M & A Rainmaker

Lichfield businesses have been subjected to an incredible outbreak of Wahooliganism. Wahooliganism first emerged in Minneapolis in the U.S. last year and then spread globally via highly connected individuals and internet influencers.

It gained serious Klout along the way but suffered a setback in early February. It is expected to re-emerge over the coming weeks stronger than ever and businesses in Lichfield and indeed globally are advised to prepare.

What is Wahooliganism ??

A short description proffered by Wahooly founder Dana Severson is  ” Accelerating Start-up growth through online influence. “

There’s a good description of Wahooly in TechCrunch here:

http://techcrunch.com/2012/02/01/wahooly-launches-its-crowdfunding-experiment-with-first-3-startups-ready-for-social-capital/

Wahooly ( a start-up itself ) is helping it’s first 3 start-up’s ( actually on the website there are 4 now – http://wahooly.com/ ) to gain traction by having ” influential people ” invest time, effort and skills in them and promote them on a global basis.

Does this actually work ???

Well I think it does. Word of Mouth Marketing,Networking and Referrals are established ways of ” getting the word out ” and ” growing the business “.

For those of you who have read Gladwell’s ” The Tipping Point ” you will know that “The success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts.” These people are Connectors, Mavens and Salespeople.

According to Gladwell, economists call this the “80/20 Principle, which is the idea that in any situation roughly 80 percent of the ‘work’ will be done by 20 percent of the participants.”

The 20% are defined by Klout ( arguably ) as those who have a Klout score of greater than 45. ( Klout is only one company that is measuring Internet ” influence ).

This is not really rocket science – you get influential people ( in real life and virtual life ) to promote your company, products and services and this helps you grow your business.

Let’s take two examples:

Twylah ( http://www.twylah.com/ )

Twylah is a company that wants to take your Twitter Tweets and ” Tell your story and get you noticed ” by making an awesome looking website out of your Tweets. Twylah is based in San Franciso and is a start-up with co-founders Kelly and Eric Kim. Kelly is the community manager for Twylah and the marketing face of @Twylah.

Twylah has some VERY famous clients already ( see http://www.twylah.com/featured ) which include Lady GaGa, Britney Spears, Bon Jovi and Arnold Shwarzenegger !! This might give you the impression that only famous people need apply ! Here is David Skok of Matrix Partners Twylah page http://www.twylah.com/bostonvc/topics/matrix ( A Boston based VC investor  ) and here’s my Twylah page  http://www.twylah.com/cwindley .

From small beginnings Twylah has spread globally – mainly by using Twitter. Kelly has some 13,000 or so followers on Twitter. By picking certain people ( famous, influential, interesting ) Kelly has spread the word on Twylah and now Twylah users are spreading the word further.

Coco Meli Bakery ( http://www.cocomelibakery.co.uk/ )

More locally, Meli Nicolaou, of Coco Meli Bakery is using various means to promote her Artisan Bakery business and newly launched refreshments van at Trent Valley Railway Station.

Meli (  @CocoMeliBakery on Twitter )

has a relatively small ( well at least to Kelly !! ) Twitter follower base ( 500 odd ) but she has used this to help spread the word about her business. She now has a Twylah page http://www.twylah.com/CocoMeliBakery .

Again, physically and online she is spreading the word and others are spreading the word for her – some of them are influential people.

The involvement of influential people is having an actual positive effect on the growth of the business. What is the value of a new Twylah customer or a new Coco Meli Bakery customer ?? I don’t know but Eric Kim’s background is in the monetisation of Internet platforms and to him ( and the industry he has worked in for the last 10 years or so ) each follower, retweeter, circler, favouriter, liker and email address has a dollar or pound ( or part of ) value !!

I was just Googling around when I came apon this link:

http://www.fasttrack.co.uk/fasttrack/leagues/dbDetails.asp?siteID=1&compID=675&yr=1998

If I remember correctly Voyager was in the Fast Track 100 about 3 years running.

Having acquired Spider Networks in 1996 we were growing at a phenomenal rate with 1998, 1999 and 2000’s turnover getting up to around £13 Million.

By 1998 we were heading for an exit in around 1999. Of course this turned out to be one of the best decisions of our lives because of the dot com crash in March 2000.

http://en.wikipedia.org/wiki/Dot-com_bubble

Whilst Voyager was growing in the period of the dot.com Boom it never was a dot.com company. Actually it was what was referred to at that time as a ” Bricks and Mortar ” company. That is to say that we had real revenue and real profits and we provided the infrastructure for what we called ” Large and Medium Sized Businesses ” ( LAMBs ). Voyager Networks was a Corporate Value Added Reseller ( V.A.R. ) and Voyager Internet was a Corporate Internet Service Provider ( C.I.S.P. ).

In the above Wikipedia description of the Dot Com Boom it is interesting to note the difference between what Cisco did and what Nortel did. ( Voyager was almost solely a Cisco reseller and a Gold Cisco Partner ) Not only did this ensure the survival of Cisco after the dot com crash but also it’s survival and prosperity through the recent recession

http://en.wikipedia.org/wiki/Late-2000s_recession

At the outset of the recession I believe that Cisco had about $28 Billion in cash reserves.

The mentality in the 90’s for most dotcom’s was expanding their customer base as rapidly as possible, even if it produced large annual losses. It was:

Think big, Start big ( Spend loads ), Move fast.

The mantra for today, post the dotcom crash and the recent recession is:

Think big, Start small ( Spend as little as you can ), Move fast.

John Chambers, the CEO of Cisco has another mantra aswell:

Visualise, Strategise, Execute.

This was actually how we did things at Voyager in the 90’s – We thought very big ( as Nigel used to like to say ” Punching above our weight ” ), we strategised about how we could achieve our goals, we executed our strategy in a low cost way and we moved very fast.

That, for example is how we built The Voyager National Network and became a Managed Network Services Provider long before it was fashionable to do so.

Nostalgia is actually pretty well what it used to be – to me anyway.

Written by Guy Rigby, Head of Entrepreneurship at Smith & Williamson

http://www.smith.williamson.co.uk/entrepreneurs

Family and friends are a great source of funding for start ups and early stage businesses, but raising money from external investors or business angels is challenging.

Here are ten of the key issues that investors will be considering when they meet you or read your business plan.

1. First impressions

First impressions are critical. Most investors will decide not to proceed within the first 30 seconds of any discussion, or within a minute or two of picking up your business plan. Think about your approach, test in on your friends and practise it to perfection. Don’t fall at the first fence.

2. Demonstrable need

Where is the pain and what exactly is the need for your particular product or service? Most businesses offer ‘me too’ opportunities which are not obviously exciting to an investor. Make sure it’s clear how and why yours is different. Is it better, faster, cheaper or is there some other reason why you will succeed when many others fail?

3. Existing Revenues

Raising money for a business with pre-existing revenues is far easier as demand for your product or service has already been partially proven. The fact that you have already established the beginnings of a customer base will carry huge weight in any discussions.

4. Strategy

You may have a great idea, and you may have existing revenues, but what is the future for your business? Do you have a vision? If so, is it realistic or just “pie in the sky”? We have all seen those hockey stick shaped graphs showing an embarrassment of riches only a year or two down the track. Don’t be tempted to over-promise and under-deliver. It’s normally transparent from the start.

5. Business plan

The credibility of your proposal will be reflected in the quality of your business plan. A poorly presented, badly researched plan will kill your proposal before it has a chance. An idea may be good enough to gain the backing of family and friends, but it won’t cut the mustard with any serious investors.

6. Business model

Your business model will determine how and where you make your profits and how you will build long term value in your business. A model that requires huge revenues to deliver small profits is inherently unattractive, whereas a business in a niche market with high barriers to entry will be of interest to potential investors.

7. You

Are you credible in the eyes of the investor? What is your track record and what experience do you have of your business? Most successful entrepreneurs “stick to the knitting”, creating businesses based on their passion (ie something they know and understand), personal knowledge or experience. If this is limited, get the support of a mentor or partner. This will demonstrate maturity in the eyes of your investor.

8. Financials

Businesses go bust because they run out of cash, so be sure to demonstrate a good understanding of your financials. Margins and overheads will be part of the discussion, as well as working capital and cash flow. Remember that small businesses are normally cash constrained and prone to overtrading, so the investor will need to understand how you will manage this.

9. Pricing

Don’t be tempted to overvalue your business. We are a long way from the heady dotcom days when investors were persuaded to part with large amounts of cash based on little more than an idea. Nothing will put an investor off more quickly than an excessive or unsupportable valuation. The more you need, the more you will have to give away, so be realistic, cut your cloth and take in as little external funding as possible.

10. Exit

It’s very easy for an investor to put money into your business, but how will he get it back? A vague idea that you would like to buy his shares back at some future date is unlikely to be attractive. Taking in external funds means that you need to “begin at the end” in terms of thinking about exit, having a clear strategy and plan. This may change as the business grows, but you need that stake in the ground.

These are just some of the issues an investor will be thinking about, often subconsciously, in the short time that he focuses on your business. If you’ve thought it all out beforehand and you can tick all the boxes, you will have a strong chance of success.

Good luck!

The original and still the most important purpose of the M&A Rainmaker blog was to impart the lessons that I learned in selling businesses, particularly High Tech businesses.

The process is discussed here

http://mandarainmaker.co.uk/wordpress/selling-your-business-2/

in some detail.

I use the sale of 2 of my businesses Voyager Networks and 5i as particular examples in the selling your business process. One of the reasons for this is that one, Voyager Networks, was sold at the height of the High Tech, Dot Com Boom in 1999/2000 and the other, 5i, was sold in the depth’s of the global economic recession in 2008/9. Yet they both sold and sold well.

A very similar process was used in both cases although there were differences other than the economic backdrop.

When we started Voyager we had no clear strategy for it being a lifestyle business or an exit route business. It only became an exit route business after my meeting with Investec and after innumerable approaches to buy us. This was something like 1996, 3 years into the life of the business.

5i, on the other hand, was started with the clear intention of exiting ( sale or float ) 3-5 years later.

In fact both businesses sold around 7 years after thier start and in conversations with other people who have sold High Tech businesses this seems to be a typical lifetime for a business before it is sold.

In both cases we conducted a ” Beauty Parade ” to find the right M&A ( Mergers and Acquisitions ) partner. In the first case settling on Ernst & Young and in the second Norton Corporate Finance. ( Actually it was probably thier Rainmakers and thier teams that we settled on aswell as the companies ).

I remember that in the case of Voyager we discussed who was going to sell the company ( after we had decided to sell ) and put into the pot Deloitte & Touche, Ernst & Young and one other ( who I forget ). To get to the short list the three partners each put out feelers amongst thier contacts and 3 were chosen for presentations. Our accountants and our lawyers were consulted ( D & T were our accountants ). We ended up using Ernst and Young and our lawyers ( from Leeds ).

With 5i the lawyers and accountants were consulted; board members and shareholders put forward suggestions and a process was followed which resulted in Nortons Corporate Finance being selected.

I have to say that in my opinion both firms were exactly the right ones for us. The Nortons process and culture was similar to the one at Ernst & Young and this was a factor in the decision to go for Nortons.

Now, there are a great number of Corporate Finance and M & A companies to choose from and it is very important to find the right partner with the right processes and capabilities.

It is possible that the right people to use are your own accountants and lawyers but probably not. Or, at the very least, you should look for alternatives. If you are very experienced at selling companies then you may well have lawyers and accountants that you have used on a number of occassions. My advice is directed at people who have not had these opportunities.

In an ideal world you want to have decided wether you are a lifestyle business or an exit route business as early as possible. Also in an ideal world, you want to give yourself time to select the right legal and accountancy M&A partners for you and your business.