Venture capitalist is a broad term used to describe investors that make “high risk” investments in young companies. These investments typically involve equity (ownership) positions, but are often combined with debt.

Why would I seek venture capital for my company? If you are experiencing or expecting rapid growth, you may need financing that exceeds your personal resources and is more than you can borrow from traditional lending institutions.

What does it cost? It’s not unusual for a VC firm to target a return of five times their initial investment over the expected life of their investment. They make most of this money when they sell their investment, and they like an “exit strategy” that materializes within 3 – 7 years.

Would my company be attractive to venture capitalists? VC’s look for:
- product or service that is unique and has high growth potential –
- product or service that is “scalable” in that revenues can be quickly expanded
- management team that is “coachable”
- product or service has been proven as a concept and there is a market.

How would I choose a venture capital partner? Look for those with experience in your industry, have contacts that could help you, etc. Remember that the VC will  likely have a presence on your Board. Be sure that you’ll work well together and that they will be in a position to add value. You should also check on the reputation of the VC.

It is vital that a written agreement be established spelling out specific services to be provided, when, at what price and other pertinent terms. This written document initially can be the Sales Proposal and then be modified to be the Sales Agreement /Contract. The key elements of the Sales Agreement are:

1. Contact information including company name, address, phone and fax numbers, e-mail address and web site.
2. Marketing information such as: “Bonded and Insured”,“Work Guaranteed”, “Fully Covered by Workman’s Compensation, etc.
3. Proposal Number
4. Proposal submitted to: Name and address of Client
5. Detailed description of goods and services to be supplied:
   –Include any special conditions such as services to provided by the client (water, power, access, etc…)
   –Who will obtain and provide licenses and permits.
   –When the work will be performed and its duration.
   –Specify cleanup to be provided and equipment to be removed
   –Other…
6. Pricing and payment terms
7. List any specific items that are excluded.
8. The level of client support/participation to be provided.
9. Statement that any changes/additions to the specific items listed are subject to a negotiated price change.
10. Name, title and signature of proposer, including date of proposal.
11. Term for which the proposal remains valid (10, 30, 60 days)
12. Sgnature of buyer and date of acceptance
13. Any notices of the right of the seller or buyer to cancel the proposal or agreement (such as: the buyer’s property becomes unavailable (fire, flood, destruction, etc..)

The original of the signed agreement is retained by the Seller and a signed copy is given to the buyer.

Step1: Determine unique characteristics, approximate size and location of your trading area. How far will your average customer travel?  The Statistics Family Expenditure Survey can identify what the average household spends on goods and services. Population forecasts for your area and  planned construction are available. The internet can help identify names of  your competitors.Your Chamber of Commerce and local business publication can give you insights.

Step 2: Get out  and study your competitors . Visit  locations where their product is offered. Analyze the location, customer volumes, traffic patterns, hours of operation, busy periods, prices, quality of their goods and services, product or services offered, promotional techniques, positioning and  handouts. If feasible, talk to customers and  staff. You may want to contact a similar business in another city.

Step 3: Use your research to estimate your sales on a monthly basis for your first year. The basis for your sales forecast can be the average monthly sales of a similar-sized competitor’s operations operating in a similar market. Make adjustments for this year’s predicted trend for the industry. Be sure to reduce your figures by about 50% a month for the start-up months. Consider how well your competition satisfies the needs of potential customers in your  area. Determine how you fit into this picture and what niche you plan to fill. Will you offer a better location, convenience, a better price, later hours, better quality, better service? Consider population and economic growth in your  area. Using your research, make an educated guess at market growth over time and your market share. If possible, determine the number of customers you need to reach your sales goals..

Ask SCORE for help. In Cincinnati phone (513) 684-2812.

From © Kelley Robertson, for About.com

In a recent marketing workshop I attended, I discovered that most business owners rely on just two or three marketing strategies to attract new business. However, there is a multitude of ways to drive new business to your door. Here are a few:

Networking. Networking is perhaps the most commonly used approach by small business owners. However, it is often poorly executed. Many people attend a networking function and take the wrong approach by trying to meet as many people as they can. They bounce from person to person, handing out business cards like it is an Olympic event and they are vying for the gold medal. They fail to realize that the most effective way to network is to cultivate relationships and give referrals to other members first.

Referrals. This marketing strategy places a close second in preferred methods of generating new business leads. The key here is to ensure that you take a proactive approach rather than a passive one. Instead of assuming that a satisfied client will refer someone to you, ask for that referral. Tell people who your ideal client is and ask for their help in finding these types of clients. The real estate agent who represented the seller when we bought our house sends us a card every year and reminds us that she loves referrals. It is not pushy, does not sound like she’s begging, and I’m confident it helps generate new leads.

Writing. This often under-utilized marketing strategy is an excellent way to become recognized as an industry expert. Every industry has trade magazines and most are hungry for good content. The Internet is also filled with websites and e-zines looking for material to send to their subscribers and customers. I now write at least one article every month and send it to more than two hundred publications. This marketing strategy alone has helped drive more traffic to my website more than anything else. It is sometimes challenging to come up with ideas and to write an 800 word article but the investment of time and effort is definitely worth it.

Newsletters. This is another powerful marketing strategy to keep your name in front of your customers and prospects. Provide key insight into business challenges and offer solutions to them. In other words, help your prospects and customers solve problems. Some newsletters are nothing more than advertising so be sure to provide valuable information to your customer. Although it is less expensive to send a newsletter electronically, you can issue it in paper format. A local real estate agent regularly sends out a one-page update of the housing market in our neighborhood. (More: Newsletters Are Smart Marketing.)

Cold calling. Without a doubt, this is usually the most challenging way to market a business – I know very few people who actually enjoy cold calling. However, it can be a good way to uncover qualified prospects in a relatively short period of time. Be sure to start your conversation with a good opening to capture the other person’s attention. (See 10 Cold Calling Tips.)

Give free information. At the marketing workshop I attended, the facilitator suggested giving information to interested prospects. Using this marketing strategy on my website, I have quadrupled the number of subscribers to my newsletter in the last year. You do not need to give away all the information relevant to your product or service. Instead, offer information that will help your target market with their problems. For example, when people sign up to my e-zine, they receive a report that outlines 100 tips they can use to increase their sales.

Offer a guarantee. A concern many people have when changing suppliers is the risk associated with the change. They may not be completely satisfied with their existing supplier but the risk of choosing a supplier who may be worse can prevent them from changing. Eliminate this concern and offer a guarantee.

Advertising. This can be a great marketing strategy if you know how to create a good ad. The best marketers know that great sales copy is what makes the difference; I have experienced this first-hand. When I began selling my book on my website, I generated mediocre results for the first two years. I eventually changed the copy on my site and sales have soared every since. Glance through the ads in your trade magazine and you will quickly notice that most ads focus on the company’s product features instead of on the customer’s problem. Create a great ad by concentrating on the problem you can solve.

1)      Ask for the order…70% of salespeople do not.

2)    Always give the customer/client a choice of two different product/services, either one of which is fine with you. Otherwise their decision is between yes and no.

3)      Always be closing with small trial closes.

4)      The Take-a-way…”Probably not right for you, even if most of your competitors are benefiting from it. No, there may be something else…”

5)     The Ben Franklin close…List the benefits on the left and the objections on the right…Obviously you will help them think of the benefits but not the objections.

6)      The Assumptive Close…Assume at all times that they are going to buy, answer all their questions, start “processing” the order, watch for buying signals and ask how many they want.

7)      Get agreement…ask a series of questions that that evoke a positive response. It is hard to say no after agreeing with everything.

8)      Get a commitment…”Oh, price is the problem? If I could get an additional 10% off for you, would you go ahead with it? Great, initial here and I will see what I can do for you”.

9)      Agree with their objection…”You are right. I felt that way as did many of our customers. However, When they compared the true value…”

10)   “Forgive me, I have failed. I know that you are not going to buy today. So, please help me. Where did I go wrong? If I had done my job, you would be as happy as all our other customers…So, if it wasn’t for the color, you would have bought today…So you are saying that if I could get that color in here tomorrow…”

1 Analyze Your Company – What makes your compa­ny special? Think about what your company offers in terms of services and goods. Focus on the unique features and benefits of your products and services. What makes your company different than similar companies — is it your service, your variety, a style, a feeling you’re sell­ing? 

2 Analyze Your Competition – List your competitors, and then list each competitor’s strengths and weak­nesses. Shop your competition to see what they offer customers.

3 Describe Your Market – As precisely as possible, de­scribe your primary market — the type of customer who can bring you the most reward. Describe a few secondary markets — other markets you’d like to service. If your market is other businesses, think of the industries, sectors, channels, and sizes in your base.

4 List Your Marketing Objectives – You should be as specific as possible about your marketing objectives.

5 Create an Action Plan – It’s time to meet your ob­jectives. Keeping your target market in mind, how will you allocate your marketing? Consider the pros and cons of promoting yourself through various market­ing channels like print, radio, and television ads; a website; collateral material such as brochures; direct mail; trade shows; press releases; networking groups; e-mails; and more. What do you want to achieve with each method you select? Develop an affordable strategy and create a time­table for each step.

6 Create a Budget – You have a plan, now you need to fund it. What will it cost to do research, create materials, purchase ad space, or develop a website? If your budget is insufficient, you’ll need to determine if more funds are warranted or if you should change your mix. As a rule of thumb, you should consider set­ting aside about two percent of your gross sales from the previous year

7 Measure Your Progress – Set aside time to periodically evaluate the success of your marketing campaigns and make ad­justments to your plan if necessary. Review your plan quarterly. Focus on fine-tuning your best efforts, and discontinue or adjust strategies that have not succeeded.

If you don’t know whether your business makes more selling Product A or Product B, listen up.

 Reference: Business on Main

Do you make more money selling cookies or cupcakes? Who’s more important to your business: the big customer who ties up half your workforce, or the dozen smaller customers who occupy the other half?

Knowing which of your products or services generates the biggest profit margins is critical to building a sustainable business. It helps you determine where you should focus your resources for future growth, and where you should be trying hardest to cut costs or raise prices. Yet surprising numbers of small-business owners overlook this fundamental exercise.

“Too many business owners think in terms of sales and revenues, and not the bottom line,” says Joellen Sommer, a certified public accountant whose New York City-based consulting firm, Your Own CFO, provides clients with on-call, part-time or interim chief financial officers. “They really don’t know what the cost is to produce a certain product, or at least not the all-in cost. If they provide a service, very few track the true cost of their employees who deliver it.”

Sommer recalls working with a firm in the advertising industry that was shocked to discover that its largest client was actually costing the company money. When it came time to rebid the business, her customer let the client go rather than try to hold its prices, then redirected its energy to finding new clients.

Engineer and entrepreneur Robert Sherwood had a similar epiphany several years ago. After a long and successful career in Silicon Valley in which he grew one of his startups to $100 million in revenues in just three years, Sherwood returned to his home state of Kansas and launched SmartText Corp., a small company that sells legal forms and business documents via the internet.

For years, Sherwood assumed that his highest-priced products generated his biggest profit margins. After all, once he’d developed a large and complex document, it cost nothing more to deliver over the internet than one of his simpler forms. What he failed to consider were post-sale costs. It turned out that customers spending $150 on a document were a lot more demanding than customers shelling out $10. When they had trouble figuring out how to download a purchase or save it to a hard drive, they were much more likely to call his company for help.

Sherwood tried beefing up the “frequently asked questions” page on his website and offering alternative delivery methods, such as file transfer protocol, to ease the burden, but to no avail. Finally, he began to position his lower-cost but higher-margin products more prominently on his website. That led to lower revenues as his average selling price fell, but higher profits as customer service calls went down. On sales of about $1 million annually, profits rose by nearly $150,000.

Crunching the numbers
The simplest way to measure the profitability of a product or service is by its gross margin: the sales price less the direct material and labor costs to produce it, divided by the sales price. If, for example, your $25 widgets cost $20 to produce, your profit margin is 20 percent.

For many companies, however, that is only a starting point. The gross margin calculation does not include overhead expenses like rent or equipment costs, or even selling expenses. The more of those costs you factor in–especially where they vary significantly from product to product or service to service–the more accurate a picture you’ll get of your true profit margin.

Using the data
Once you’ve calculated profit margins for your various products or services, you’ll need to decide what to do with the information. In simple terms, you might do one of three things with low-margin elements of your business: cut production costs, raise prices, or, if neither is possible, discontinue offering the product or service. The real world is more complex. Fast-food chains might enjoy their biggest profit margins on french fries and soft drinks, for example, but they’re not about to stop selling cheeseburgers. Most businesses need to offer a well-rounded menu of products and services to attract and retain customers. But there is still much you can do.

Consider the experience of FHI Heat Inc., a Solon, Ohio-based producer of flatirons, blow-dryers and other hair-care products. After joining the company in 2008, CFO Michael Paull began a rigorous analysis of its profit margins by product, product line, distribution channel and customer. Using the results of that analysis, the company has seized opportunities to pair low- and high-margin products together in offers that create higher-blended profit margins while also boosting sales (think of fast-food value meals). It has also negotiated price breaks from vendors where possible, and in some cases raised its selling prices–even at the cost of losing a few low-margin customers. Over the past two years, Paull says, the effort has helped the company double its profit margins.

Are you ready to take a closer look at which goods and services generate your best profits? Here are four tips:

1. Verify the integrity of your data. Unless you have a good handle on your true cost inputs, you can’t hope to calculate profit margins accurately.
2. Share your findings with other decision makers in your organization who can impact what it costs to produce your goods or services and what you charge.
3. Consider the indirect consequences of any changes you make. Just because one product has lower profit margins than another doesn’t necessarily mean it should be dumped. Different products and price points appeal to different customers. And in sufficient volume, low-margin products can generate more profits than high-margin products that are moving slowly.
4. Make margin analysis an ongoing discipline. Your product offerings, costs and pricing power are constantly shifting. Depending upon the nature of your business, consider monitoring margins on a quarterly or monthly basis.

The successful entrepreneur is generally more inclined, once a business idea is selected, to sharpen the concept by a detailed planning process. The result of this step is a comprehensive business plan, with its major components being the marketing “mix,” the strategic plan, operational and logistical structures, and the financial proposal. The purpose of the business plan is to recognize and define a business opportunity, describe how that opportunity will be seized by the management team, and to demonstrate that the business is feasible and worth the effort.

The business plan is the “blueprint” for the implementation process. It focuses on the four major sub-plans: marketing; strategy; operational/logistic; and financial. While the business plan often goes through some revision, it generally represents a rather advanced stage in the planning process. The primary product or service to be offered, based on the results of the market research, should be determined. Whether the business will be a start-up, purchase of an existing business or a franchise should certainly be firm at this point. Often, a specific business location is indicated, or at least a rather specific area.

Time estimates in a business plan should allow for meeting all the necessary regulatory requirements and acquisition of permits to get to a “customer-ready” condition. The amount of funding required and a general approach to raising these funds should be determined. Marketing mix issues focus on how the product or service is differentiated from the competition.

A business can differentiate itself on any of what are often referred to as the “four P’s” of marketing: product characteristics, price structure, place or method of distribution, and/or promotional strategy.

Strategic issues relate broadly to the company’s mission and goals. Every venture must continually assess its strengths and weaknesses, the opportunities to be seized, and any threats to the success and plans of the business. Operational issues relate to company structure, and the scope of the business. The operational plan addresses tangible items such as location, equipment, and methods of distribution. Decisions on these issues largely determine startup costs.

The financial proposal includes an estimate of the amount of money needed to start the venture, to absorb losses during the start-up period, and to provide sufficient working capital to avoid cash shortages. It projects sales and profitability over some period into the future, generally 3 to 5 years. Where outside funding is sought, it also describes distribution of ownership of the venture and methods of debt repayment and/or buyback of partial ownership.

Where implementation of the plan requires participation of lenders and/or investors, the plan must clearly and convincingly communicate the financial proposal to the prospective stakeholders: how much you need from them, what kind of return they can expect, and how they can be paid back. Many entrepreneurs insist that their business concept is so clear in their heads that the written plan can be produced after start-up; this attitude “short-circuits” one of the major benefits of producing the plan. The discipline of writing a plan forces us to think through the steps we must take to get the business started, and, to “flesh out ideas, to look for weak spots and vulnerabilities,” according to business consultant Eric Siegel.

A well-conceived business plan can serve as a management tool to settle major policy issues, identify “keys to success,” establish goals and check-points, and consider long-term prospects. The plan must realistically assess the skills required for success of the venture, initially and over the long run, and match the skills and interests of the team to these requirements. Test the plan, and an accompanying oral presentation, on friends whose business judgment you value. Let them assume the role of a prospective investor or lender.

Do you know what to look for in a sales person?  Most sales applicants can present  a lot of reasons why they will be great for you . Suggest you might be hiring on straight commission and see what they say… If they are from your industry, they will tell you about all the business that they can bring with them. Usually you can discount that by 50-100%.

Do your sales people have a passion for sales?

If your sales people do not… Rule #1 : Suggest that they seek employment elsewhere. Rule #2: Replace them them with people that love sales. If a sales person does not love selling, they will rarely bring you sales success. You do not want “order takers.” Unsuccessful sales people will give you reasons why customers will not buy from your company. Rarely will they say that they really do not know their product or are not really putting in the necessary time or effort. If they are not doing the job, shame on them and shame on you. You cannot afford to keep them on the “if come.”

Take a long hard look

Do you know what to look for in a sales person? Most sales applicants can present a lot of reasons why they will be great for you . Suggest you might be hiring on straight commission and see what they say… If they are from your industry, they will tell you about all the business that they can bring with them. Usually you can discount that by 50-100%.

Some companies prefer little or no experience, so they can train the new sales people properly and do not have to overcome bad sales habits.. . Because an applicant has been with 5 other companies does not mean good experience, it usually means failure.

The best sales people

Having trained & worked with 1,000s of sales people, I have noted 4 traits that the most successful have in common:

1. They love selling. (are passionate about)
2. They have worked very hard to know everything about what they are selling (this is crucial).
3. They are enthusiastic and optimistic.
4. They put in a lot more time and effort than the “average” sales person (who sells far less).

Note: None of the above mentioned were “born sales people.”

For help with your sales organization, contact SCORE.org or your local chapter of SCORE.

Bill Haman, SCORE Cincinnati