How do you succeed with start-ups? Anyone?
One way of raising the odds of succeeding is by doing it this way (this way do not exclude the risk of market declines. Market declines is just a natural occurence in business as you know):
1) Find a demand or want to fill.
2) Get that demand/want on paper (signed purchase agreements is one way. The best way as I'm concerned).
3) Start a company.
4) Find a CEO that would be the best candidate to run your company. Have CEO on stand-by.
5) Find investor/s to finance 12-24 months of operations (including owners salary).
6) Hire the CEO and let him "rock on" (Sit on the Board of Directors and "direct" the CEO).
I usually structure start-ups like this (in more than 80% of cases. It depends on the kind of business you are starting). I like those purchase agreements because they make it possible for me to avoid investing actual cash in my projects
. The money I already have can be used on fun things instead. Like travel and party.
The main idea here is to use non of your own money if possible. The second thing is too "build up value" in your project as much as you can, before bringing in investors. This is due to two main reasons:
1) You will prove the concept and it will be easier to sell the idea to investors.
2) It will give you a greater chance of holding a bigger share of the company ownership (see calculations for pre-money and post-money valuations below).
Pre-Money Valuation:
Question to ask: How much is the company valued at BEFORE investors put in cash in this project?
Post-Money Valuation:
Question to ask: What will this company be worth AFTER investors has put cash into this project?
-----------------------
Pre-Money Valuation example:
You start a company and you have built up a contractual value of $100,000. You own 100% of the shares and votes. Then comes an investor who wants to invest $250,000 in your company. How much will this company be valued at after this investor has invested? The company will be valued at: $100,000 + $250,000 = $350,000. How much will you have in ownership after this transaction and how much will the investor have in ownership? You will have: $100,000 / $350,000 = 28,57% of capital and votes. The investor will have $250,000 / $350,000 = 71,42% of capital and votes. The investor will run the show.
Post-Money Valuation example:
Post-Money Valuation is what the company is worth after investment from investor/s. In the case above the Pre-Money Valuation was $100,000, but as soon as the investor invested his money the value went up to $350,000. Post-Money is the after math so to speak.
One more exmple for clarification:
Company starts: Pre-Money Valuation = $0
Company get a total capital injection of $100,000: Post-Money Valuation = $0 + $100,000 = $100,000.
Pretty simple when you get the hang of it. Necessary to know this stuff if you are a start-up entrepreneur. If you know this, you will have more smooth discussions with investors. You will speak the same language as they prefer to say.
----
¤As an entrepreneur you should always aim at building up as much value you can before bringing on-board investors. Get that value so high that you can see the stars and at the same time, find ways of needing as little money as possible to fund operations in the beginning. That way you get to keep more of the cake and still get the business up and running.
¤¤Remember, 1% of ownership can mean a lot of cash when the company do make a lot of cashflow. Be smart with the math.
¤¤¤Never compromise on hiring a CEO. CEO's with business education in the subject is, as I said, "educated". They know the formalities of running a business. Entrepreneurs are not always the best managers. Some are, most aren't. There is a reason they are entrepreneurs in the first place. If you don't have the cash to fund the CEO, find investors who have and use the "built up" value as a way of preventing the doom and gloom of your ownership.
Try this out. Only the "testers" have a chance.
One way of raising the odds of succeeding is by doing it this way (this way do not exclude the risk of market declines. Market declines is just a natural occurence in business as you know):
1) Find a demand or want to fill.
2) Get that demand/want on paper (signed purchase agreements is one way. The best way as I'm concerned).
3) Start a company.
4) Find a CEO that would be the best candidate to run your company. Have CEO on stand-by.
5) Find investor/s to finance 12-24 months of operations (including owners salary).
6) Hire the CEO and let him "rock on" (Sit on the Board of Directors and "direct" the CEO).
I usually structure start-ups like this (in more than 80% of cases. It depends on the kind of business you are starting). I like those purchase agreements because they make it possible for me to avoid investing actual cash in my projects
. The money I already have can be used on fun things instead. Like travel and party.The main idea here is to use non of your own money if possible. The second thing is too "build up value" in your project as much as you can, before bringing in investors. This is due to two main reasons:
1) You will prove the concept and it will be easier to sell the idea to investors.
2) It will give you a greater chance of holding a bigger share of the company ownership (see calculations for pre-money and post-money valuations below).
Pre-Money Valuation:
Question to ask: How much is the company valued at BEFORE investors put in cash in this project?
Post-Money Valuation:
Question to ask: What will this company be worth AFTER investors has put cash into this project?
-----------------------
Pre-Money Valuation example:
You start a company and you have built up a contractual value of $100,000. You own 100% of the shares and votes. Then comes an investor who wants to invest $250,000 in your company. How much will this company be valued at after this investor has invested? The company will be valued at: $100,000 + $250,000 = $350,000. How much will you have in ownership after this transaction and how much will the investor have in ownership? You will have: $100,000 / $350,000 = 28,57% of capital and votes. The investor will have $250,000 / $350,000 = 71,42% of capital and votes. The investor will run the show.
Post-Money Valuation example:
Post-Money Valuation is what the company is worth after investment from investor/s. In the case above the Pre-Money Valuation was $100,000, but as soon as the investor invested his money the value went up to $350,000. Post-Money is the after math so to speak.
One more exmple for clarification:
Company starts: Pre-Money Valuation = $0
Company get a total capital injection of $100,000: Post-Money Valuation = $0 + $100,000 = $100,000.
Pretty simple when you get the hang of it. Necessary to know this stuff if you are a start-up entrepreneur. If you know this, you will have more smooth discussions with investors
. You will speak the same language as they prefer to say.----
¤As an entrepreneur you should always aim at building up as much value you can before bringing on-board investors. Get that value so high that you can see the stars and at the same time, find ways of needing as little money as possible to fund operations in the beginning. That way you get to keep more of the cake and still get the business up and running.
¤¤Remember, 1% of ownership can mean a lot of cash when the company do make a lot of cashflow. Be smart with the math.
¤¤¤Never compromise on hiring a CEO. CEO's with business education in the subject is, as I said, "educated". They know the formalities of running a business. Entrepreneurs are not always the best managers. Some are, most aren't. There is a reason they are entrepreneurs in the first place. If you don't have the cash to fund the CEO, find investors who have and use the "built up" value as a way of preventing the doom and gloom of your ownership.
Try this out. Only the "testers" have a chance.
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