Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Rick Brimacomb,
Brimacomb & Associates:
612.803.3169
ri**@*******mb.com
www.brimacomb.com
Jason Voiovich,
Ecra Creative Group
651.209.2778
ja***@**********ve.com
www.ecracreative.com
by Rick Brimacomb and Jason Voiovich
BE HONEST. When was the last time you heard a story like this?
A start-up venture has come up with a killer idea. Put simply: a stomach clip. Taking the place of expensive, dangerous and permanent gastric bypass surgery, the stomach clip is minimally invasive, removable and performs the same function.
For millions of potential patients, this seems like a dream come true. So why can’t the company get any money?
At first blush, it might seem as though the “vulture capitalists” simply want too much – too much control or too much ownership. In reality, however, that is rarely the case. More often, failure to attract the attention of a venture capitalist comes down to three key problems: not having the right people on your team; not understanding the business’s true market potential; or not offering the correct product for that market.
Case in point: eBureau, based in St. Cloud, is a customer assessment service provider. In other words: business intelligence. If you are in the process of launching a new product and would like to know which features of that product will be the greatest influence on the buying decision, eBureau will use its proprietary software to analyze the likelihood of each possibility and provide that data for use in your development process.
Of all the nuances in the business model, one fact stands out: 30 of the first 36 of the employees at the new venture had worked together before. As eBureau is forced to change, the team will be more likely than not to be able to work together to meet those unforeseen challenges.
No matter how sharp your idea is (or perfect for the moment) the reality is that we do not operate in a fixed business environment. Management talent, as well as its ability to work cohesively, is the most important consideration for a venture capitalist.
Case in point: A new surgical approach to disc replacement surgery. Only 5 percent to 10 percent of all those who need a disc replaced due to low back pain actually get the surgery right now. Why?
Approaching the surgery from the front of the body (anteriorly) allows for a simpler artificial disc, but is a much more complicated surgery. Most baby boomers who need the surgery are not good candidates because of the risk.
Approaching the surgery from the back (posteriorly) requires a more sophisticated implant but the surgery is significantly less complex. Florida-based Disc Motion has solved the technical problem. By developing a more complex implant, surgeons will now be able to take the easier approach (through the back) and achieve the desired outcome.
It is not important on first glance to understand the technical details, but rather to examine the market potential. If only 5 percent to 10 percent of a population can get corrective surgery now, what could this product achieve? Perhaps not 100 percent. But 70, 80, 90 percent? Absolutely.
Your market is more important than your product.
Disruptive products redefine markets and create the largest potential opportunities.
Broad market trends including expanding immigration and aging demographics speak to sustainable business investments (as opposed to temporary market drivers such as Sarbanes-Oxley compliance).
One-on-one sales: Does your product make sense when one person sells it to one other person? It is the lowest common denominator in the sales process.
Venture capitalists are not interested in 1 percent of a large market, no matter how good the market is. They are interested in a majority position in a new market that your product or service will create. Why? Stealing even a 1 percent market share from entrenched competitors is hard.
Case in point: Consumable Media – reinventing the movie rental market. It used to be that you would drive to a store to pick out the latest new release. Now many people rent movies online. Still more choose the Red Box at the McDonald’s for $1 per night.
The problem with all current models is simple: The movies have to be returned. In the case of online rental services, that means the company needs to pay for envelopes and postage. In the case of store/kiosk operations, it is up to the customer to return the product. But what would the customer really love? To not bring the movie back, of course!
Consumable Media is doing just that – making the DVD a consumable. The technical solution is (on its surface) simple: the DVD is functional only for a set number of viewings. After that, it will not play. You take it home, watch it and never return it. Regardless of the business and technical challenges, Consumable Media has developed a product consumers are sure to love, forcing the market forward.
Can you drive a wedge into a market and carve out a niche? Better yet, can you create a new market by making an old one obsolete?
How much customer education is needed? Does the product seem to make sense to people? Edutising (educational advertising) is expensive. Products will hit the market more quickly if they can be understood very fast.
Forget the 30-second elevator pitch. That’s great for an investor, but a buyer is a different animal. You have 10 seconds, tops.
“The right product” is last on our list for a reason: It is the one thing all venture capitalists know is most likely to change, but that the entrepreneur thinks is the least likely to change.
Even after building the right team, capturing the right market, and developing the right product, are you assured of success? Of course not.
But what you have done is position yourself for the best possible odds. When you get an audience with a venture capitalist, you will have the insight into how that person is evaluating your business opportunity.
