Think About Your Exit Strategy

I know that it feels a bit odd to think about your business as something with an end before you even get it off the ground, but the exit strategy is one of the more frequently overlooked parts of a fledgling business plan.

It's important in that investors who want to see a return, will want you to think about where that money is going to come from. Not to put too fine a point on it - it's unlikely that it will come from direct profits in the timescale or quantity that will satisfy all but the most 'angel' of investors.

In fact, many investors will force your hand, and sell out (or go public) at the drop of a hat, if the going looks good, just to turn around their initial capital investment.

You can preempt all of this by taking a few hours to consider, if you had to, how you would get out. Here are some options:

• Retire - in other words, you leave the business when you've had enough, and either keep an interest so that the income can support you, or just never look back;
• Sell Out Early - find someone willing to take on the company as a going concern, or sell to a competitor;
• Float on the Stock Market (IPO) - this is interesting in that it can raise a lot of money an increase your personal wealth, but you may well find yourself deposed or sidelined as shareholder interest takes priority;
• Wind it up - just cease trading, sell the assets (if there are any), and do something else.

There are other options, but these are the most common. There are also businesses that are created purely with the end goal to sell out to a bigger company, and which don't make any money in the interim.

For these kinds of business, the Exit Strategy is the business plan, and it can be a hard trick to pull off!

By thinking about your exit strategy, you may even show investors that you are also emotionally disconnected from (but passionate about) the business, and are likely to make good decisions. You will also be prepared mentally for the end, and it will help you to formulate a worst-case scenario, if it all goes horribly wrong.

To end on a more positive note - a successful business that is sold to a competitor, or complementary business, will make you rich, and free you up so you can launch the next big thing!

4 Things to Help Keep Your Business Fit for Purpose

There are a number of things we can learn from observing the ways that VCs (Venture Capitalists) and angel investors manage the relationship with their protégés. Chris Hudson, writing in '4 Things to Put In Your Monthly Update to Investors' isolates a few gems from the world of venture capitalism.


The article itself is well worth a read, but it also offers some controls that any start-up would be advised to consider implementing.


Control #1 : Cash


Investors need to know if the fledgling business has enough cash. Not necessarily to give them more (after all, even Steve Jobs, after investing in NeXT, had to face the reality of cuts in expenses) but to find out how healthy the company is.


Cash is important - it lets you do business on a day-to-day basis, gives you a buffer for unexpected bills, and is the lifeblood of your company. Keeping a constant check on the cash position, and recognizing the danger signs of running dry will help you manage your business more effectively.


There are always options when the inevitable happens - cut costs, sell stock or other assets, ask the bank for an extension to any existing loans or overdrafts, go on a fundraising drive, offer the employees shares in return for an investment : the list is almost endless.


Of course, there may be an underlying reason for the diminishing cash position, and part of that may be that the product or service just isn't popular.


Control #2 : The Target Market


The initial strategy may no longer be appropriate to the target market. The target market may not even exist any more. It's important to always adjust and refine the strategy and approach to the target market depending on how that market evolves.


PayPal, for example, started out as a device to device payment method, but evolved into a person to person web based payments provider over time. The target market wasn't big enough to support the investment, but the new market was crying out for their services, and the technology was much the same.


Following the changes in the market will often lead to some critical decisions. Key among those its likely to be related to staffing or team membership.


Control #3 : Corporate Structure


People drive companies, and nowhere is this truer than in a start-up. Many, if not most, start-ups exist purely on the drive of the individuals to create something from nothing. Without that drive, the company ceases to perform.


That's part of the reason that Apple re-hired Steve Jobs, why Google remains at the forefront of the Internet, and, in my opinion, at least, why most companies fail. They lose the people who have the drive.


So, as much as the money and the market will affect the direction that the start-up takes, the people involved in it will also affect the products and services that are created for that market.


New people often bring new ideas. People who leave inevitably take their ideas with them. Both of these need to be monitored, and measured against the performance of the company.


Control #4 : Metrics


I don't like the term KPI (Key Performance Indicator) as it seems to indicate a lack of flexibility. My own take on KPIs is that everything must be measured, and the resulting metrics need to be analyzed in order to determine:

• exploitation of existing opportunities
• new and emerging opportunities
• decline of current opportunities

Measurement needs to be easy to do, and easy to analyze. If it's hard it won't be done well, or indeed at all, in a timely fashion. Sales, leads, profits per customer, repeat sales levels, and so on, are all easy metrics to measure, track and analyze.


They show the health of the company, and whether the core business is working. Each company will also find things to measure outside the health of the company, which covers the market - trends and competitors movements being some of the easiest to track - and helps to isolate new opportunities.


So, these four areas, derived from how Chris Hudson describes communication between investors and start-ups, ought to help you keep focus, and makr your business a success.

All Contact is Good Contact! Get the Marketing Message Out There!

I model railroads in my spare time. It's a fun way to relax, and I enjoy the attention to detail that it requires.


Recently, I had a small issue when building a particular model - I was missing a couple of small, but important, parts.


Now, usually, the pervading wisdom is that the contract is between the purchaser and the shop. However, you can't really ask a shop to take back a partially built model - normally they won't even take back a box that's been opened.


So, I emailed the manufacturer direct. To make a long story short, they agreed (actually, they offered) to send me the missing bits. Two, lightweight, bits of plastic was what I was expecting, and that's what I got.


Plus a catalog of new releases. And a newsletter (paper) which has introduced me to some interesting developments that I wasn't aware of. And a letter, visiting card, and associated advertising flyer.


In fact (and I've checked!) the paper weighed more than the plastic, and no doubt contributed to the postage cost which was around 1/3 of the price of the model in the first place...


On the other hand, I now want to do more business with them. Despite the fact that I was irritated when it went wrong (missing pieces) I want to do more business (buy more stuff) with them.


If I'd just received the plastic bits, I would have been happy. But, by putting some bits and pieces of information in the package, they've made me loyal. I feel loyalty to someone for making the effort to inform me.


That's a powerful lesson, but it could have been improved.


What They Did Right


They fixed the problem. They sent me a letter, and they put a good mix of valuable content and advertising in the package.


What to take away : whenever you have contact with a client, always use it as an opportunity to provide them with additional content of value, and remind them why they bought from you in the first place, and why they should do so again.


What They Did Wrong


The letter was in German, but all our communication up to then had been in English.


What to take away : make all follow-up communication relevant to the needs of the customer. They've very nearly alienated me by this oversight.


What The Could Have Done More (or Better)


There was no encouragement to buy more from them. I have reason to, thanks to the information, but I don't have the additional push that makes it worthwhile. Other retailers have included money-off offers, vouchers, and so forth.


What to take away : it's not enough to give a reason to buy from you; even prospective repeat customers need a push!


All of the above applies to online and offline businesses. Every email, every delivery, every apologetic letter after a complaint deserves to be treated as an opportunity to build trust and loyalty with your customer base.

The Membership Model - Magazine Subscriptions and Your Business

Recently I was skimming a magazine when I landed on their Subscription Offer page. Now, I like marketing, and I like to save a penny (buck, cent, or whatever) wherever I can, so the percentages caught my eye. It also helped that they were in a big red font.

What interested me is there were three separate percentages. The first said 'up to 33%', the second said '25% off' and the last said something like 'save 15% off newsstand prices'.

Now, people have become used to getting a discount when they subscribe to a magazine, after all, it's guaranteed revenue, with only a postal delivery charge, etc. etc. but to have three separate savings bands seemed to be something of a novelty, so I dug deeper.

The 15% saving was for an order placed for delivery to the newsstand. The 25% saving was for an annual subscription, and the 33% saving was for a monthly subscription, paid quarterly, by Direct Debit.

(For those outside the UK, Direct Debit is a recurring instruction to the bank to make a payment to the recipient, at the value that the recipient determines. Like a Standing Order.)

It's that 33% level that interested me. The magazine publisher has made a decision to attract Direct Debit subscribers over those that choose to pay an annual subscription. Having just chosen not to re-subscribe to another magazine for 'value' reasons, I think I understand why.

The accepted wisdom is that the cost of acquisition is highest for the first customer. Put another way, the cost of getting the customer in the first place (i.e. the first sale) in many cases will obliterate the margins on that first sale.

The margin goes up each time they buy. So, repeat customers are valuable - which is why we go to extreme lengths to keep them happy. And also why the subscription model is so useful.

The Subscription Model

The trick is to increase individual customer value by subscription. This doesn't necessarily mean that the customer has to take out a subscription to a magazine - virtually everything, from cigars to wine, can be sold on a subscription basis.

Even if it's a free subscription - to a newsletter, for example - you get all the subscription benefits : regular contact, regular delivery, the possibility for back end sales, etc. Of course, you have to offer something of value. This remains true whether the content is free or paid for.

The paid subscription model is often considered to be more powerful in terms of customer value, because, having spent money with the business once, the customer is more likely to do so again. If they are free subscribers to a newsletter, it might take a larger investment (of time, if nothing else) before they will actually spend on a back-end purchase.

In Internet marketing terms,  the king of the subscription models is the Membership Site.

The Membership Site Model 


PayPal makes it easy (using recurring payments) to set up a membership site that generates direct income. The Internet makes it easy to deliver quality content; the simplest of all membership sites are just forums that customers have to pay to participate (fully) in.


The value comes from the subscriber base, with the site (business) owner often just steering the continuous stream of information to cover subjects that will be of use.


More sophisticated set-ups deliver blogs, videos, and other content through the membership site, in return for the, usually modest, monthly fee.


It's also a model that can be replicated in the bricks-and-clicks world too : offering an actual product, posted to the subscriber, alongside the online content. The two delivery methods can work hand in hand; mailing rebate coupons with the product, or providing rebate coupons in a free newsletter.


The opportunities for leveraging the subscription model are endless, and applicable to almost every start-up business, to build a solid repeat customer base.

Earnings, Cookie Cutters, and Online Programmes

I was reading through some material from Yuwanda Black and it occurred to me that people often make a fundamental mistake when evaluating business opportunities and products claiming to enable them to make a serious income - be it online or off.

Now, let's get one thing clear from the outset : it is perfectly possible to follow a sequence of steps and build (replicate) a business. This is, after all, partly how franchises work, and a good part of why brands are so powerful. 

I recently received an email from Tiffany Dow, in which se quotes visionary Simon Sinek:

"If you sell what you do, you're a vendor. If you
sell why you do it, you're a brand."

What about "If you sell how you do it, you're a franchise." Or, in internet business parlance - cookie cutter. Admittedly, that phrase has some negative connotations, but it works for some people, some of the time. The trick is picking the right one - i.e. getting the balance of cost, income and available time right.

Part of why a lot of people don't have success with these programmes is that:

• their expectations (income, effort, etc.) are unrealistic;
• the resources required (time, money, etc.) become greater than the reward.

Which brings us to the point of this post - people often make a single, important, fundamental mistake when calculating the time/reward ratio. Some sales letters encourage this, by starting out with a perfectly reasonable figure, say 1,000 (dollars, Pounds, Yen, etc.) per month, and then working back to claim that this is possible with only a few hours work per day, which means you'll be earning over $80 per hour!

Who wouldn't want that? After all, $80 per hour, 5 days per week (7 hours per day), is over $130,000 per year. Wow!

In planning a start-up, people often make the same mistake - they forget that, even if they do charge $80-100 per hour, they will never, ever, be able to work 5 days per week, 7 hours per day, all year round. Work, in this case, means performing the tasks that directly earn income.

For a start, as an online entrepreneur, you will spend upwards of 30% of your time marketing, whether that be creating newsletters, contacting prospects, setting up advertising programmes, or just following up emails.

So, to work for 7 hours, you'll probably spend 2 more marketing. That's already a 9 hour day, which, as many entrepreneurs will tell you, is a luxury. Mostly it's 12 hours plus.

On the other hand, when working out expected income from any plan, it pays to factor in the marketing time required, and certainly when establishing a price for services, that cost (along with any travel, research time, etc.) also needs to become a component of what you charge.

The conclusion? Don't forget that working and working are two different things. Only one earns money, and the other needs to become part of the charging cycle, or at least you have to remember that if a piece of work takes two hours, and earns $100, there has been a cost involved in getting that work, and so you've not really made $50 per hour.

Until the next time : earn and learn!