Chapter 1 Introducing the Power Entrepreneur – The Rainmaker

CHAPTER 1

Introducing the Power Entrepreneur

Let me state that this is not strictly a textbook on business and how to raise funds. There are literally thousands of such books available worldwide, many free to download. If you need some assistance, send me an e-mail, and I will help you find information pertinent to your specific needs.

The Rainmaker is simply a menu of factors that you need to take extreme care and cognizance of to create a company that you will be proud of and achieve success for your customers, staff, the environment within which you operate, and, of course, for you and your partners.

In addition, to achieve your goals, whatever these may be, the business needs to be profitable, cash flush, and progressive for today and for the long term. Stated differently, in an environment that is highly, and at times, cruelly competitive, you need to drive innovation hard, be progressive in every facet of your business, and ensure that your company services and products are continually in demand. You have to accomplish these, while balancing people, money, and time. This is by no means an easy task to achieve.

Let’s start with one pertinent and basic fact.

You need to draft a business plan. I am not suggesting that you have an expensive document that you ultimately never use. I am advising you to have a working document that is both a strategy and a plan for you and your business for today and the future. This should include, among others, goals and milestones. Some decades ago, my personal business mentor in stockbroking likened a business plan to a shopping list.

I think that the analogy is important, so I will repeat it here.

Scenario 1: Imagine going shopping with a limited amount of funds and no shopping list.

Scenario 2: Imagine going shopping with a limited amount of funds and a poorly thought-out shopping list.

Scenario 3: Imagine going shopping with a limited amount of funds and a well-thought-out shopping list.

In scenario 1, you are likely to end up buying goods that you don’t actually require, forgetting the more critical ones. In business, Imagine forgetting to buy fuel for your delivery trucks or a building construction company not purchasing cement. At the time, I said to my mentor that these were obvious purchases and, as such, I wouldn’t forget—with or without a business plan.

He just smiled and said,

Maybe so, but without proper information, you could buy too much or too little cement. Either way, your business would come to a standstill. In the former, you wouldn’t have enough cash to buy other material to finish the project (wooden beams, doors, and bricks, etc.), and in the latter, your project would come to a grinding halt very quickly.

In scenario 2, simply put—you could end up buying material that you may only need later in the project, while not buying the more currently pertinent materials. In the last example, you would be able to—over the years—home in on required materials and expenses as they are required.

In reality, a business plan is a strategy document, which should outline the responsibilities of key staff and directors. It should have deliverables and costings attached. At that stage, I was pretty naïve and said, “Surely, a business plan is private? Inserting competitively sensitive information in a document is not wise.”

It is thus important to differentiate the specific uses of a business plan. In the first instance, a business plan is a strategy document for your board of directors. Secondly, parts of the document can be used for marketing and profiles, and, finally, it can be used to raise capital.

As such, the only way to achieve the various uses is to write a business plan in independent sections that can be removed for various purposes. While textbooks cite dozens of pertinent rules that entrepreneurs need to adhere to and—as stated so often—document in a business plan, there are actually also personality traits that are as important as dry facts. I will set these out more comprehensively in later chapters.

In the meantime, look at just four basic lessons by which many successful entrepreneurs live by, whether documented or not.

Our Starting Point—Four Lessons

The first is that complacency in a world that is hostile and hungry to take your success away from you is detrimental to your financial health. Competitors, both new and experienced, will lure your skilled staff away with better financial packages, copy your products and services at lower prices, and undertake marketing campaigns aimed at stealing market share away from you.

I am not saying that their lower priced products will be better than yours, but in a world of personal financial stress, many buyers will try the new product.

Second, hesitation to be innovative with current products and services or to expand your business into new yet related products could see your company stagnate and move into inevitable disbandment as better products enter the market at lower costs.

Third, in a continually changing world of legislation and corporate rules and guidelines, ensure that you are focused. Ask yourself, “Is my plan properly structured to be effective from the first day, and can I stay ahead of competitors, both local and foreign?”

Lastly, your company should always be well capitalized. Consequently, every decision should take into account its influence on working capital and fixed costs.

Essentially, you should meet changing consumer needs by being innovative in introducing new or changed products and services. Buyers simply get bored, so alter the packaging and start new advertising campaigns and promotions or product competitions. This should be the norm and not the exception. Remember to continually communicate with your staff, key personnel, directors, partners, and, of course, customers.

Let’s look at some additional information that you need to note as an entrepreneur who will continuously require working capital and expansion funds at some point in the future.

Your Business Is Not an Island

At some point, you will need to approach your bank or the higher-risk investors, such as Angel Funds and Venture Capitalists. You will then quickly realize the value of having a well-coordinated business plan. Despite the importance of such a document, many entrepreneurs simply don’t have one and will hastily pull one together, using templates found on the Internet.

You must understand that investors get thousands of requests for funding, so why would they choose you? Simply put, you have to impress them to get what you want. This next statement may sound wrong: You need to have a complete understanding of every facet of your business. How is that even possible? If you are hired to run a manufacturing company, should you know how the factory and all its component machinery operate? The simple answer is yes, but in cases of professional CEOs (chief executive officers), the alternative is to ensure that your advisors are knowledgeable about the product and its production.

Having intimate knowledge of the company and all its components (as CEO and as a team) will level the power play between you and professional investors and institutions. This means that you should use a two-pronged approach:

First, your business plan must highlight that you are the leader and focused on driving the company within the market. This is called a market-driven enterprise.

Second, you should always be prepared to address the following questions:

How much do you require?

How will you use these funds?

How will you pay these funds back?

A third question has recently come to light, as highlighted in a global aviation project that required $100 million to expand a fleet by 10 aeroplanes. This would add $8 million to profits.

Question: If we invested $150 million in your company, how many aeroplanes could you buy, and how would this influence the bottom line?

The question highlights whether you are prepared for any eventualities. Do you have the systems and spreadsheets in place to enable you to conduct a rapid analysis of the changed circumstances? What they are really asking is whether the added funds will increase the profit ratio due to economies of scale? Will the added funds enable you to gain market share? Or will the added funds place you in a difficult position, as the added aeroplanes may not be filled as demand for goods may not be met?

Sadly, everything you do in a commercial business must be linked to an economic motive. I say “sadly” because as your business expands, you will have to take on more directors and staff and additional capital—so there will be a continual need to interact with more investors. There is always a risk that your focus will change from managing your business to trying to satisfy these investors all the time. My advice is to focus on the business, and the value of the firm will look after itself.

No one can argue with a company that has a solid cash flow, increasing value, strong order books, and growing profits—as well as growing gross profit margins.

Give Investors What They Want

Bottom line: Your ability to communicate with investors is via a business plan. There may be an initial meeting, but it will always end with the investor asking for a business plan and, often, a profile. There is no other way, so prepare one that highlights the passion, skill, experience, and expertise of your team’s key managers and directors. It is important when talking to investors to highlight your team’s ability to anticipate and manage risk, within a competitive environment. In some instances (depending on the industry), highlight how effective you and your team are in targeting new business markets.

It is quite simple: Give investors what they want—to get what you want.

This includes the following:

Highlight how effective you are in your market and that your business has identified various sources of underexploited market demands.

Profile your existing business in an easy-to-read four-page document.

Instead of having a massive document that includes all your research and feasibility studies, have these as separate documents. The profile and executive summaries can refer to specific sections of the industry analysis, research, and forensic audits.

At this point, show them an executive summary—the full documents can be made available on request.

State how much capital you require, how you will use these funds, and a fair and reasonable repayment plan.

Consequently, it is essential to start with the basics to provide a solid foundation for your business. At the outset, you will require a realistic and marketable strategy to secured working capital. The goal is to launch a properly funded business, so you will need initial project funding. A business plan is effectively used as a written proposal to attract capital investment by strategically setting out a blueprint for your planned profitable growth in the short and long term.

Your business plan is effectively more than just a proposal for funding. It is a realistic set of goals and how to achieve them—or, stated differently, a baseline for generating an operating profit before and after financing has been secured.

My intention in this book is to assist you to create a working document that is more than a pretty brochure for investors. It must be a practical tool to guide you and your top management to execute tasks, duties, and responsibilities in a highly professional manner to achieve your company’s objectives, profit goals, and mission.

Therefore, take careful note of the following:

Show indisputable in-depth knowledge of your market and industry in which you intend to operate.

Show and prove that you have an ability to evaluate how changes in environmental factors (economics, business, politics, and technology) can affect your business.

Highlight (with examples) your leadership capabilities. In essence, show how you would manage change while maintaining secure operations.

Highlight your team’s skills, experience, and industry depth of knowledge.

Show that you are experienced and skilled to find market gaps, and show how you would fill such a demand.

Highlight how you have chosen staff for their skills and experience, but also for their integrity, awareness, intuition, and logic.

I intend to limit long lists of facts as much as possible. In addition, these lists are continuously changing as industries and markets change and, more specifically, when companies have products in various sectors. It is better, therefore, for you to develop your own set of rules to determine for yourself whether your business, concept, or acquisition/merger will be financially viable. These will be developed and explained in later chapters.

Some Thoughts

Running a profitable business is all-encompassing. It takes dedication, dynamic leadership, and never taking your eye off the ball. You have directors and key staff who have duties to complete, but it is still your responsibility to take remedial action when required. Pointing fingers at someone in your firm when something has gone wrong is never the right thing to do. So, without being pedantic, have a paper trail. This can be used later to determine what you did wrong or what you did right under tough circumstances. It effectively becomes a blueprint for the company’s future operations.

In today’s highly competitive global business environment, you will need to take account of the needs of clients, staff, and directors, and investors’ reasons to want to invest in you and your company. A more blunt way of saying this: You must satisfy the myopic greed of people that could make a difference to your company. Before we get into more complexities of business strategy, structure, and so on, the lesson is simple: Take Total Responsibility.

Every decision that you make is yours and yours alone. This must become your personal mantra. There is absolutely no other way to operate in the world of business. Always take action only after you have considered the potential repercussions of that action. This is usually conducted by undertaking fair-value analysis and looking at how the business could be affected by your decision. There are those in the market that insist that business is 90 percent gut feel. For them this may be the case, but they also have to admit that their “gut” feel instinct came only after years of losses, successes, and failures and invaluable experience and development of skills.

The following is well worth noting when you run your own business.

To be effective, a company should always have only one leader.

Ensure that cash flow always remains strong and within acceptable liquidity ratios.

Operate in an industry you know, understand, and have passion for and skill to succeed.

Know who your competitors are and who your potential competitors may be in the future.

Understand market trends and ensure that your product/services meet current and future demand.

Know what government and other forms of price regulation in your industry are.

Control expenses and other liabilities.

Employ professionals to conduct due diligence, corporate structuring, accounting, forensic audits, legal contracts, and business plans. When you hire experts, don’t ignore their advice.

Have a balanced ratio between work and leisure.

Rainmaker Observation: Set up your strategy document before you launch your business. This will become the blueprint in years to come—not only of how to make a success but also of how to avoid failure.