Berkonomics

Selling your business? Find the emotional buyer

Berkonomics

This is one of my favorite insights, since I lived this one in a positive exit from my computer business. Types of business buyers expanded. Most people will tell you that there are two kinds of eventual buyers for your business: financial and strategic. A financial buyer will analyze your numbers, past and forecast, to the n’th degree, and calculate the price based upon the result, after carefully comparing your numbers with those of others in the same and similar industries.

Raising money? Find your champion.

Berkonomics

Increasing your chances of success.

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Why not share your liquidity success with those who got you there?

Berkonomics

So, you are close to selling your company, and counting the profits a bit early. Well, that’s human nature. Here’s a thought for you to recall later when and if the event happens. Remember those who got you there. And for tax reasons, remember them before the closing of the deal, so that you can do so by sharing a bit of your proceeds without paying personal income tax upon those amounts. Formal option plans for some.

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Have you heard? Eyeballs aren’t everything.

Berkonomics

Remember when? Back when we were all trying to figure out the real value of traffic on the web, investors – and acquiring companies – got a bit crazy with metrics used to value acquisitions and investments.

Can You Ask for Office Rent Relief? How to Manage Your Lease During COVID-19

Office leases are one of companies’ largest expenses, and if your whole team is working from home with no clear end in sight, you may be wondering what to do about your lease.

Have you heard the rule of the thirds?

Berkonomics

It starts with sharing the opportunity and upside. Think of startups and early stage businesses whose entrepreneurs you know.

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Financing with grants, not equity or debt

Berkonomics

First, an example of grant-based financing . I was chairman of a company that, for twelve years never took a dollar of outside investment. The company was funded entirely by grants from the National Institute of Health, amounting to millions of non-dilutive dollars in all.

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When should you go for equity financing?

Berkonomics

Let’s take a few minutes to examine the kind of equity financing available to small or early stage businesses. In most cases, these applicants for equity funding must be rooted in technology to apply to this limited discussion. Friends and family investors.

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Three Important Issues for Your Business Plan

Berkonomics

Some professional advice . Here’s more advice from professional investors for aspiring entrepreneurs. Each of us has a list of things we look for early on when identifying whether we want to go to the next step in analyzing a plan.

Are you innovating because of need or inspiration?

Berkonomics

Most innovations come from responding to a customer’s needs, or finding a niche where products need improvement or extension. It is rare to innovate using a blank sheet of paper in a room with bare walls and no other contributors. A thought exercise.

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Is it your brilliant plan or your execution?

Berkonomics

Mike Tyson: brilliant business savant. Everybody’s got a plan – until they are punched in the face,” famously stated boxer Mike Tyson.

Create a great product – the three-step dance method

Berkonomics

Can you create a product in a vacuum? Creating a new product in a relative vacuum is an exercise in complete trust that you know what’s best for the customer, perhaps even without interaction with such a customer.

Ready, fire, aim. Really?

Berkonomics

You’ve surely heard the variations on this theme. Ready, fire aim” was popular in the 1990’s, accredited to any of several authors.

My dad said: “Never take on a business partner.”

Berkonomics

My dad was a smart businessman, even if not formally trained. He occasionally gave me advice that turned out to be more than wise, looking back at subsequent experience and events.

Should you include your sweat equity in a business plan?

Berkonomics

Investors love it when entrepreneurs draw little or no money from their startups. It extends the cash available for research and other necessary fixed costs and gives the fragile, young company more “runway” to get to breakeven. What are you worth to the business?

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What is your biggest error in company planning?

Berkonomics

The biggest error in planning may not be spreadsheet calculation error. Or cost estimation. It is most often missed assumptions about the market, the competition, the speed of adoption, or other critical metrics you’ve researched, or selected, or even just guessed at to create your plan.

A million things can kill the deal.

Berkonomics

So, you’ve found the buyer, received a letter of interest, signed it, and exclusively tied your company up for a period to complete the deal. Everyone on the board is anxious to close this. You’ve committed time to do whatever is needed.

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Can you build a company, not just a product?

Berkonomics

Some businesses are built around a single idea. . And sometimes that idea is just too small a slice of the big picture to be interesting to investors. There was a recent investor event where I was keynote speaker, on stage only after several panels of experts had wowed the audience with their predictions and observations. One of the panelists made a point that resonated with me. Just a button, on a feature, in an app”.

What’s the Most Important Thing in a Young Business?

Berkonomics

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So, do you have that entrepreneurial DNA?

Berkonomics

My immediate family members were entrepreneurs from as far back as I can trace. Dad was a jeweler, then a furniture store owner. Mom wrote books and articles from her college days until she could no longer see the keyboard. One grandfather owned and maintained his apartment houses.

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Entrepreneurs do not easily retire.

Berkonomics

So, you’ve successfully sold your business and have received enough money from the sale to become financially independent, no longer having to work for a living. That is a comfortable place to be, and it is one experienced by more and more people, especially in technology-based businesses.

Shareholders and founders: The muted thrill of the deal closing.

Berkonomics

Now you have worked for months to get this deal to the closing, anticipating the wire transfers to the shareholders that will come any minute. This could change your lifestyle and give you that much needed pause in your life you have been looking forward to. How it happens today.

What use is an investment banker?

Berkonomics

Many CEOs have asked me if I felt an investment banker adds value if the buyer has already been identified. How investment bankers behave.

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What’s a “data room” and how do you use it?

Berkonomics

First, what’s a “deal book?”. Maybe you have not heard the term, “deal book.” That’s a comprehensive piece on a company for use by a buyer in determining fit.

Decoding and learning from a business failure

Berkonomics

Have you experienced a business failure? Are you currently at risk due to events you cannot control? Not all companies are successful. Your end game could be a failure of the business.

What’s your personal-business end game?

Berkonomics

Remembering our original vision. When we start a business, we are optimistic that we will succeed and dream of riches to follow when the company is sold or even getting all the way to an IPO.

What would happen to the business if you die, leave or are disabled?

Berkonomics

Yes, we’re invincible when young. When we are young and early in our business lives, we feel infallible to the degree that we do not think of what might happen if we die while in office or decide to leave the company for any reason.

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Selling your company for less than expected?

Berkonomics

How about outside investors? Sometimes the end game or sale of the company is not a happy event. Especially when outside investors, venture capitalists, or angels, have put in substantial money and the sales price is less than the value of their investment.

Take advantage of the good times to build stakeholder loyalty.

Berkonomics

Loyalty is a hard-earned commodity. There are several times when stakeholder loyalty is tested to the limit. For employees, a late or missed payroll is the ultimate test of corporate loyalty, divorced even from an employee’s ability to make do without a paycheck. For investors, a subsequent down round at a lower valuation than the last, or an exit opportunity at a loss are all opportunities for the affected stakeholder to show a side that can sometimes shock an entrepreneur or CEO.

Three questions to answer about your COVID response

Berkonomics

Most of us are affected by this current crisis. Many businesses threatened with closure forever. Small businesses are the most vulnerable, even though most have furloughed employees. Rent and other fixed costs continue, even when revenues have dried up – a fatal combination. So, here are three urgent questions for you. FINANCIAL: Do you have twelve to eighteen months of cash to cover your “burn rate” now and as you recover?

Crowdsourcing, collaboration, support groups. Oh my.

Berkonomics

At the MIT Center of Collective Intelligence, professors and graduate students are wrestling with an important opportunity – and gaining ground. With new collaborative tools available for use in the cloud, people are no longer isolated in their creative endeavors. Some label this “crowdsourcing,” a term used to describe one form of this new empowerment. How to use the new tools for collective intelligence.

Have you lost (some) enthusiasm for the job?

Berkonomics

So, you’ve been at this for years through thick and thin, great days and days in which you’ve had better times. Much of your job has become routine. But it feels good to see your “baby” grow and others buy into your vision. That daily routine. It is human nature for you and every entrepreneur to fall into a routine of taking care of day to day issues, meetings, communicating with customers and shareholders.

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An economics lesson for growing companies

Berkonomics

Catching up from past insights. Growing companies usually require more working capital during their periods of rapid growth. In past insights we have calculated the amount of additional capital needed for a business as it grows, and the additional capital required is often surprisingly large. In this insight, we need to speak of the sources of working capital and the implications to the future financial health of the choices made when selecting one financial resource. Surprise!

Insurance is always too expensive – until it’s needed.

Berkonomics

I expect that you have a story about how insurance saved you lots of money in your past. As usual, I have a story to make your hair stand on end. But first: here’s a fact. Business insurance is one of the more poorly managed mitigation of risk in small and many medium sized corporations, often because of failure to assign the responsibility to an individual or department, and sometimes just from the willingness to bet against the event and save cash. Business package policies.

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How to make the most useful dashboard

Berkonomics

The need for real time information. From sports car to aircraft to super tanker, successful operation depends upon the pilot’s understanding and urgent timely use of a dashboard. Real time information is critical to real time decision-making, and increasingly in the modern business world, decisions are made by management without extended meetings or discussion with others. Managers need real time information.

How to measure your power in the Internet marketplace.

Berkonomics

There are several key performance indicators that help new generation company management see more clearly their progress and corporate health. The old measures, including return on investment, percentage of profit against revenue or employee count, and more, obviously are still relevant. But businesses that expose their story to tens of millions of potential customers through the Internet need additional tools. Some of these are also applicable to non-Internet businesses.

Traditional marketing vs. social engagement

Berkonomics

Woe to those teaching yesterday’s methods. We all know that the world of marketing has turned upside down these past years through the power of the Internet. College professors teaching marketing must be having a real challenge keeping up with the new channels of communication, the relative values of advertising buys in this new world and explaining how to make the most out of these cheaper and more powerful channels. The new power model of marketing.

Have you fallen into the buggy whip trap?

Berkonomics

Surely, you’ve heard the buggy whip analogy. A business making those necessary items ignored the signs of progress and found itself without a market. Perhaps that happened to sword smiths upon the invention of the rifle, and certainly to the makers of cassette tapes upon the dawn of the CD. And CD’s with the advent of streaming. My stories of unexpected change. I found myself in the middle of such a slow-rolling change twice in my career. First, in the. Source: Wikipedia Common license.

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Will tech kill your job?

Berkonomics

Close. Stop me if you’ve heard this story before. “My My job as a (newspaper publisher telephone installer, stockbroker, travel agent, retail store manager) is safe as this economy continues to grow.” Thought so. We are in a decade of creative destruction that will affect most everybody. And the prime motivators of this massive destruction are the same class of entrepreneurs and innovators that have done it before.

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Economics 101: If water flows downhill, then why fight it?

Berkonomics

You’ll get the importance of this in a moment. Hang in there. Substitute the word “money” for “water” and we have an explanation for most all the reasons why successful products move from concept through early adopters through mass market. How money flows through the system. Money flows to the cheapest effective solution to a problem. Fighting this fact will just extend the misery of accepting a result with as product or marketing failure in the marketplace.

How do you pay an early stage board?

Berkonomics

Give one percent equity to each outside board member vesting over four years of service. Many early stage CEOs and board members have asked for some guidance regarding pay and time commitments for board members. Here is my best advice, based upon many boards and many years. Pay early stage board members of companies that are not lifestyle businesses one percent of the fully diluted equity in the form of an option that vests over four years of service.

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How much is that one additional unit worth?

Berkonomics

Most college econ courses teach marginal economics. So, not to scare those who didn’t take econ, here is a simple explanation. Let’s use breakeven as our test. Let’s say that your company is exactly at breakeven. Here’s the importance of that event and how it affects every productive move you make after that moment. There is amazing leverage in high gross profit margins once a company is past breakeven.

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Should you cast your net where the big fish swim?

Berkonomics

This is one of those “My dad used to say” homilies. You’ve probably heard the accompanying “It takes just as much effort to sell a small deal as a big one,” over the years. It is not that simple in the business world. The truth of this is more nuanced. Some businesses will prosper in the shadow of larger competitors by specializing in those smaller accounts that are just not attractive to those with higher overheads and larger aspirations. Aim high for that major account.

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