Financial Risk and the Entrepreneur

September 10, 2017 ENT650 – Adv. Entrepreneurial Finance, Entrepreneurship, Finance Comments (16) 235

ENT650 - WEEK 2

For many of us, the word “entrepreneur” conjures a vision of an individual working tirelessly to grow an idea into a business. This is certainly one type of entrepreneur, but there are other types of entrepreneurs, too. There are those who serve an entrepreneurial function in corporations, those who chose to buy a franchise, those who acquire established businesses, and those we mentioned earlier who start a business from nothing (Rogers, 2014). Each of these individuals is an entrepreneur, albeit with different skill sets and arguably a different level of tolerance for the financial risk in entrepreneurship. Understanding basic financial principles and the role these principles play in entrepreneurial ventures might help entrepreneurs balance their risk-reward tolerance when considering new opportunities.

Financial management is a valuable discipline for entrepreneurship, regardless of the entrepreneurial type. It is the single most useful toolset for mitigating business risk. Unfortunately, many entrepreneurs cite financial management as their weakest skill (Rogers, 2014). Why? It may be that some entrepreneurs see their strength as creating their venture’s product or service. In these situations, they may abdicate the responsibility of the venture’s finances. It is likely that the type of entrepreneurial activity factors into the value an entrepreneur places on the need to understand the underlying financial aspects of the venture.

Let’s look at each entrepreneurial type in a little more detail from the lowest to the highest financial risk related to entrepreneurial activity:

Corporate Entrepreneur

Corporate entrepreneurs, or intrapreneurs, are those who perform entrepreneurial functions within an organization. The work these individuals do can range from creating new lines of business and developing new opportunities from within an organization (as I did for the Boy Scouts of America’s National retail operations) to starting a separate venture with funding and direction from an organization. In both cases, the greatest challenge for the entrepreneur is walking the line between organizational culture and the entrepreneurial mindset needed to grow and develop the new venture (Gavin & Levesque, 2006). The business culture often does not allow for the level of out-of-the-box thinking necessary to get the...

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On public speaking

August 5, 2017 ENT645 - Entrepreneurial Marketing, M.E. Program Coursework, Marketing, Speaking Comments (5) 520

ENT645 - WEEK 7

I was first asked to speak publicly sometime in the early 90’s for a broadcasting trade association meeting. I had a small media-buying business, and my model was a little different than the local agencies. The association believed my thoughts on media buying would be useful to those who were trying to sell media. I was part of a panel, but I cannot recall what I talked about or how useful my comments might have been to those in attendance. I do remember I was quite anxious about participation but managed to get through it because I understand how important public speaking opportunities were to help build credibility for my business and my entrepreneurial endeavors.

Public speaking does not come naturally to me.

It makes me uncomfortable in all sorts of ways, none the least of which is feeling unprepared regardless of how much preparation time I put into the talk. There are other challenges, too. I want to everyone to find something of value in my talk, I want to be entertaining as well as informative so those listening don’t get bored. I want those in the audience to have at least one “ah-ha” moment or walk away with one piece of information that is useful. And I really don’t want to hang around afterward to talk to people—the introvert in me needs to recharge—but I do. Public speaking, even for the most experienced, can be exhausting.

I am certain I fail at more than one of things I noted above every time I speak publicly. That doesn’t stop me from continuing to do so. Practice breeds improvement, not perfection. Improvement should be the goal.

Six things I have learned that make me a better speaker.

Perhaps these learnings from my experiences speaking might be helpful to you:

You will not be perfect. You shouldn’t strive for that in your talk. You will forget key points you wanted to make, and you may lose a thought or two. Usually, no one will know unless you tell them. Everyone listening expects you to be human, so imperfection is expected and allowed.

Know your...

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Can long copy still make the cash register ring?

August 3, 2017 ENT645 - Entrepreneurial Marketing, M.E. Program Coursework, Marketing Comments (0) 353

ENT645 - WEEK 6

Long copy ruled direct response marketing, once. Marketers could create a brilliant story-driven copy to draw a reader in and then close the sale with a strong call to action.  David Ogilvy (in the photo above) and his team at Ogilvy and Mather were the masters. But that was more than thirty years ago.

Twenty years ago, I had a great deal of success with long copy in printed direct mail. Just simple letters to the target market that would bring them along in a story and then get them to take action. I am not sure that’s possible any longer. I believe the proliferation of email spam and the dawn of mobile phones have decreased the effectiveness of long-form direct response appeals.

A recent grad school assignment asked for the creation of a two-step direct response campaign. In such a campaign, the first step generates the lead and the second step closes the sale. In the direct mail days, a long letter—often several pages—was more effective as that first step—it told the story and offered the benefits to the prospect. The close came with a phone call or a response card. It was highly effective, and of the campaigns, I was involved in we often pulled a 5-6% response with a 50% conversion to a sale.

The assignment further asked for the creation of a “squeeze page.” A squeeze page is a page on that “squeeze that last bit of info out of you” so that you might get what you’re looking for from the site.  Typically, it is your name and an email address.

In the early days of the Internet, that long-form direct mail piece was often used in a two-step process. You may remember that time. The pages were often a single page with a lot of copy, a few photos, some bulleted text, and multiple opportunities to buy or subscribe as you read down the page. If you took action, you would go to another page—the “squeeze page”—to provide your name and email address for more information or so the sale...

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Interview: Rachael Harper on Entrepreneurship

July 23, 2017 ENT645 - Entrepreneurial Marketing, Interviews, M.E. Program Coursework Comments (0) 356

Rachael Harper, owner of Vida Calma Wellness and former owner of On Track Yoga shares her thoughts on entrepreneurship for my Entrepreneurial Marketing graduate course. Rachael and I discuss what it’s like to start a business, grassroots marketing, the importance of creating a business built for community and social good, and many other things. 

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How social media trust changed marketing

July 5, 2017 ENT645 - Entrepreneurial Marketing, M.E. Program Coursework, Marketing, Social media Comments (6) 373

ENT645 - WEEK 2

Trust is one of the great cornerstones of life. The most successful relationships, whether personal or business, are built on trust.  Trust is a key factor in the consumption of news and information, too. Over the years, many readers, listeners, and ultimately viewers placed trust in their preferred media channel for the most current and accurate news and information.  Subsequently, each channel began to exploit the trust gained from consumers by accepting advertisements which allowed businesses to leverage the media’s credibility and intimacy through association. The challenge was then, as is now, to determine how to align the marketing and advertising of the business with the media most apt to have the greatest trust among the target customers. Unfortunately, those trusted channels of media and communication are constantly changing.

Much like early newspaper readers became radio listeners, and radio listeners ultimately became television viewers, social media platforms give individuals a different way in which to consume news and information, and this influences how trust is granted. Trust is still the currency, but it is no longer given freely to traditional media (newspaper, magazines, radio, or television) and marketers do not benefit from this association as they once did. Social media has taken the concept of trust in one-on-one personal relationships and created a somewhat commodified version of trust with online peer relationships that are enabled through the distinct differences of each platform. Trust has shifted from the medium itself to an ever-evolving value placed on an online peer relationship with roots established through relational identity (Pan, Lu, Wang, & Chau, 2017). More specifically, if an online peer seems to like and do things similar to the individual granting such trust, a value is created regardless of whether there is any meaningful engagement outside of the online relationship. Social media, then, has established an entirely different trust model—a model built on peer influence and not channel trust. This new model requires entrepreneurs to think differently about advertising and marketing.

Entrepreneurs may realize the benefits of social media tools to both spread word about their business and to engage with customers in a meaningful...

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Interview: Kim Stewart on Entrepreneurial Financing

June 24, 2017 ENT640 - Entrepreneurial Feasibility Analysis, Interviews, M.E. Program Coursework Comments (0) 291

The following is an interview with Kim Stewart, SVP, Working Capital Solutions Advisor, BB&T for my Entrepreneurial Feasibility Analysis graduate course. Kim and I became acquainted in 2016. We discuss entrepreneurial financing.

Q. What is your role in banking as it relates to “investment” in small business?

A. I work in an area of the bank that provides various solutions to companies that need working capital financing to support their on-going business activity or growth.

Q. What role do you now or have you in the past played in determining financing support for an entrepreneurial venture?

A. I have in the past worked in a banking environment where we would provide working capital lines of credit down to a minimum of $1MM, which may likely be too high of a minimum for many entrepreneurs that are “start-up” ventures, but I was still able to work with many entrepreneurial companies.  I am involved in working with the customers on the front end in determining what their financing need is and how best to structure a financing solution.

Q. How is bank “investment” in small business different than, say angel investment? Does a bank often provide seed or startup investment?

A. It is inaccurate to say that banks invest in small business in the normal course of their operations.  Providing financing is not investing, and for that reason, banks have to be stringent about identifying the risks and appropriately mitigating those risks.  Traditional banks are paid a reasonable rate of interest for the use of funds as opposed to having an opportunity to participate in the upside of a business venture.  There are ways that banks can work through the Small Business Association (SBA) to provide funding for a start-up investment, and there may be banks that are willing to take more risks on start-up ventures, but they would generally be interested in opportunities where the entrepreneur had a track record of successful ventures and had some capital to invest in the venture.

Q. How might bank financing requirements of an entrepreneurial venture differ from an angel investor?

A. Both are going to underwrite the risk of success or failure of the venture and the likelihood of...

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It is Time to Think Differently about Entrepreneurship

June 22, 2017 Culture and demographics, ENT640 - Entrepreneurial Feasibility Analysis, Entrepreneurship, M.E. Program Coursework Comments (0) 319

Recent research by the Ewing Marion Kauffman Foundation suggests the number of new startups grew slightly from 2014 through 2016 after hitting an all-time low in 2013 (Fairlie, Morelix, & Tareque, 2017). An upswing in activity looks promising, but the data also suggest greater challenges may lie ahead considering America’s demographic and cultural shifts. Immigrants, for example, are almost twice as likely to become entrepreneurs as those born in America, yet it appears the failure rate may be similar to native-born (Fairlie, Morelix, & Tareque). These failures might suggest the absence of a clear business plan, insufficient knowledge of basic business operations, the lack of education and training in support of entrepreneurship, or a combination of all of these factors might be preventing ongoing sustainable businesses. The small number of established businesses started by Asian, African American, and Hispanic entrepreneurs, the declines in startup activity among those under 34 and limited startup activity by women are just a few of the challenges to America’s economic growth in the coming years. It is time to think differently about entrepreneurship.

America is becoming increasingly multi-ethnic and multi-cultural. Demographers suggest the country’s racial and ethnic makeup will shift the thinking and direction of our society (Taylor, 2014). Today there seems to be an older, more conservative, more religious cohort struggling to maintain the status quo at odds with a somewhat younger, more liberal and more secular group where diversity is paramount (Taylor, 2016). Arguably this ideological and cultural divide that influences our country’s politics also transforms all aspects of our society. These ideological differences seem to make many less tolerant and, perhaps encourages others to cocoon or cluster around those most like themselves.

The cocooning and clustering of Americans appears to create a  level of unintended segregation that has more to do with cultural fit than it does with skin color (Cowen, 2017). In a society that, for the most part, endeavors to be more diverse, there is an increasing “cultural segregation.” This unintended segregation, then, inadvertently creates a lack of diversity among our peer groups and affects how some think about the world, including where to...

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How Angel’s Exit an Investment

June 21, 2017 ENT640 - Entrepreneurial Feasibility Analysis, Entrepreneurship, M.E. Program Coursework Comments (4) 552

ENT640 - WEEK 8

This post is the last of seven posts about angel investment in entrepreneurial ventures.

Angel Investors are likely to want to know an entrepreneur’s exit plan from the beginning. While those exit plans may change as the business moves from its seed or start-up phases into something more mature, the entrepreneur who understands the need to formulate a positive (e.g., profitable) exit strategy from the beginning is likely to have greater interest and engagement from the investor. Considering this, let’s examine the more common positive ways angel’s exit an investment:

Walking Harvest

A walking harvest allows the investor to take distributions on a regular basis from the company (Amis & Stevenson, 2001). Assuming the business has good cash flow, this may be an easy way for an entrepreneur to secure the investment needed while minimizing the need for a valuation, as might be required with other exit strategies.  Entrepreneurs should keep in mind that this might be viewed as debt financing and an investor may desire a high degree of involvement to ensure sufficient cash flow is available to meet the mutually agreed upon distribution plan.

Partial Sale

A partial sale allows an investor to exit a company when the business is successful, but the prospects of sale are not good. In these cases, the investor might sell their shares to management for cash or via a buyout agreement, or sell their shares to an investment company that specializes in smaller transactions (Amis & Stevenson, 2001). This approach allows the investor to get out of an otherwise illiquid investment with some gains. For the entrepreneur, however, it might be a nightmare because he or she might end up with a partner that might not be a good relationship fit.

Initial Public Offering (IPO)

Initial Public Offerings (IPOs) are not an exit strategy in and of themselves. IPOs are a financing event that allows an early investor to convert what may otherwise be an illiquid investment to a more liquid investment when the company’s shares are offered to the public. The investor may or may not sell...

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The Angel Investor’s Role

June 21, 2017 ENT640 - Entrepreneurial Feasibility Analysis, Entrepreneurship, M.E. Program Coursework Comments (4) 499

ENT640 - WEEK 7

This post is the sixth of seven posts about angel investment in entrepreneurial ventures.

There is no substitute for experience in start-ups and small businesses. Successful entrepreneurs often make the best angel investors for a new venture because they have hands-on experience with the challenges of start-ups and likely have experienced a few failures from which they have learned.  Each angel will have a different approach, and each entrepreneur may have needs that extend beyond a purely financial investment. The angel investor’s role will be different in each investment based on the needs of each party in the relationship. This said, let’s look at five typical ways an angel may participate in an entrepreneurial venture:

Silent Investor

Silent investors typically take no active interest in a company. Instead, they make an investment and hope to see a return on that investment over time (Amis & Stevenson, 2001). Entrepreneurs who secure silent investors gain access to financing, but they lose the opportunity to leverage the knowledge and experience of the angel.

Reserve Force

Those angels willing to act as part of a reserve force may make an investment, but they will also help the entrepreneur when called upon with particular problems (Amis & Stevenson). Entrepreneurs who have a reserve force gain not only financing but also access to the wisdom of the angel on an as needed basis. Such access can be valuable for entrepreneurs who have solid business experience, but may occasionally encounter challenges for which they may require outside insights.

Team Member

For some companies, an angel may provide some financial investment and take a full- or part-time role within an entrepreneurial venture depending on the stake (Amis & Stevenson). Another option may be for an angel not provide investment, but take a full- or part-time role in exchange for equity and another form of compensation (Amis & Stevenson). In either case, an entrepreneur may gain value from this arrangement; however, the risk for the entrepreneur may be micro-management at best, or at worst the possible loss of control.

Coach or Mentor

An angel...

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Negotiating with the Angel Investor

June 19, 2017 ENT640 - Entrepreneurial Feasibility Analysis, Entrepreneurship, M.E. Program Coursework Comments (10) 553

ENT640 - WEEK 6

This post is the fifth of seven posts about angel investment in entrepreneurial ventures.

With Angel Investors, nearly everything is a matter of experience and style. Some will negotiate the terms of the deal, while others have a no-negotiation policy. Regardless of the investor’s preference, his or her concern at this stage is likely to be around four key areas: The price, the terms, the level of investment, and the expectations of involvement (Amis & Stevenson, 2001). Therefore, it is incumbent on the entrepreneur to have a solid understanding of these areas from both the sides of the deal before stepping into negotiations.

As we consider the implications of negotiation with investors, let’s take a look at these negotiation preferences in a little more detail:

Angels who refuse to negotiate

Angels who will not negotiate will offer many different reasons. Some may not want to invest the time in energy; others may be more concerned about first building a relationship on trust rather than on money, while still others may not think the terms of the deal are significant enough to warrant negotiation (Amis & Stevenson, 2001). Entrepreneurs should consider, though, that a no negotiations approach may also mean that the deal is attractive, but the investor may only find value on his or her terms. Stepping over a line and trying to force a negotiation will likely do one of two things: Garner more respect from the investor, or cost you the deal.

Angels who choose to negotiate

Angel investors who make a choice to negotiate may do so based on anticipation of their active involvement in the entrepreneurial venture (Amis & Stevenson, 2001). An investor may use the negotiations to test the entrepreneur’s powers of persuasion or skills in negotiating (Susskind, 2016). Persuasion and negotiation are critical skills for any business leader, and it is important to remember that a long-term relationship between the investor and the entrepreneur must be built on trust and a mutual respect of skills and abilities (Susskind). The negotiation strategy, then, must not be one...

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