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November 2015 Business Newsletter
Here are four areas where investing in startups and the private markets is superior to investing in Wall Street:
Investing in a Startup gives you unmatched access to the company and its affairs. You get to see minute details that you could only guess in a public company.
Legal Insider Information
According to Jason Cohen, “They say the only way to consistently make money on Wall Street is to have insider information. Unfortunately it’s not a joke, and although it’s illegal (and people sometimes go to jail for it ), those in the know will tell you it’s the norm.” Remember the Martha Stewart Case anyone? Investing in an startup gives you legal insider information on a level that could send you to jail on Wall Street.
Simply put, arbitraging is buying in one market and selling in another while taking advantage of price differences. For savvy investors, startups present opportunity to buy low and sell high when the company is either acquired by a bigger competitor or it goes public through an IPO – which is simply a process designed for early investors to cash in on their investment.
Present at Creation
A startup is a creative force. At best, it is an innovative engine designed to push the limits of current dogmas. Startups investors are the grease that keeps this creative engine moving and they get to be present at the inception of such creative endeavors. America runs on innovation, startups thrive on innovation and startup investors fund such an innovation.
This article is based on an article first published on 2011 by Joe Alvarez Jr.
- Paperwork: Do you know how much paperwork you will need if you are selling? According to the Small Business Administration SBA you need to prepare a sales agreement. What else? You can invest your time doing the research on your own… OR consult a business broker. A business broker’s expertise consists of navigating through extensive paperwork and the formalities in a daily basis. Don’t forget that time is money!
- Business Continuity: Selling a business is a full-time job as it is. The owner should maintain its focus on running the business and take it to its full potential. All of these while selling.
- Confidentiality: If you are an owner and are selling your business how you keep the matter confidential from employees and other stakeholders. You don’t want anyone to panic. The situation can be disruptive to the normal operations of your business. If you choose a business broker, he can protect the identity of your company while on sale. They can use a blind profile, a document describing the company without revealing its identity. We are going to talk further about “Confidentiality when selling a business” in our next blog.
- Valuation Knowledge: Brokers can help you determine the value of your business. They have access to tools such as business transactions databases. There are also other variables that affect the value of your business. A broker can guide you in the right direction in to calculate the accurate value of your business.
- Marketing: business brokers can help you market your business. They can suggest you diverse ways to advertise and put your business out there.
For starters, a broker is an independent agent whose main responsibility is to bring sellers and buyers together. For example, if you hire a real estate broker to sell your house, the broker acts as a middleman, he doesn’t own the house, and he instead facilitates the transaction. Just like with a house if you have a business, you as an owner can sell it yourself. However, there are many reasons why you should consider hiring a business broker:
Ultimately, the decision is yours, you should take in account the variables of time, money and resources and put on a balance and see what works better for you and your business.
New Gate Capital Partners is here to answer your questions, we can help you to sell your business. Feel free to check out our business brokerage page.
I love the way my partner, Steve, goes about explaining this.
Chicken or the Egg
So you want to be in business, be an owner, master of your own destiny?
The age old question in the title might be worth thinking about. Should you do a start-up with an egg or should you buy some chickens? A silly analogy? Maybe not.
Many people dream of starting a venture. I’ve helped several hundred wanna- be- entrepreneurs work through this process. Many come in with the egg in hand, delicate, carefully guarded and full of promise. Perhaps they’ve decorated the egg to make it look more attractive and more advanced than other eggs. Convinced that their egg is unique yet they really aren’t quite sure what it will be when it hatches. They rarely consider that it may not hatch at all. After a time of incubation where you’ve kept it warm and looked at it all hours of the night maybe even added a few more colors to it, it hatches.
You have a chick! They are furry, loud and ready to be fed. It was a chicken after all and you are very proud of this new creature, you probably give it a name even though you can’t tell whether it’s male or female (which is very difficult in young chicks). A few days later you realize that you’ll need another egg or have to buy another chicken to mate with yours or your precious egg, after lots of feed and care, will have provided you with 1-chicken dinner and be gone. Your great idea didn’t produce much and you really were never in business.
Of course you are smarter than that so you had several eggs or a partner who also had an egg that was compatible with your egg, Hmm, more about that another time. The point or question is: Did you save time or resources by starting with the egg versus buying some chickens. Both actions will get you to the same place. You thought the egg route would be simpler and cheaper. Let’s explore that.
Last Thursday, I said your success as a startup founder depends a lot on you being crystal clear on WHOM you (your product and service) serve. Let’s allocate 40% weight to this.
So you say, “Allan, I’ve got the WHO down pat. I can picture her. I know her pains. I can feel her frustrations with this problem. I’ve seen and heard her curse aloud as she struggles with this problem. She’s starving for a solution that works – or one that sucks less than is currently available. Now what?”
Good question. I thought you’d never ask.
The next big piece (another 40 percent-er) you need to figure out is the WHAT you offer to your WHO.
As an entrepreneur, you’re wired to start and focus almost exclusively on the WHAT – your product, service, website, widget, whatever. We see this every day:
“My product will revolutionize the industry.”
“It’s the best thing since the iPhone”
“It’s a Facebook killer.”
Big mistake. Don’t do that.
Start with WHO. Then follow with WHAT. Don’t believe me? See what Seth Godin says here about first starting with a tribe. Got that? Great.
So WHAT do you offer your WHO? Is your product and service a dream-come-true solution to your WHO? Does your WHAT make a meaningful difference to your WHO? Will the dog, as we say in the industry, eat the dog food?
The classic mistake to avoid here as you build your WHAT is keeping it under wraps – in beta or stealth mode – forever while you tinker away and burn your investors’ cash.
Once you have a version 0.1 of your product and service that works decently, launch AND charge for it. Free lunch is for losers.
Then keep your ears to the ground and observe your WHO as they interact with your WHAT. Take in every feedback as data and move on to version 1.0 of your WHAT.