Zane Tarence shares wisdom about a small business start-up, growth, valuation, and exit from his 15 years and over 75 technology deals experience.
Thank you to Jordan Van Horn for sharing this article by Zane Tarence, Managing Director of Founders Investment Bank.
A Plan for Small Business Start-up, Growth, Valuation, and Exit Success
1. Looking to capitalize your businesses for growth?
Invest time and effort in documenting your growth story through solid bookkeeping, accounting, written processes, etc.
Demonstrating your economic model of growth is a critical element of raising capital. Understand the risk characteristics of your growth strategy. The lower you can drive the perceived risk of your company, the more valuable it is, and the more investors will be attracted to your business.
2. One current or future trend aspiring entrepreneurs can take advantage of?
The world continues to accelerate to “all things digital” at an increasing pace. At a recent Gartner technology symposium a little context was given to this fact: “In the last minute, there were 204 million emails sent, 61,000 hours of music listened to on Pandora, 20 million photo views and 3 million uploads to Flickr, 100,000 tweets, 6 million view and 277,000 Facebook logins and 2 million plus Google searches.”
One of the clearest future trends continues to be the social/mobile movement, which continues to support the “always on society.” It’s not a single technology; it’s a concept of everything being connected in the network. All this adds up to IT complexity which creates amazing opportunity for the technology entrepreneur to simplify. Making technology easy translates to significant business opportunities.
3. An essential piece of a business owner’s exit strategy that maximizes the value of their business?
Begin early designing and building a “sellable company.” Are you building a company based on solid systems and processes, or is the business built on you? Would your business operate just as well if you were on vacation for 3-6 months? In order to build exit value an owner must create scalable systems and processes that allow their company to operate without their daily involvement in the business. Owners/managers should invest in documenting their systems and processes in order to create “franchise value”.
4. Do you aspire to build or grow a company?
Take a deep inventory of what you love and what drives you. You must have a passion about your business to be successful. However, also make sure you are participating in the right market/industry. All the passion in the world will not overcome a non-existent or weak addressable market. Surround yourself with a strong management team and set of advisors. Make sure they will tell you the truth about your blind spots. No sycophants. Do your homework about your market risk. Deeply consider the following four questions:
- What is my demand risk? Does a real addressable market exist?
- What is my technology or product risk? Can I build a competitive product within my capital constraints?
- What is my execution risk? Do I have the right team?
- What is my financing risk? Is the business fundable at all stages of maturity?
5. How can an entrepreneur or business owner accurately assess the value of their business?
First remember that valuation is not precise.
- Your valuation is typically within a range depending on how buyers/investors view your firm at the time of their offer.
- Ultimately your company is worth what a qualified buyer is willing to pay, and you can influence this.
Consider your answers to the following:
- What can you do today to move your company to the right on the valuation curve? How can you think more like buyers/investors think?
- Do you keep up with the precedent transactions in your industry? Do you have a relationship with a transaction advisor (M&A attorney, investment banker, or business broker) that can provide you this data?
6. When deciding to start a company, what is the first step you should take?
Make sure you have completed a thorough market assessment to validate that there is a large addressable market for your product or service. This assessment should include the competitive environment so that you can determine what will be necessary to win market share. Always make sure you are entering a growing market.
7. What is the biggest challenge facing entrepreneurs today?
Market “noise.” It is very difficult to communicate your message/value proposition to the institutional buyer or the consumer. Both groups are buried in information and almost numb to new offers. You have to be extremely innovative in your communications, sales and marketing strategies.
Zane also is a noted speaker at many national conferences, focusing primarily on product commercialization and technology value optimization.