering a sale/merger.
We compared a “going forward” (proforma) analysis of what our client’s business would hope to produce without any sale, mergers and acquisition. We then compared this estimate with a conservative contrasting study of the “Client with the Merger” by evaluating the total package of the transaction: cash at closing, annual compensation as a partner of the new firm, bonus package, stock dividends, and fringe benefits.
The evaluation was strictly based on economics and was not influenced by any of the intangible benefits derived from merging with a very established firm with significant working capital and business resources. Upon conclusion, the comparison study revealed – with irrefutable evidence – that our Client’s Net Present Value (NPV), by doing mergers and acquisition, was better than the Client’s worth without the Merger.
Summing it up:
* With a Merger our Client’s financial worth is greater than the Client’s worth without an acquisition or a Merger. This current study shows that even in challenging economic times, there could be some worthwhile opportunities available.
We are finding that one important criterion in difficult times is for companies to find a way to get stronger. One method of doing so is by way of mergers that allow the firm greater access to the larger clients.
Though this case study was done a few years in 2009, when the general economic outlook was bleak for just about everyone, the concept remains relevant today. Mergers, when done properly and with the right partners, can be a powerful means to your ultimate end game as a business owner.
The key question to ask yourself isn’t whether or not it will be of financial benefit to proceed with a merger (important, but objective), but rather if it is aligned with your life-business goals. As a business owner, planning for your exit is something that needs to be done. As President Eisenhower deftly put it, “plans are useless, but planning is indispensable”.