Jun 272017
 
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Will Blockchain Technology Destroy Your Small Business?

Given all the recent hype, it’s likely that you’ve been hearing a lot about Bitcoin and the blockchain technology upon which it is based.

As with any “new,” [Bitcoin’s been around since 2009, but is getting a huge amount of press now] little understood technology [think robots], there’s a tendency to paint it in a negative light and ask questions about its power to destroy what we hold near and dear – in this case, our small businesses.

Before we speculate too much on any good or bad that may come of blockchain technology, let’s take a moment to understand what it is. Remember, this is a very basic overview.

A blockchain is, as its name would imply, a chain of blocks.

What is contained in these blocks, you may ask?

To understand what’s contained in the blocks, let’s take a closer look at Bitcoin, which is the most famous manifestation to-date of blockchain technology. Forget, for a moment, all the hype around Bitcoin and the resulting massive fluctuations in its value. We can save that for a later conversation. For now, we’ll just consider what is contained in the blocks of the Bitcoin blockchain.

Each block of the Bitcoin blockchain, as depicted in the graphic at the beginning of this article, contains a series of transactions that have been cryptographically secured and which have been validated by a process called mining. The way the data is secured and the way the blocks are mined go beyond the scope of this article, but if you’re interested in further details, let me know and I’ll either write additional articles on this topic, or point you in the direction of some good resources.

So, back to the transactions that are included in the blocks of the Bitcoin blockchain. These transactions could include instances where you or I purchased something of value from a vendor and paid for it with Bitcoin, as well as a number of other unrelated transactions – usually around 2,000 transactions per block, at the present time.

For such a transaction to take place, we, as the buyer, would typically have Bitcoin in a “virtual” wallet. We would then instruct the wallet to send a certain number of Bitcoins to the vendor in order to pay for whatever we were buying. The transaction would be recorded as a certain amount of Bitcoin being moved from our virtual address to the virtual address of the vendor.

So, how is this different than just paying the vendor with Paypal, or with any credit card, you may ask?

On the surface, you as the consumer, and the seller as the vendor really shouldn’t see much difference. In theory, though, there are many differences between using blockchain-based Bitcoin and just using a credit card. A few of the more important differences in the context of this discussion are:

Anonymity: given that what’s recorded in the transaction and included in the blockchain is just a transfer of Bitcoin between two addresses, there is the (supposed) benefit of anonymity.

In reality, though, it’s pseudonymity, because if you want to transmit or receive value that translates to the real word, you’ll have to be connected to the virtual address or pseudonym somehow.

And the reality is, it’s been proven that with enough time and resources, even if you use different pseudonyms, and even mixing of those pseudonyms for every transaction, given that the Bitcoin blockchain is public, an attacker or “adversary” with enough time and resources can often break the pseudonym and connect the transactions with real-world identities.

So, those who would use Bitcoin (or other, similar cryptocurrencies) for nefarious and/or illegal purposes, are in for a rude awakening, if they get high enough up on the law enforcement priority list – see the Silk Road Marketplace case for an example.

Irreversible: once the transaction is in the blockchain, you as the buyer, or the vendor as the seller, cannot rewrite history. That is to say, once the transaction has been confirmed through the “mining” process and is included in the blockchain beyond the point where it could theoretically be reversed by a “51 percent” or “double spend” attack (again, beyond the scope of this article, but an attack where a miner(s) with a large enough percentage of the computing power on the network tries to commit fraud and “rewrite history”), it is there forever and cannot be changed without the agreement of both parties to the transaction.

Even it were to be changed or reversed, that would be done in a separate and subsequent transaction; the original transaction would still be in the blockchain with a (virtual) timestamp relative to the timing of other transactions in the chain.

Transparent: As stated above, what happens in the Bitcoin blockchain stays in the blockchain, but not only does it stay there, it’s there for all to see. Given that the Bitcoin blockchain is public, unlike when you do a transaction with Paypal or with a credit card, that transaction is out there for all to see. Again, they’ll only be able to associate the transaction with you if they know your public/virtual (key) identity, either because you give it to them or they figure it out by inference or other means. This transparency could be seen as a pro or a con of the blockchain, depending on where you sit and what you’re trying to accomplish.

These are just a few of the differences between doing a transaction with a standard payment method such as Paypal or a credit card, but they start to give you a sense of what’s stored in the blockchain and what’s different about a blockchain-based cryptocurrency such as Bitcoin.

Let’s change gears for a moment and talk about blockchain technology in a context other than that of a cryptocurrency like Bitcoin.

As you can see from the Bitcoin example above, the blockchain is essentially a way to create, execute, and store transactions, in indelible ink, so to speak, so that they are: 1.) (somewhat) anonymous, if desired; 2.) irreversible; and 3.) can be seen by all who have access to the blockchain in question.

So, given these characteristics, another useful way to think of the blockchain, is as a distributed or shared ledger.

One thing we didn’t touch on in the Bitcoin example is that the blockchain typically, but not necessarily, is shared across all nodes in the network. That is, every server on the network where the blockchain is stored has a full and complete copy of the blockchain and therefore, of all transactions that have ever been confirmed and included in any block that forms part of the blockchain.

If you think about that for a moment, it is in stark contrast to the way data is usually stored. Usually, data is stored on a central server, then those who need or want access to that data access the central server (sometimes without permission) and use whatever they’ve accessed for the purpose at hand.

In contrast, with blockchain technology, on a shared or distributed ledger, there are complete copies of the data (all the data, since the blockchain started) on several, perhaps thousands of nodes (servers). This is quite different and can only be accomplished because of the cryptographic nature of the way the transactions are included, confirmed and stored in the blocks. In that sense, it has the potential to be quite revolutionary for many data-based aspects of business.

It also tends to bog down and can be quite slow – another topic beyond the scope of this article – but many believe that some of the characteristics mentioned above make the blockchain approach worth some of the speed trade-offs. There is also hope that as time goes on and the technology progresses, the speed trade-offs relative to centrally managed and controlled networks will not be as pronounced.

Well, that’s probably more than enough to overwhelm you for now.

I will conclude here by saying that, in my opinion, blockchain technology certainly will not destroy most of your businesses! In fact, I believe that it has the potential to be revolutionary, in a positive way, in how many aspects of today’s businesses are run, but I will save that discussion for another time.

I look forward to your thoughts and questions.

 

Paul Morin

paul@companyfounder.com

www.companyfounder.com

 

 

 

 

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Apr 292014
 
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Seven Things All Small Businesses Should Be Doing On Social Media

Many small business owners are now active on social media. Whether you outsource your marketing, have an in-house staff or you are a solo entrepreneur doing it all yourself, making sure to get the most out of your social media marketing is important!

Talk to a web designer and s/he will tell you web design is of utmost importance. Talk with a graphic artist and branding becomes your #1 priority. Talk with a social media manager and engagement, blogging and audience building should be at the top of your list. Are you confused yet?

There are many things you should do online if you ask the ‘experts’. Whatever you decide to do online and whatever time you have or budget to pay for it, make sure it is done professionally, with consistency and frequency.

Going back to basics though, especially for those just starting out, here is my BEST ADVICE for small business owners.

  1. Own your own online real estate. Get a website! There is nothing, I repeat, nothing – no other platform – better than your own site. Get a .com and get a website. You can do and say whatever you want on that site and you own it. Traffic to your site will be for you to do with as you want and building that online presence cannot be done anywhere else.
  2. Choose your social media platforms wisely. Once you commit to a certain platform, be present and post relevant information. Information should be relevant to your current audience, that specific platform and potential customers alike.
  3. Engage with your audience and stop broadcasting. Ask questions, provide industry information, quote experts, post behind the scenes looks, updates and pictures of office, staff and events.
  4. Have consistent branding and know who you are first! Use your ‘elevator pitch’ to find your key marketing points and make sure those come across quickly in your branding. This includes written content as well as images and graphics.
  5. Fill out those profiles with as much information and keywords as possible. Social media profiles get indexed by search engines. What will they find when they index yours?
  6. Have a blog, create content consistently and frequently and learn where and how to distribute it. One great way to create blog content is to turn every single question asked of you about your business into a blog post where you answer that question.
  7. Know what you are doing online, why you are doing it and where you want to be! Track your efforts, track your leads and analyze what you are doing to improve your stats.

+ 2 BONUS:

  • Doing all of the above without a strategic plan will set you up to fail. Start with a strategic social media plan which includes short and long-term goals.
  • Include social media in your marketing budget. This money could be used for advertising (PPC, Facebook ads, Twitter ads, SEO services etc.), graphic design, running contests, social media tools, website management, social media management, consulting services and more!

The value of social media is directly related to the effort you put into it. I can’t say it enough, but I will do so again: being present where you have a presence is super important. It’s how you build your reputation and brand. Would you invite guests to come over to your home, leave the lights on for them, but forget to be there yourself?

Dorien Morin-van Dam
Social Media Consultant & Strategist at More In Media
Connect with me on Social Media
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Sep 172011
 
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Struggling small business? Don't give up!

Struggling In Your Small Business? Don’t Give Up!

If you are struggling in your small business, take heart; you are not alone and you should not give up.  The potential reasons for your struggles, some of which we’ll discuss below, most likely have both a “macro” and “micro” foundation.  As long as you’re willing to be honest with yourself, there’s a good chance you can course-adjust and get your business back on track.  If not, you should at least be able to make a rational decision of “where to go from here”.

The first step in determining what you should do if your business is struggling is to assess whether you have a “good business” to begin with!  Whether you’re running a business that’s been around for seventy-five years or one that’s been around for a month, it’s important to take an honest look at what you have.  It’s sad to say, but some businesses shouldn’t have been started in the first place, and some businesses that were great at the beginning, have been passed by due to “human progress” (“buggy whips” come to mind) or poor management, or both.

Let’s focus on the case of a relatively mature small business that has run into hard times.  If instead you are looking more for a discussion of the characteristics you’ll want to consider in screening a startup, see Startup Basics – The Difference Between Ideas and Opportunities.

First, I want to make the point that I’m a huge fan of the entrepreneur (and any kind of achiever) who has the “never-say-die” mentality.  I applaud it.  I try to emulate it as much as possible.  I believe it is what leads to more progress in our world than almost any other single trait.  All that said, it’s important to be “realistic” too.  I am not saying to lose your never-say-die attitude.  Rather, I am saying assess the situation rationally, do what needs to be done, then channel your enormous willpower and energy in a direction that’s not tantamount to “rearranging deck chairs on the titanic”.

What are the questions you should ask yourself to determine whether your small business has “hit an iceberg” and become the equivalent of the Titanic?  Here are a few thoughts.  This is not an exhaustive list, but it should get your mind moving in the right direction.

Struggling Small Business Honest Self-Assessment Question #1

Has the industry taken a completely new direction, in which we are not prepared or equipped to go?

Take as an example the corner video rental store a few years ago.  Everyone could see the writing on the wall regarding the stiff competition from pay-per-view cable and Netflix, among other movie sources.  If you had owned a chain of video rental stores at that point, what would you have done?

Struggling Small Business Honest Self-Assessment Question #2

Have our margins been squeezed to the point that it’s impossible to make money on the bottom line?

In many industries, there is a tendency toward “commoditization,” which has very negative effects on gross margins, due to severe competition on price, without a commensurate reduction in costs of production.  A good example here would be most segments of the computer hardware manufacturing business.  The prices have come down far faster than the costs of production.  It’s now to the point where you need to be a very large player, doing a huge amount of volume, to have any hopes of making money in that business.  This is where commoditized industries end up.

Struggling Small Business Honest Self-Assessment Question #3

Do we have the right leadership team in place to grow our business?

I have seen this issue in non-family and family businesses alike, but it seems to be more prevalent in family owned companies.  What happens quite frequently is that someone has been with the company a long time, so they’re awarded a senior position, without any real assessment of whether they are the person who will be able to handle those responsibilities as the company grows.  It happens in sales, in marketing, in finance, in operations, even at the CEO and Board level.  The business simply outgrows some people.  It’s inevitable and it’s a difficult situation, but it must be dealt with, or the entire business is put in danger.  It is better to deal with the uncomfortable situation of having to demote or fire someone who cannot “make it happen” than it is to ignore the problem and bring the whole company down in the process.  I understand and fully agree with rewarding loyalty, but not to the detriment of the company, all its other employees, its shareholders, and other constituencies.  If your company and/or industry has outgrown you or other key members of your senior management team, acknowledge it and fix it as soon as possible.

Struggling Small Business Honest Self-Assessment Question #4

Should we be looking at a different part of the “value chain”?

Quite a few years back, I read a book by a couple of BCG (Boston Consulting Group) guys called Blown To Bits.  I don’t recall the exact terminology they used, but one important concept from the book has stuck with me.  They talked about how mature players will have to constantly defend attacks from insurgents who want to come in and “cherry pick” the most profitable pieces of the value chain.  Where are you in the “value chain” that brings value to your customers and solves their problem(s)?  Industries that have many layers of intermediaries en route from production to putting the products in the hands of consumers, these days are frequently seeing entire layers cut out of the chain.  This happens due to the ability of the manufacturer to go directly to the consumer.  Don’t become “disintermediated” (a term used in Blown to Bits, if I recall correctly)!  If you are in one of the layers that is not adding much value, you are in great danger of being cut out.  An example here would be auto insurance.  Geico simply cuts the broker out of the picture.  For other types of insurance, particularly complex business insurance, that’s not quite as easy to do.  Take a close look at your own situation.  Examine the “value chain” all the way from production to the consumer’s hands.  Where is the value being added?  Where is the money being made?  Where are you?

Struggling Small Business Honest Self-Assessment Question #5

If you conclude the future isn’t bright, you’ll need to answer the question: What should we do then?

If you ask yourself some of these questions and don’t like the answers you’re hearing, you will need to decide what to do.  There are typically several choices, including:  close the business, downsize the business, sell the business, change the market focus, upgrade the manufacturing capabilities, upgrade the senior management, etc.  In other words, there are a lot of possibilities and many of them are not mutually exclusive.  For example, upgrading the senior management and changing the market focus or overall strategic direction, would often be logical complements.  The key is that you must do something.  The worst thing you can do is nothing and just continue along a path that you know does not end well.  The other key is to be honest in your assessment.  If your business is struggling, there are reasons for it. It doesn’t just happen.  Most likely some of those reasons are related to macroeconomic issues and others are related to micro issues within the business itself.  In any case, you must take action to address the issues that you have control over.  For the remainder, you will need to do your best to be proactive and navigate around the “storms” in your immediate vicinity and those you see on the horizon.

I look forward to your thoughts and questions.

Paul Morin

paul@companyfounder.com

www.companyfounder.com

 

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Aug 162011
 
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3 Common Small Business Killers

Small businesses, even those that appear promising at the start, have an unnerving failure rate.  Here I’ll discuss three common small business killers, and what to do about them.  In my extensive time in entrepreneurship, I’ve experienced and seen them all, in my own businesses and those of my clients.  The good news is that if you are aware of these issues and keep vigilant watch, you can spot them early and often prevent them from killing your business.

Common Small Business Killer #1:  Insufficient Funding

I guess this one should come as no surprise.  Most businesses are started on a “shoestring budget” and tend to stay that way through most of their lives.  While this may be unavoidable for some who are starting a business, for others, it is simply an issue of not understanding the likely capital requirements of the business and planning accordingly.

Solution:  Perform a break-even analysis before you start your business, so you can get a basic understanding of the sales volume you will need to break even.  This will, of course, involve making many assumptions and it will never be perfect, however it will at least give you a target and a basis for understanding where you need to take the business.  It will also help guide you as you put together your pro-forma financials, including a cash flow projection, which will help you understand when the business is expected to start generating, rather than burning cash.  Realize that if you make your projections too “rosy,” you are likely to miss them and run into cash flow problems.  Project conservatively and leave yourself a buffer for projection error.  Finally, make sure you understand the potential sources of capital available and stay ahead of your capital requirements, so you’re not in a compromised position, trying to raise cash in an emergency.

Common Small Business Killer #2:  Weak Profit Margins

Some businesses have inherently weak profit margins, due to a variety of factors, but usually because of intense competition and the pricing power of key suppliers.  If you know from the get-go that you are entering a business with weak margins and little hope of improvement in that area, you’re either crazy, don’t realize this issue, or have some other ulterior motive.

Solution:  Before you enter any business, make sure you have a very good understanding of the profit margins of the business.  In particular, you should look for gross margins of sixty percent or better.  I will agree with you that such businesses are not easy to find, but as one of my first mentors told me, when you have gross margins of sixty percent or better, you can make a lot of mistakes in the remainder of your business and still survive to fight another day.  Make sure that as you are putting together the pro-forma financials for your venture, you are very realistic regarding the direct costs you will have in producing your products and/or delivering your services.  Any unrealistic assumptions regarding these costs will give you an inaccurate picture of the likely gross margins you will enjoy in your business and make your pro-forma financial projections misleading and dangerous.  Likewise, be very realistic about how you will be able to price your offering, as this will be the other determinant of the gross margins you will be looking at.  Finally, be realistic about how these direct costs and pricing power are likely to change over time, given the competitive forces and other market trends you see at work in your industry.

Common Small Business Killer #3:  Unskilled Management

The unskilled (or under-skilled) management issue occurs quite a bit.  Two scenarios where this issue is particularly common are: 1.) a person comes out of a larger corporate environment with a very specific skillset and decides to become an entrepreneur; and 2.) a family business employs its family members in key management and leadership positions, regardless of the fact that they don’t have the experience or the skills to do the job well.  There are many other situations where entrepreneurs do not have the proper skills to run the business they have chosen, but these are two of the most common.

Solution:  When you are starting a business, or even if you already have it up and running, take a close look at the types of skills that will be necessary to run and grow the business effectively.  If you are not sure what it takes to be great at your endeavor, take a look around at those who are already succeeding in the same or similar businesses.  Take a close look at the core skills and knowledge they employ to allow them to do well in that business.  In some businesses, the most important competency is financial acumen, in others it’s operational knowledge, in most all, it’s marketing and sales capabilities.  Make an honest assessment.  Where you see gaps in your knowledge and capabilities, partner with or hire others to fill those gaps.  Remember when you’re doing this assessment that, regardless of how talented you may be, it will be very hard for you to have the time, energy and capabilities to do all tasks well.  Be sure you have the most critical ones covered and seek assistance everywhere else.

It’s important to understand that these are just three of many potential “small business killers,” but start with making sure you have these three under control and we’ll cover some others in the future.

I look forward to your thoughts, comments and questions.  Leave a comment below!

Paul Morin

paul@companyfounder.com

www.companyfounder.com.

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Aug 022011
 
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Five Common Mistakes To Avoid in Marketing Your Small Business

Is marketing your small business not going as well as you would like?  There is always room for improvement!  The following five common mistakes are fundamental to effective marketing and sales.  If you are committing these mistakes in marketing your products and/or service, correct your approach as soon as possible and you may be surprised how quickly your sales and profitability head in the right direction.

 

Common Marketing Mistake #1:  Not Focusing On The Prospect

 90+ percent of the marketing materials I see are focused on the many wonderful attributes of the SELLER!  Their marketing communications focus on them — where they went to school, how big their business is, their wonderful office location, the great technology they have, etc.

Is this what the prospective customer really cares about?  Or are they more concerned with hearing that you understand their problems and can help them with the challenges they are facing right now?

Rather than telling them that your company is such and such, tell them you and your company understand the issues they are facing.  Tell them you understand them and in fact, your whole focus is on helping people in their exact situation address those and similar problems.  You’d like them to know that you can’t get enough of helping people like them and you’ve done it effectively, over and over again.

You can and should, of course, let them know that you and your company have the necessary qualifications to get the job done and solve their problem.  But rather than just listing your credentials, get that message across by telling them the many stories of how you’ve successfully helped others with the same challenges they are facing.  Show them the knowledge and insights you’ve applied to help clients solve similar issues.


 Common Marketing Mistake #2:  Trying To Be Too Clever

If you read and study enough advertising and marketing pieces, you will realize that the vast majority are trying to be clever – too clever.

The point of marketing and advertising is not to show people how smart you are or how great a vocabulary you have.  The point is to get your prospects to take a specific action.  To call you.  To buy your product.  To join your email list.  The surest way to NOT make this happen is by using too many big words or fancy concepts and images, or by using subtle graphics that you think are cute or clever, but that leave the prospect wondering what you’re talking about.

Prospects are bombarded by advertising and marketing messages and images these days.  This constant bombardment has forced people to be even more selective regarding what they pay attention to.  Not surprisingly, what most often grab and hold prospects’ attention are messages that are clear and are clearly relevant to issues they facing right now.

Develop the habit of writing very directly in all your business writing, and particularly in your advertising and marketing materials.

 

Common Marketing Mistake #3:  Emphasizing Features Rather Than Benefits

The famous example goes, “People don’t buy a hole puncher (or drill), they buy the ability to make holes”.  Or people don’t buy a driver (golf), they buy the ability to hit the ball further and straighter off the tee and impress their friends.

When you are marketing your product or service, don’t expect that simply writing up a long list of incredible features will magically incentivize your prospect to take out their credit card (or check book, or purchase order) and buy what you have to offer.  It simply does not work that way for the vast majority of buyers.

Rather than tell them, “my product is all this,” or “I’m all that,” tell them, “You have this issue you are confronting and what I am offering is the best way to solve that problem, quickly and economically, as we have proven over and over, with challenges just like yours”.

 

Common Marketing Mistake #4:  Not Offering a Guarantee

Your prospects are worried that your product won’t work for them. So put their worries to bed by offering a risk-reversal – that is, a satisfaction guarantee. Unconditional, strong and long guarantees usually deliver the best conversion rates to you.

This may seem like big risk to you, but if it does, ask yourself this question: How good is my product/service?  If you believe in what you are offering, you are less likely to have a big concern about offering a satisfaction guarantee.  If you’re still concerned, offer the guarantee for a limited time and see how it goes.

If you look around, you will notice that most of the savviest marketers out there offer a no questions asked, unconditional money back 30-day (minimum) guarantee.  This is not easy to apply to certain products and services, of course, but for most, it works very well.

 

Common Marketing Mistake #5:  Not Creating a Sense of Urgency

You need to have a call to action at the end of your sales letter or other marketing piece that tells your prospects exactly what to do next (e.g., “get out your credit card and click here to get started now…”). But you also need to give your prospects a good reason to act NOW, otherwise they may become distracted and never come back to your marketing piece.  As discussed, prospects are bombarded with other offers and other sensory inputs on an almost constant basis these days.  We increasingly live in the “age of distraction”.

The solution? Create a sense of urgency by:

  • Reminding the prospect that her/his pain and problems will be over when he/she buys the product or service.
  • Offering a limited-time discount or bonus offer.
  • Offering a limited quantity of products.
  • Offering a bonus or discount to the first few hundred (or whatever number makes sense in the context of your offer) people who order.

You just learned about five common marketing mistakes that may be causing your marketing not to work as well as it could.  To the extent you haven’t already, get to work now on correcting these issues.  It will be some of the most productive and profitable time you ever invest.

Don’t just pick and choose the methods you like best. Instead, address all five mistakes … and enjoy the results!

I look forward to your thoughts and comments.

Paul Morin

paul@CompanyFounder.com

www.CompanyFounder.com.

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Jul 272011
 
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How To Sell A Business

How To Sell A Business:  The Reality

How to sell a business is not typically the first concern on the mind of company founders and senior managers.  Instead, they are confronted with a number of strategic and operational decisions each day that impact their businesses, the sum of which in the long-run, will have a significant impact on their lives.  Over time, a privately-held business is likely to become the largest financial asset of its owner.  Given the tremendous financial, labor, and time investments that owners make in their businesses, it is critical that the owner(s) take time to develop a strategy for achieving personal liquidity through the merger, sale, or recapitalization of their company.  This is an issue that many privately-held business owners are reluctant to discuss, or even consider at first, due to their emotional attachment to the businesses they have struggled to build over the years.  Many find it difficult to imagine not owning and running their company and initially refuse to recognize the importance of planning ahead for a potential liquidity event.  However, this issue typically becomes a major concern for privately-held business owners, particularly those who are nearing retirement age.

 

How To Sell A Business: The Process

The process of selling a privately-held business is generally more complex than most owners initially imagine.  Just as Rome was not built in a day, the merger or acquisition of a privately-held business is not accomplished overnight and requires significant efforts by the owners, their tax and financial planning, accounting, legal and transaction advisors.  To be successful in achieving maximum personal liquidity through a transaction, privately-held business owners should be cognizant of the many dynamic stages and issues associated with selling their business.  These stages and issues include the following:

  • Determining the Need to Sell the Company—There exists a wide range of reasons that a privately-held business owner may have for selling the company, including retirement, family succession issues, illness, unforeseen circumstances, loss of interest, financial distress, other investment options, etc.  Whatever may motivate the owner(s) of a privately-held business to pursue a sale of their company, the results of such a transaction generally include increased personal liquidity and diversification of their portfolio, resulting in a reduction in the overall risk of their personal portfolio.
  • Preparing the Company for the Sale—Once the decision is made to sell the business, the owners of a privately-held business typically are unprepared for the process of selling their company; they usually are not sure where to start.  In order to adequately prepare the privately-held company for sale, the owners typically must retain a competent transaction advisor to assist in the navigation of the process from start to finish.  In addition, the owners must ensure that preliminary legal work is in order and that the company’s most recent annual and interim financial statements are prepared (audited, if available) by their accounting firm.  In preparing the company for the sale, the owners must also adopt the appropriate mindset that provides a level of commitment to the process that is conducive to a successful and optimal transaction.
  • Understanding the Value of the Company—Most owners of privately-held businesses have preconceived notions regarding the value of their businesses.  The valuation process is crucial in estimating the fair market value of a privately-held company and in establishing a reasonable price expectation for the owners of the company and its team of advisors.  The valuation process involves extensive analysis of specific company, industry and macroeconomic factors that impact the value estimate.  Under the income, market, and asset approaches to valuing a privately-held business, there are numerous methods for estimating the fair market value.  Once the fair market value has been estimated, the transaction advisor then attempts to secure the highest price during negotiations in order to maximize value for the owners of the business.
  • Marketing the Company to Various Types of Potential Buyers—Once the valuation of the company is complete, the privately-held company’s transaction advisors typically begin marketing the company to potential acquirers via a non-confidential (and anonymized) one- or two-page summary of the company.  This summary is sent to potential buyers via fax or email.  Those potential acquirers who express an interest are then required to execute a Non-Disclosure Agreement (NDA).  Once the NDA is satisfactorily executed, the prospective buyer receives the confidential selling memorandum – an in-depth overview of the company and its merits, which has been prepared by the transaction advisor.  The transaction advisor utilizes a variety of resources to identify and contact potential buyers who are categorized into three broad categories—financial, strategic, and individual buyers.  Once the prospective acquirer receives and reviews the confidential selling memorandum, if there is further interest, the transaction advisor has more in-depth communication with them, to further qualify their level of seriousness and ability to do a deal.  Should all indications be positive, the transaction advisor coordinates a site visit(s) with the owners, respecting the confidentiality of the situation and their desire to spend time only with ‘qualified’ and genuinely interested potential acquirers.
  • Preliminary Due Diligence—Prior to providing a Letter of Intent (LOI), a potential acquirer (already under NDA), typically will want to perform “preliminary due diligence”, which is a “lite” form of the very extensive due diligence that most companies will perform after the execution of an LOI.  Preliminary due diligence is a basic analysis of the company, its financial position, operations, etc., to whatever extent permitted by time and the willingness of the owners to divulge information at this stage.  Typical basic issues considered/analyzed during preliminary due diligence include:
      • Capitalization table, detailing current ownership of company;
      • Most current three to five years of GAAP financial statements, audited if possible, as well as up-to-date interim statements;
      • Revenue breakdown and profitability by region, product line, customer, etc. to the extent tracked and based on management’s willingness to divulge – this can of course be a very sensitive area;
      • Any industry and market analysis seller is willing/able to make available, in order to help the prospective buyer understand the potential for growth and profitability of the business;
      • Discussions with senior management who are privy to the idea of a potential sale – conversations may be brief or extensive, based on the wishes/willingness of the owners;
      • Others as appropriate.
  • Letter of Intent (LOI)—After the site visit(s), the transaction advisor continues discussions with the prospective buyer(s) and facilitates further conversations with the owners and answers to questions, as reasonable and appropriate.  Should the potential buyer wish to proceed further, it is typically at this stage that they are expected to provide an LOI, explicitly stating their intent to proceed toward a possible transaction, and under what basic terms.  LOI’s typically are non-binding, but may include a “no-shop” clause, which does not allow the owners to “shop” for other buyers during a specific period of time.  It is therefore important that the owners consider the basics of the LOI to be reasonable before counter-signing it, particularly if there is a “no-shop” clause, as they will be effectively locked up from proceeding further with other prospective acquirers.  The typical LOI will address some or all of the following issues:
      • Stock purchase or asset purchase and amount/form of consideration;
      • Employment and other agreements that will need to be executed before closing;
      • Expected closing date;
      • Refundable deposit or “good faith money”;
      • Agreement of seller to grant full access to company records, data, and employees for due diligence process;
      • No material changes in operation of business;
      • No-shop provision;
      • Finder’s fee or advisors fee, if any – specifies which party will be responsible to pay;
      • Confidentiality – further iterates expectations for confidentiality as the process proceeds;
      • Break-up fee, if any, should the deal not be consummated;
      • Others as necessary.
  • Negotiating the Deal—It is rare that the owners of a closely-held business will accept the first offer and the conditions set forth in the initial LOI.  Rather, this is a starting point for further negotiations centered on the price, terms, closing date, etc.  The transaction advisor will discuss the initial LOI with the client and make recommendations regarding the future course of action based on the specifics set forth in the LOI.  Typically, at this point, the transaction advisor will discuss with the client their expectations and desire to continue discussions with the potential acquirer based on the terms and conditions in the LOI.  The range of the total expected consideration will largely be established now, with the lower limit the amount offered in the LOI and the upper bound being the owners’ previously established expectations.

It is not unusual for the owners to become very emotionally charged once the initial LOI is received and has been reviewed.  After all, the entire process of selling the business is very emotional for the owners.  Adding an offer that the owners may feel is insulting or at least, inadequate, only compounds the emotional aspect of this process.  Therefore, a seasoned transaction advisor will help the client understand that the price and terms of the LOI are not meant as an insult and that typically, this is merely a part of the strategy of the acquirer.  It is unlikely, after all, that the terms and conditions set forth in the initial LOI represent the absolute best offer of the acquirer.

Based on the discussions with the client, the transaction advisor may suggest that a counter-offer be presented to the potential acquirer.  If the owners are in agreement, the transaction advisor, as intermediary, delivers the next iteration of the potential transaction to the issuer of the LOI.  This process typically continues back and forth until the potential acquirer either agrees to revised terms and issues a new LOI or withdraws from the negotiations.  This phase of the process is one of the most crucial and is where the transaction advisor utilizes skill and judgment in facilitating this iterative process to a conclusion that serves the best interests of the client.

  • Due Diligence—Once an agreement has been reached, the acquirer then issues a revised LOI delineating the new terms.  At this point, recall, the potential acquirer has had limited access to the target company’s financial information, operations, legal documents, management, etc.  The due diligence phase is where the acquirer delves deeply into the financial information of the company and other aspects to ensure that the information presented thus far correctly and fairly represents the actual financial, competitive, and operational position of the company.  After all, the acquirer’s decision to issue the LOI has been based only on the information provided by the owners and transaction advisor.  To consummate a deal without further verification would be irresponsible on the part of the acquirer.

During the due diligence phase, it is typical to have an audit performed to ensure the financial position is accurately represented by the company’s financial statements.  In addition, the acquirer will likely examine the corporate legal documents to ensure there are no restrictions or irregularities.  Only if the acquirer determines that the company and all relevant information can withstand the intense scrutiny under due diligence will the acquisition process proceed.  In this phase, the transaction advisor remains as the intermediary in coordinating access to information and overseeing the collection and delivery of the requested data in a timely manner.  The transaction advisor plays a key role in attempting to keep the process moving forward at a reasonable pace.

  • Purchase Agreement—Once the acquirer has completed the due diligence phase, they will usually provide a purchase agreement (assuming the target company withstands due diligence).  The purchase agreement incorporates the terms and conditions provided in the previous LOI with any changes or modifications stemming from matters arising in due diligence.  The purchase agreement is divided into two main sections—structuring the deal and representations & warranties.  Structuring the deal addresses issues such as total consideration to be paid for the company, including cash, shares, debt assumption, earnouts or consulting agreements, whether the deal will be structured as an asset sale or a stock sale, timing of any compensation payments, real estate issues including any purchases, leases assumed or leasebacks, and other legal matters related to structuring the deal.  The representations and warranties outline the specific guarantees that the owners of the closely-held company make regarding the financials, operations, products, services, and business conditions.  The section also details the specific ramifications the acquirer has in the event that a representation is inaccurate.

The transaction advisor in this phase will typically review the purchase agreement and consult with the client’s accountants and attorneys to ensure that the purchase agreement is structured in accordance with the interests of the client.  Any recommended changes are conveyed to the acquirer by the transaction advisor and the client’s attorney.  Once the final purchase agreement has met the satisfaction of all parties, the final closing date is scheduled for the signing of the appropriate documents and disbursement of the necessary funds.

  •  Post-closing Issues—Once the final purchase has been signed, signifying the final consummation of the deal in a process that may have taken a few months to as long as two years, the owners of the privately-held business may confront many post-closing issues.  A good transaction advisor will maintain contact with the client even after the closing and their fee has been paid in order to be true to the relationship that has been fostered throughout the transaction process.  The transaction advisor will typically remain available to answer any questions as the owners execute their post-acquisition financial management plans with their tax, legal, accounting and investment advisors.  The transaction advisor also remains available as a confidant as some (very normal) psychological issues arise from the clients finding themselves with a new or changed lifestyle.

The transaction process is a complex and often difficult progression of clearly-defined events that seek to ultimately enable the owners of the privately-held company to achieve personal liquidity.  The process may take as little as a few months, up to several years from start to finish, depending on the size of the companies involved, the acquirer’s desire to consummate the transaction in a particular timeframe, obstacles arising from negotiating problems or differences, and the extent of the owners’ availability and cooperation in seeing the process through from beginning to end.  A typical timeframe for the transaction process is illustrated in the following chart.

Conclusion

The process of selling a company via a merger or acquisition is often more complex than business owners realize.  From the decision to sell the company to closing and transition, the path is often fraught with potential pitfalls that may derail the deal or create unnecessary and unwanted disruptions, which only serve to place additional stress on the company’s owners.  From the discussion above, the privately-held business owner should recognize the need for a strong team of advisors in order to successfully achieve the desired results throughout the merger or acquisition.  As such, privately-held business owners should carefully select qualified, competent advisors who will guide them through the difficult process of selling the company.

Note:  The article was written by Paul Morin and Robert Clinger and was originally published on www.HighlandGlobal.com.

I look forward to your comments and questions.

Paul Morin

paul@CompanyFounder.com

www.CompanyFounder.com

 .

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Jul 272011
 
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What to Sell

Often times when someone is starting a business or looking to expand an existing business, their first question is: What to Sell?

Unfortunately for many, the response to the question is not based on any market research or often times even on common sense; rather, it is often based on what that person or company is good at or what they like to do.  This can make sense in some circumstances, particularly when what you like to do happens to be aligned with what the market is seeking, but typically it is not an approach that will get you the results you are seeking.

A better approach to figuring out what to sell is to go on a search for specific problems your target markets are trying to solve, then create and market a solution to those problems, at a price that is profitable for you and reasonable for your market.

Let’s look at a couple of examples of the right way and the wrong way to determine what to sell in your business.

What to Sell – Example #1: 

Sally is a good cook and she likes to cook.  Her friends and family constantly tell her that she’s a great cook and she should start a restaurant.  Sally thinks to herself, “you know what, I am a great cook and I love doing it … they’re right, I should start a restaurant”.  So Sally finds a location.  It’s a decent location and it already has most all the cooking equipment she needs from the previous series of restaurants that had occupied the space.  Since Sally is good at southern “Comfort Cooking,” she decides to go with that theme and calls her restaurant Sally’s Home Kitchen.  She’s very excited about her new business and happy that because the location already had equipment, she has had to invest less than $100,000 to open the business.  She opens the doors in April.  By September, after several grueling months of very few customers and mounting losses, she has to close the doors.

So what happened beyond entering the restaurant business, which has tremendous competition, is perilous for a novice entrepreneur, and has one of the highest startup and failure rates of all businesses?  Even without more details, the answer is quite obvious of course:  Sally did no research regarding whether potential customers in the environs of the location she chose would have any interest in eating southern “Comfort Food”.  As it turns out, Sally’s case was extreme, as she put her restaurant in an area where people were focused on “healthy eating,” with a predominance of vegetarians and other people focused on “heart healthy diets”.  The scenario could not have been much worse for Sally, but it all could have been avoided with a little research.  When she asked herself what to sell, she would have been a lot better off looking to help customers try to solve particular problems, rather than offer another solution that was contrary to what most people in her area were seeking.

What to Sell – Example #2: 

Now let’s look at an example at the other end of the spectrum:  Proactiv Solution.

If you watch TV at all, you have undoubtedly seen commercials for a product called Proactiv Solution.  It is a product that is used to treat acne, which is a widespread problem, particularly for adolescents.  The product was created to solve a very common problem and it is sold to a target market that is extremely motivated to solve the problem as soon as possible.  As we say, it is not a product in search of a market; rather, it is a product that solves a pressing problem of a very motivated existing market.

When you are deciding what to sell, you can learn a great deal from many of the “genius” elements of the Proactiv launch, which is widely regarding as one of the most successful products ever marketed on television.

So, why is Proactiv a great example of what to sell?  Here are just a few of the attractive elements of creating and marketing a product such as Proactiv:

1.)     It is solving a real problem.

2.)    The target market is willing to pay to solve their problem.

3.)    The problem resides at the emotional level of the target market, so the Pathos element of the Ethos, Pathos, Logos model is already overcome, de facto.

4.)    The target market is easily identifiable and reachable.

5.)    It is possible to visually represent the effectiveness of the product, thus triggering further emotional connection and credibility with the prospective client.

6.)    Although we have no specific information on the profitability of Proactiv, I can virtually guarantee you that the gross margin on the product is extremely high.

7.)    It is possible to offer the product at a price that seems reasonable to the client and still have very attractive gross margins.

8.)    Given the high margins, it is possible to invest aggressively in marketing, thus further accelerating product sales growth.

9.)    The problem is recurring, at least during a reasonable period of the prospect’s life, so ongoing demand from existing customers is likely.

This list could go on quite a bit, but you get the idea.  Proactiv is a great product that, without a doubt, is making a great deal of money for those bringing it to market.  That said, no product is perfect and undoubtedly there are some downsides to it, such as the risks of selling any product that customers are going to use on their skin.  But the focus here is on deciding what to sell, not risk management, and the most important elements of the list above are that the product solves a real problem, at a price that is attractive to consumers and profitable to the provider.

Hopefully these two examples give you the general idea of how you should and should not decide what to sell in your business.  You must be solving real problems and you must be able to do so at a price and cost that will allow you to make a reasonable, if not an extraordinary profit.  Otherwise, why are you in business?

I look forward to your questions and comments.

Paul Morin

paul@companyfounder.com

www.companyfounder.com.

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Jul 242011
 
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How To Start A Business

Even though these days I often deal with entrepreneurs and senior-level managers who are much further along in their entrepreneurial careers, I still frequently get asked how to start a business.  Amazingly it’s often these further along and usually successful entrepreneurs or larger corporations who are asking me how to start a business correctly!  How can this be?!  Didn’t I just get done saying that they’re experienced and usually quite successful already?

As it turns out, many folks who have been in entrepreneurship their whole lives and have attained some significant success have never really thought through how to start a business.  Instead, they have subscribed to the “just do it” mentality.  In my experience, while this approach can frequently lead to success, it a can much more often lead to failure.  Granted, in any large group of people just “throwing it against the wall and seeing if it sticks,” there will be successes, some of them notable.  That said, just because there some successes with that approach doesn’t mean it is the way to go.

In my experience and observation, the best answer to “how to start a business” is carefully and deliberately, but with a great deal of confidence and belief.  Just because you take a meticulous, well-thought-out approach does not mean that you’re not an entrepreneur!  In fact, the best entrepreneurs do just that.  They take a measured, deliberate approach to assessing and starting up each business they get into.  They are willing to take risks, but they greatly prefer to take calculated risks and they are willing to constantly update their approach based on the ongoing feedback they receive from their target market(s).

These days, when I’m asked how to start a business, I provide the following steps.  While it is not intended to be an exhaustive list of what needs to be done, and the order of the steps may change slightly depending on the particular situation, I have used and seen this approach used successfully many times.  As one of my mentors told me early in my career, “you want have a powerful plan that can change”.  You must be willing to adapt to changing circumstances and feedback.  You must not be rigid in your behavior.  You must believe that you can succeed, but you must be flexible.

Here are the “how to start a business” steps.  Posts elsewhere on this blog go into greater detail on most, if not all of the steps.

1.)    Understand profitability and break-even analysis — too many people go into business not understanding these basic concepts.

2.)    Understand upside goals and potential — what kind of business are you trying to create? Does the business you are starting right now match your objectives?

3.)    Screen and sort your ideas/opportunities using criteria that make sense.

4.)    Understand the psychology of markets and niches.

5.)    Develop products and/or services that meet a true market need.

6.)    Understand and select appropriate marketing strategies.

7.)    Deploy appropriate marketing tactics.

8.)    Create a full, formal business plan.

9.)    Strive for operational excellence.

10.)  Replace yourself/sell your “baby”.

It should also be noted that you may choose to raise capital at any point along this process.  However, I would suggest that you should not seek to raise capital from angel investors or venture capitalists until you’ve at least reached Step 5, where you are developing products or services based on a true market need.  Depending on how well you know the angel investors and/or venture capitalists, and depending on how much capital you are seeking to raise, you will also likely need to have a formal business plan completed before it makes sense to approach them.  As discussed elsewhere, angel investment and venture capital don’t make sense for a large percentage of start-ups, so before investing a great deal of time in approaching them, be sure you have a business with characteristics that make sense for that type of equity investor.

I look forward to your questions and comments.

Paul Morin

paul@CompanyFounder.com

www.CompanyFounder.com.

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May 062011
 
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There Is No Instant Success

Deliberate Practice Is The Only Way To Become Great

Occasionally, we hear of a competitor, an athlete, or a person in a particular field of endeavor who “came out of nowhere” and appeared on the scene as a major contender. This “instant success” is hardly ever the case. Upon further investigation, almost invariably, this person has had years of preparation and training, and not just random practice here and there. In order to reach expert level in most anything, according to prominent researchers on the subject (for example, see many of the works of K. A. Ericsson), it takes around 10,000 hours (or 10 years) of deliberate practice. This is a form of practice where you don’t just go out and hit a bucket of balls (for example) each day; rather, you hit that bucket of balls (or 20 of them) with a particular iron, with a particular objective in mind, bearing in mind and noting any issues you had. You then focus in on improving your swing and your approach in your areas of weakness. This is a “continuous feedback” loop that will keep you improving. You don’t just go out and “hit your favorite iron” over and over again and hope for improvement.

I am lucky to have an advisory and coaching practice that spans strategic planning, startup and entrepreneurial development, and peak performance coaching. It is a truly fascinating area, as it deals with human potential and performance, individually and in teams and larger organizations. In my experience and observation, the “10,000 hour rule” really does hold true. While it may not be a hard and fast rule at 10,000 hours, it’s a good approximation of the time anyone will need to invest if they want to reach “master” or “expert” level in their chosen endeavor. Most remarkably, this benchmark is not widely known or talked about, and further, even among those that are aware of it, they don’t often stop to consider the implications. The main implication, from my perspective, is that most people will never reach the expert level at anything. Why? Because even if they do end up doing something consistently for ten years, and most will not, they will not have done it in a “deliberate” way. Rather than have 10,000 hours of deliberate practice, they will have had 10,000 one-hour, relatively random, relatively unconnected experiences.

This reality holds true regardless of the field of endeavor we look at. If you are a golfer, or you understand golf to some extent, think for a moment about how the vast majority of people shoot almost the same score (let’s say within 5 strokes), for 30 years or more! How is this possible? Is it because they are simply incapable of doing better? In most cases, OF COURSE NOT! It happens this way because most of them are not practicing “deliberately”. The easiest way to do so would be to work with a coach who understands the concept of deliberate practice. But it’s also very possible, though perhaps a bit more difficult, to practice deliberately on your own. Do most people do so? No they do not. Instead, they essentially go out and play the same round of golf over and over again. Now that may be OK, depending what their objectives are. For example, if their score really doesn’t matter much to them and they just want to be out there to get some exercise and enjoy themselves, so be it. That is a perfectly valid pursuit. If, however, they are truly trying to become “masters” or “experts” with this approach, they are deceiving themselves. It will never happen.

So does this reality only apply to sports? Not at all. It applies to any endeavor, physical or mental, at which you are trying to become an expert. Think about it in terms of your small business or your job. Do you “practice deliberately”? Do you analyze your weaknesses and constantly strive to improve in these areas, day in and day out? Or do you just stick to the things you like to do and feel comfortable with and metaphorically, like the golfer above, continue to play the same round and shoot the same score, day after day, quarter after quarter, year in and year out? Take a close look. Be honest with yourself. Ask yourself if you are willing to do what it takes to become a “master” or “expert” in your sport, business, field, or other area of endeavor. If not, consider doing something else, as dabbling will not get you anywhere you are likely to want to go.

I look forward to your thoughts, comments and questions.

Paul Morin
paul@companyfounder.com
www.companyfounder.com.

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Apr 292011
 
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I have to confess that I’m not someone who sits glued to the TV watching the royal wedding ceremony and proceedings. In reality, as a entrepreneur, advisor and peak performance coach, I am more fascinated by just how fascinated others are with everything royal, including the royal wedding. As I went into our kitchen today and saw several members of my family watching the ceremony, then I switched on the television in the other room and flipped through a ton of channels covering the same thing, I had to ask myself, what can be learned from this obsession with royalty and royal weddings. So, here are my thoughts.

First and foremost, when you would like to catch the attention of the media, make sure you are providing them with a topic/story that their viewership cares about. If you don’t, you will get zero coverage — NONE. If you do, the sky is the limit on the amount of free publicity you may be able to obtain for your startup or small business.

Second, remember that everyone has a dream, or many of them. And remember that for many, as is apparent based on the media bonanza on all things royal and in particular the royal wedding, people’s dream(s) often revolve around childhood fairy tales and a “real life prince and princess”. Hardly anything captivates the mind of many people more than stories of princes and princesses, particularly those with happy beginnings and presumably, happy endings.

Third, when you can come across opportunities to mix royalty and non-royalty in your story, by all means, do so. This captures the minds of massive amounts of people even more than just the basic royal wedding scenario. Rags (not really, in the case of this royal wedding) to riches stories are what much of the public yearns for. These stories give people hope and belief. Be sure to weave your own stories into your startup (or small business) marketing, as stories are how we communicate and learn best as human beings.

Fourth, in your marketing and public relations, be sure to tie in to major media stories “of the day,” just as I am doing with this post. It helps to keep your content current and it allows your audience to relate your material, whatever it may be, to something that they are currently fascinated by. It can also help from an SEO point of view, if done correctly and consistently over time, but that’s a much longer story for another day.

Finally, where possible, make your marketing more personal. Be willing to divulge a bit about yourself, so that your audience and prospective customers will see you as a person, and they will not see your small business or startup as just one of millions. Help your audience understand that you, like them, are just another “commoner” trying to create your very own rags to riches, little girl or boy grown up, meeting royalty and finding your place in your castle story.

The more you make the growth of your startup or existing small business feel like the wonder and fascination of the royal wedding and the “real live prince meets princess,” falls in love and lives happily ever after story, the more likely you are to capture the attention of the media and your target audience. The connection is not literal, of course, but remember, we live on analogies and metaphors and we make emotional decisions, and then justify them with logic. So even if yours is not a true royal wedding story, make it metaphorically so.

We look forward to your thoughts and comments.

Paul Morin
paul@companyfounder.com
www.companyfounder.com

www.uncoveryourniche.com [free business idea screener]
www.investorpitchtemplate.com [free template for equity investor presentation].

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