In recent years a number of investment and financial readiness initiatives have been launched to the SME world, these have been designed to raise awareness of what businesses need to do to raise funding. Whilst these have a place in supporting enterprise, many have failed to take into account the time, effort and resource needed to be “really prepared”. Securing money to drive growth whether debt or equity is more than crafting a well-presented business plan and forecasts. Many of the challenges linked to fund raising lie in an organisations fundamental operating systems, management team and business model. A significant number of entrepreneurial SMEs fail to display good housekeeping. This makes them unattractive to potential funders.
My experience is that many entrepreneurs are just not ready to pitch to an investor or bank when the need for funding is identified – often they require a sort of MOT well in advance of their pitch. In many instances structural changes are needed within a SMEs operation – when solid foundations are in place a robust case can be confidently proposed to an investment or relationship manager. This puts key decision makers within financial institutions in a stronger position when they, in turn, make their case to the relevant credit committees.
Entrepreneurs can lose credibility with investors and banks because their business plans cannot withstand scrutiny of a due diligence or credit appraisal process. I believe there needs to be a higher level of awareness and education within the SME community as to what banks and the broader investment community need to see within a financing proposition. SME’s should never forget that the credibility of a financial forecast is built on the effectiveness and robustness of its systems, people, processes and service/product propositions. These latter issues seem to somehow often get overlooked. A failed pitch can close the door on investors or banks for months and in many instances, years.
Broader and closely related issues to fund raising would suggest that many entrepreneurial businesses often:
- Lack absolute clarity of strategy, vision and planning
- Spend too much time in the business and not on it – fail to look at the big picture
- Lack effective management teams, this puts funders on the back foot when it comes to assessing an organisations capability to deliver the plan
- Become slaves to their business and lose sight of the growth plan
- Hallucinate – their vision/strategy is a wish list
- Have financial systems and controls which are not fit for purpose
- Fail to build relationships with their funders and last minute request for funding, often when its too late, is commonplace
Because of the entrepreneur’s lack of awareness of what funders want, financial institutions have come under significant attack for poor lending strategies. Whilst this maybe true in some cases, my experience would indicate that there is no lack of funds for well run businesses, commercially viable ideas and sound new ventures supported by a strong management team. The gap often lies in what the entrepreneurial SME fails to understand about both the process and the quality of their business model. Growth hungry entrepreneurs should spend more time “living in the funders world”.
The constant doom and gloom we hear through the media really is not very helpful to the entrepreneur out there trying to build a life from him/herself and family. The reality is for many of us, the Euro crisis and all that other stuff going on does not have a direct impact on the success of our company. You can’t change what going on in world markets, so don’t get drawn into it, focus on the things you can effect.
Live in your own “micro climate” – staff, market, customers, new products, think differently, experiment with new ideas, discover new partnerships, think collaborate!
There are good things going on and despite what the media says there is help for SME’s, the new BIS service – GrowthAccelerator (www.growthaccelerator.com) is a great example of a fantastic service that will help entrepreneurs to build a better future – help for planning and strategy, innovation and getting yourself ready for investment…….
There are good things going on and smart people are doing great things – please can we celebrate a bit more!
I was really honored to be asked to present the fast growing business award at last weeks North of England Excellence Dinner. The winner was 3P Logistics and at the end of the ceremonies I made a beeline for the winner, Ian Walker, I wanted to get his view on what it takes to build a high growth company. It was clear the moment Ian started talking he had a passion for his business that was off the scale – it created an instant engagement which meant you had to listen to what he had to say. The guts of his story provided a truly fascinating insight into the motivators for setting up and growing a business. As well as passion, courage and bravery feature high on the list of special qualities – leaving a highly paid job when you have dependants can be an extremely scary moment in life, this is what sorts out the true entrepreneurs from the dreamers. This takes an enourmous amount of guts – fear is what holds so many individuals back from taking the leap.
A few years down the line new dilemmas and challenges are presented to entrepreneurs like Ian. They become most profound at the point when the company is providing a comfortable life style – the internal conversations usually goes something like this, do I take more risk and go for it again and build an even bigger business? However, so few are willing to subject themselves to the burdens and stresses that got them to the well deserved position of a regular salary and the associated benefits that come with being your own boss.
Well my advice for those who decide to continue going for growth is, find a mentor first, someone you trust, then together work out how you are going to do it – the following are what I refer to as “The Essentials” –
- Become future focused and prepare a strategy and game plan which sets the course for the next three years
- Understand the best ways of financing growth, one that balances personal risk, commercial gain and control (or loss of control)
- Effective leadership is core to success. Building a team/organisational structure you can rely on to support the business transition is vital
- Embed disciplined management systems to provide an effective barometer of commercial performance – the bigger you get the tighter the controls need to be
- Ensure you have created a customer focused culture, one that delivers innovative product and service propositions carrying higher margins
- Ensure you have a differentiated business model – one that creates real competitive advantage to support domestic and possibly international growth
- Condition your mindset to win and success.
- Ensure you have the support of your partner and immediate family
Having trusted advisers and being part of a network of likeminded people becomes an important part of the journey it also helps to maintain your sanity.
It’s been a great week for the High Growth Foundation. To a packed crowd John Ashcroft delivered a massively honest, and insightful presentation for ambitious entrepreneurs. It was a great story with loads of valuable lessons for those looking to get their business to the next level – he warned the audience “an IPO is not an exit strategy”, I know this saved one HGF member loads of time/effort and energy as he was just about to embark on one!
His key messages were:
- Vision – define just exactly what you want (marketing, MD, Chair, City Whizz)
- Business plan – analysis of what you have got and what you need it
- Market map – a complete framework analysis or jigsaw
- Building the team – the art of biting your tongue without drawing blood.
- Develop the culture – Is this the business I work in. Sharing the vision
- Corporate strategy understand the basics
What I took from John’s excellent presentation was the importance of understanding your market, the environment and what’s happening, it brought to life the real meaning of Living in Your Customers World. Understanding yourself, competitors and market place do actually create the conditions for winning. When this is fused with tight financial, operational and commercial control – as Jim Collins puts it disciplined entrepreneurship results.
It also taught me that without mavericks the world is a boring place and nothing gets done – we need more of them.
I heard on Radio 4 this morning details of the Business Growth Fund to support SMEs. Having spent time looking around the well put together web site – I then navigated to the application bit of the site and this is what it says:
Target companies that typically turnover £10m to £100m per annum and have been operating successfully for two or more years
Firstly, this rules out a massive amount of the SME population, I would guess over 70% and probably more. Secondly, successfully operating for two years or more???? how many companies do you know that have grown to £10M or £100M in two years? This is quite disappointing news for those SMEs who have built up say a sub £5M business over a number of years but have great potential. Achieving £10M in 10 years is a massive achievement – to be honest there are not many of these either.
Just flying off to the moon to get a brew…..Madness
We have heard so much about the importance of high growth companies to the economy going forward – 6% of SMEs will deliver in excess of 50% of new jobs over the coming years. Well my question is, are the banks on board to support ambitious individuals with big dreams and good ideas…..yes but…really on board? We hear that the banks are pushing out money to entrepreneurs but at what cost. Well my anecdotal evidence is…the money is available but at great personal exposure to the entrepreneur. The PG requests and unrealistic demands on individuals with dependants still astounds me.
High growth often equates to high risk. If we are going to encourage the next generation of significant employers we must ensure that there is balanced risk on both sides. At the moment what I see is this – the bank will provide the money as long as your house and all other personal assets are put on the line. How many people are willing to do this? My experience is very few.