More on this book
Community
Kindle Notes & Highlights
Read between
November 10 - December 2, 2018
It turns out, for the entrepreneur, VC isn’t all it’s cracked up to be.
Most business activities are typically divided into two core, overarching functions. One side of the spectrum is revenue generation and the other is operational execution. Are you a grow the top line-oriented individual or are you interested in operational execution? In other words, do you want to sell more product, or make as much product as possible at the lowest cost?
Make a list of all of your career accomplishments to date and what behaviors drove those results. Being immediately in touch with your successes will become important down the road when you talk with bankers as well. For now, consider what challenges you have overcome. What have you committed yourself to and achieved exceptional results with?
One of the most fatal mistakes an entrepreneur can make is assuming that just because they understand the technical work of the business does not mean they can successfully run a business that does the technical work.
The potential drawback to eternally profitable businesses is that companies that sometimes look like they are running in mature markets may actually be in over-fragmented industries ripe for consolidation.
In a turnaround, the fundamentals are going to include a good product market fit and ongoing demand in the marketplace for what the company currently produces.
Private equity activity has been dropping to lower levels in recent years due to the large cash reserves and increasing quantity of companies below $2,000,000.
Once you have decided the industry type, consider referring to the Business Brokerage Press’ Business Reference Guide.42 This is a wonderful reference for determining trends, valuations, margins, expense breakdowns, other benchmark data, and expert comments.
Having unclear, unwritten expectations or assumptions can result in misalignment, which takes the focus off progress. Having a good relationship with clear roles and responsibilities, and compensation attached to performance instead of ownership, can save a lot of headaches.
The best answer is related to the value proposition of the company; the second best is they have a long-term relationship with someone who will remain after the seller leaves. The most challenging answer is, “I play golf with the owner,” or, “We’ve been going to the same church for twenty years.”
Even understanding how much vacation they take will tell you how married or essential the owner is in day-to-day operations. Some owners take two weeks every quarter, while others haven’t been on a vacation in ten years.
The threat of new entrants is typically kept at bay with competitive tools such as differentiation, brand equity, economies of scale, switching costs, cost of starting up, access to distribution channels, geographic restrictions, or the new favorite, network effects. Does the target business hold any protection from this threat? How strong is it?
In addition to Porter’s Five Forces, I continually apply knowledge of the lifecycle of industry to a particular opportunity and attempt to gauge where they are, right at the beginning of analysis. This can help frame the proper strategy to employ in a given opportunity.
