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Raising Money For Your Business or Project

Money being exchanged with a handshake

When I started my first few businesses I had no money.

When I started my fourth business I did and in case you haven’t had both experiences it’s 1000 times better to start a business with money than without.

Sometimes though you don’t have money of your own and you need to raise some money for your business or project.

Heck sometimes even when you do have money of your own you need to raise extra.

We devote a whole section and several lessons in our Scale ROI training to raising capital, determining what types of capital to raise when, working through common challenges, etc. but for now here’s a basic overview for you of how to raise money for your business or project if you don’t have it.


Lesson #1 – Raising Capital is Marketing

People sometimes paint raising capital as something special and it definitely has it’s own language terms like:

  • Debt vs equity
  • Security
  • Term sheets
  • Cap tables
  • Valuations pre-money and post
  • Etc.

The difference is you’re selling a part of your company (shares/equity) or a rate of return (debt). In some rare more modern cases you’ll crowdsource or do an ICO or something similar but most capital raising comes from debt or equity and if you’re talking about a very small company it’s almost always equity because debt is considered too risky.


Lesson #2 – Your Offer is EVERYTHING

There’s always smart money for smart deals.

A lot of people are either poor entrepreneurs with poor/non-existent reputations or have poor offers and then wonder why they are having a hard time raising money.

The best way to start making raising money easier is to work on yourself as an expert entrepreneur, build your reputation and improve the quality of your offer.

What is your offer?

It’s what you’re giving the investor or the perception of what you’re giving the investor.

If you’re talking about debt this is usually fairly simple you’ve got credit, you’ve got an asset, you’ve got cashflow, you’ve got security and you’ve got offered rate of return. You can improve the quality of the offer by improving any of these things.

If you’re raising debt then it’s about coming up with a better company, demonstrating better how it’s a no brainer success opportunity for the investor, offers higher ROI and you’ve giving them a bigger share.

Think about it do you want to invest in something pretty much sure to succeed or very risky? The former of course so come up with a plan with a very high chance of success think through everything that could go wrong and find ways to work around those.

Go a step further by demonstrating you know what you’re talking about and can actually execute, usually this is achieved by bringing on team members with a track record.

Would you rather invest in something that could be the next Facebook or best case will be the next local sandwich shop? The former of course so what’s the upside of your business? Paint a vision for what it will become but ground it in reality and immediate actions.

Where possible show traction and how it’s already picking up, signs of early success sell better than anything else.

Would you rather own 1% of the next big thing or 10% of the next big thing? The later of course. Now, obviously, you don’t want to give up too much this is like discounting your product but it will factor into whether people want to invest with you or not.

Lower valuation and higher percentage or better terms will both help you raising the money.

Bottom line if you make a really compelling offer everything else becomes 10x easier.

This should answer the question “What’s in it for them?”


Lesson #3 – Create a List of Possible People to Provide Capital

Getting investors is fairly straight forward in some respects. You need a list of people who have money (it doesn’t necessarily have to be a lot though you need to be mindful of capital raising rules wherever you’re raising money as the process is usually fairly regulated) who fit your criteria.

You can often start with your basic social circle here as well as asking around and/or looking for local angel investor groups.

You start by simply making a list of everyone you can think of or every capital raising hub you can think of.

To expand this list you ask those people and others you know who they know who might be looking for a business to invest in. Very often the people who are looking for investments know others who are looking for investments.

Ideally, those people can give you an intro.

Key Richucation tip here – many people have only one or two people on the list. You won’t close them all so it helps to have a lot of people you can talk to as it increases your chances of success and doesn’t make you as vulnerable to offers from any given person or group.

Final Richucation tip here – start building relationships with these people before you are ready to raise the capital. Keep them updated as you hit key milestones to build their excitement and interest in your project sharing the wins. By doing this when you call asking for money they are far more likely to jump in.


Lesson #4 – Communicating with Possible Investors

Knock off any intimation you might have about capital raising terminology it’s perfectly normal for new entrepreneurs and start-up founders not to understand the fancy investing lingo ask them to explain it to you instead.

Your focus should be on three things:

  1. Your company
  2. How you’re going to deliver results
  3. Understanding the hot buttons of your target investor

Understand each investor has slightly different preferences but they are all looking to invest money to get a return.

Some might say they only invest in real estate or tech or biotech or whatever that’s fine they aren’t your target ask if they know someone who might be a fit and stay in touch, learn what you can from them and treat them well.

You don’t know who they know there’s an expression “a dud can bring you a stud”. Maybe a little crass but true.

The most important point here is don’t get right into pitching your business instead take time to listen and hear what’s important to them then learn to pitch your business or project in the most attractive terms possible.

In a sense this is basic sales.

Entrepreneurs often fall in love with their company or vision but what’s in it for the investor?

What does the investor care about. You probably think your idea is amazing and the truth is it’s probably full of holes, it helps to identify those now rather than later but also don’t get discouraged.

You’ll probably get rejected a bunch of times, that’s normal learn from each pitch and learn to refine it accordingly. You don’t need to be articulate or charismatic to get the results look at the Google Founders or Mark Zuckerburg when they started, nerds!

Realize sometimes a no today just means you need to refine your offer, your pitch, your story more. Failure is feedback, take it and improve then come back once you’ve improved your offer.

Chances are they’ve also got more business experience than you so use this as a free education on things to consider and improve.

This being said don’t take everything they say to heart, opinions are like assholes everyone’s got one and they all stink. Focus on listening to the market more than the investors.

Pay more attention to what the investors say about HOW TO EXECUTE than what your product or service or business should look like that’s where they’ll have more useful and more universal experience.

If they have an objection try asking them how they’d suggest handling it.

Request permission to stay in touch and provide them with updates as you grow they can become valuable advocates.


Lesson #5 – Be Ready to Take the Money

Know what you’re asking for, what you’re giving in return and if they are ready to invest be ready to take the check.

They might require a particular corporate structure or some changes to your structure, it’s best to consult an expert on this it could be perfectly reasonable or could be a way for you to get screwed.

This is also where having multiple offers helps because you can compare them to each other.

Be aware one of the biggest questions almost everyone will ask and you need to be able to answer is “what do you need the money for/how will you use the money?” We call this “use of funds”.

You should have thought through what the money is going to be used for.

You should have thought through how much it will cost and not be asking for substantially more but probably a little more to offer a cushion because your estimates will probably be low.

The amount you’re asking for should usually be enough to bring you to your next major milestone.

Ideally find someone or a group who can provide you more capital if needed there’s nothing worse than running out of money shortly before reaching that next milestone.


What’s Next?

This is just a start your best advantage is going to be learning and there are 3 things to learn:

  1. How to be an amazing entrepreneur and build an incredible business – this will help raising capital more than anything else. This is something we can help with through our products and services if you’re interested check out our Advisory or Products section of the website.
  2. The Language and process of raising capital – this is a pretty quick study honestly, you can read a bunch in online articles, learn from the investors you talk to, as mentioned we cover it a lot in our Scale ROI training.
  3. Marketing in general – this will make your business more successful but will also help with finding great investors and pitching and comes back to point #1

Keep iterating and improving your business, your story, your pitch, your method of finding investors, and you’ll be in good shape.

This is a journey of continual improvement where the fastest learners win.

If you found this article helpful please share it with others who would also find it helpful or share with them what you learned here as it will reinforce your learning. Write a social media post, explain it in a conversation, or write someone an email.

If you’d like to learn more please check out our other articles, free resources, and programs we’re here to give you an unfair edge in being an extremely profitable entrepreneur.

3 Critical Lessons No One Will Tell You About What to Start For Your First Business

I’m often asked by people about what business to get in to.  “I want to start a business but I don’t know what business to start”.  It’s worth taking a lesson from Richard Branson’s book here, businesses are disposable you’ll let them go when they no longer serve you the focus is about the people and in this case investing in yourself.

See if you go into business not concerned so much about that particular business but taking a long term view of learning to make business successful then you’ll buy yourself the freedom to go into all the businesses you want in the future.

It’s not glamourous, it’s not get rich quick, but it’s real taking a long term view will give you a better life than you ever imagined, you’ll be far less likely to be disappointed when you struggle, and you’ll be able to dramatically reduce the risk of starting something of your own.

“Who’s going to pay for the learning curve” – very wealthy businessman and investor to his ex-girlfriend when she announced she wanted to start a juice bar business.

To her the statement came across as cold but the cold hard fact is we all have a learning curve when we get into something new and there’s a cost, usually a very major one to that learning curve.  If you think college, university, or some paid training are expensive try making mistakes in real life and measure what they cost.

With that in mind I’ve learned some very critical lessons I wish I’d followed when I was getting into business that would have saved me tens or hundreds of thousands of dollars and accelerated my success DRAMATICALLY!

 

Lesson #1 – Business consists of two parts you need to learn both to succeed

What is business all about?  It’s about selling something and then delivering on it.

Most people who are getting started in business think of the business in terms of what you are delivering.  For example, it’s a yoga business, a book business, a shoe company, a supplement company, an engineering firm, etc.  Because that’s the part we mostly see and care most about as customers we tend to think of business as being the product or service being sold and this is a great detriment to the success of a new small business owner.

Pop quiz in most cases is it harder to sell something or deliver on what you sell?  For most small businesses the answer is selling.  Don’t believe me?  Go ask virtually any small business owner what do they have a shortage of?  Customers or ability to deliver to those customers?  Most of the time you’ll find their struggle is to get more customers if they had more they could provide for them.

There are exceptions of course, those who have figured out the sales and marketing equation and those are the businesses that are successful.

Statistically, something like 80% of small businesses fail mostly because they go into it thinking only about the delivery and not about the selling.

By contrast you could start a business that is identical to another in terms of what it delivers but different in terms of how it sells it and have that business thrive.

Richucation Hint – When looking to start a business pay attention to how you’re going to sell the product/service

 

 

Lesson #2 – Starting a business is going to be a learning experience your first goal should be to decrease the cost of that learning experience.

Here’s another stat the typical small business doesn’t make money for the first 3 years.  Crazy right?  That’s mostly because they haven’t figured out the sales and marketing equation.

But let’s take that information and backtrack for a minute.

Let’s assume it will take you 3 years to learn enough to actually make money in the small business…or let’s say it takes a year to build momentum regardless so it will take 2 years to learn what you need to know.  This is fairly reasonable.

What does this mean?

It means you’re paying whatever your expenses are each money for 2 years!  This is the cost of your learning curve.  Your monthly expenses multiplied by 24 months.  Possibly longer.

So if that’s the case do you want to start a business where you’ve got expensive retail space and a lease costing you $20,000/mo.?  Or do you want to start a business based from home where you’ve got no lease?  Do you want 10 staff on payroll from day 1 costing you $30,000/mo.?  Or do you want to be a sole operator maybe with one other person?  Do you want to be paying interest on a $250,000 loan or do you want to start debt free?

Consider that cost of your education.  If your monthly expenses are $50,000 vs $5000 then the cost of your education (how much you lose before you start to make money and consequently how much of a hole you have to dig yourself out of is $1.2 million vs $120,000).

In other words, when you’re starting your first business you want to minimize your monthly expenses or what are called your “burn rate” as much as possible.  Later, once you’ve learned what you’re doing you’ll probably end up with a high burn rate and a fair amount of staff in order to scale and make a lot more money but at this stage you want to keep lean…you don’t want 5 or 10 people sitting around while you’re learning…you and your mentors or coaches are the only people you want sitting during that stage.

What’s worse and partially takes people out in business is as we mentioned 80% of businesses fail.  So imagine you put in that time with that expensive learning curve only to have the business fail and then what was all that expense for?

It goes further do you think a business losing $50,000/mo. is more or less likely than a business losing $5000/mo. to fail?

Richucation Hint – consider your first business your education for your second and stay lean while learning

 

Lesson #3 – You can get away without learning delivery but not without learning sales and marketing

Remember how I said earlier that you needed to learn both sides?  That’s not entirely true, to go to the highest level it’s true but when getting started you can get by without knowing much about the delivery side.

Remember how I said most businesses are starved for customers but have no problems delivering to those customers?  Well if you got to virtually any company and offer to send them customers they will pay you for this.  You should make sure you negotiate a good deal for each customer but the point is they’ll pay you.  Literally, businesses will line up for you to send them customers.

By contrast if you’ve got some product or service you can deliver are there people lining up to sell it for you?  No!  Not a chance.  Why?  Because people who know how to sell are mostly selling their own stuff or selling the premiere providers on the market, which is why if you focus on delivery you’ve still got to learn sales and marketing but if you learn sales and marketing you don’t necessarily have to learn delivery.

Now let’s put this in the context of lesson #2 about minimizing the learning cost.

How long will the learning curve be if you have to learn 2 things vs 1 thing?  Theoretically twice as long.  So let’s say of that 2 year learning curve 1 year is spent learning delivery and another is spent learning sales and marketing…now imagine you only had to learn sales and marketing…your learning curve (the amount of time you spend losing money) just dropped from 2-3 years to 1 year.

If you’re spending $5000/mo. that means your cost of learning (the hole you need to dig yourself out of once you start making money) just went from $120k-$180k down to $60k maybe less.  Is that a good thing?  You bet it is!

In other words, yes at some point you’d like to start all your dream businesses maybe you imagine one in gardening and one in architecture and one in fashion and one in media but none of those will succeed without good sales and marketing whereas virtually any of them can succeed with really good sales and marketing.  So learning sales and marketing first is your ticket to freedom.

So how do you do this?

Think of a product or service you already use and already love…ideally one that isn’t already incredibly well marketed.  Now, approach the company that provides they product or service to sell on their behalf.  Almost any company will take you that’s the great part.

Think of how wonderful this is.  You get to promote something you already know is good because you use it, vs having to worry about mastering creating and delivering the product, hiring and managing staff, providing customer service, dealing with warrantees and returns, inventory, theft, etc.  All of those problems are out of your mind and you’re free just to learn to promote something you love and the moment you make your first sale you’ll make money.  It might not be enough initially to cover your costs but you’re already ahead of the game whereas if you were delivering your own product or service you’d still be busy figuring out what to call it, how to design the logo, hiring the customer service staff, figuring out how to train them, getting the phone lines and website set up, etc.

I’m not a huge fan of MLM or network marketing but this is the advantage of those business models.  You don’t have to worry about product development, manufacturing, quality control, inventory, shipping, returns, customer service, invoicing, etc.  All of that is taken care of for you and you just focus on selling, building a team, and training to replicate.  What we’re suggesting you do here is similar but with much higher margins, which makes making money faster much easier.  In other words, instead of getting $5 for every $100 sale you get $30 for every $100 sale.

Be sure you don’t just accept the first offer of what they want to give you to sell their product they’ll be inclined to throw out a number like 10% or something like that.  Generally, you want much higher and you ideally want a residual on the value of the customer as well or some way to get the customer’s repeat orders to come through you but that isn’t always possible.  If you can get it you’ll start to build a residual income that will buy you long term freedom of your time even without needing a team because the company with the product or the service is your team and they’ve got a vested interest in your success.

Richucation Hint – find a product or service you love and sell it as your first business

 

Can you do otherwise?  Certainly, you can start something from scratch inventing a product, you can build your own store, try to do it all from the beginning, etc.  But that’s a short sited approach and will give you a lot more risk and cost you a lot more money.  If you take this approach then once you’re selling one thing successfully you can expand to sell another, then another and so on and eventually add your own products or sell it all under your own brand.  Think about a company like Amazon.  They make very few of their own products mostly they are just a great brand selling the products of others.

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Grinders and Growers

When deciding to go into a business or launch a new product, service, or business area there’s essentially 4 things to ask:

 

  1. Is there demand and if so how much?
  2. Can I buy it for substantially below the market value and how much?
  3. How much and easily does it scale?
  4. How much durability does it have?
It’s usually easy to find things for which there is a market demand and you can buy for below market price.  Virtually any reasonable business has a marketing budget that is sufficient to earn a profitable income.  However, for the most part these are difficult to get big with because there’s a lot of competition and effort unless you catch a short term wave.  These businesses are what we call “grinders” meaning to grow them you’ve got to grind it out day after day.

 

The grind is required in any business but a business that’s a grinder won’t have rapid organic growth.  The #1 thing that’s required to make a grinder business successful, the differentiator is marketing.  You can 100% grow these businesses large and successful but it’s usually a fairly long path.  In the right industries you can sometimes accelerate this path through aggressive acquisitions but then you get into playing a different game, which is applying the above criteria to buying companies rather than just products.

 

The reverse type of business are growers.  Growers are defined by compelling differentiation.  Because they are differentiated they have low competition and if they are compelling can benefit from rapid organic growth as word spreads about them and inbound customers are very substantial as compared with grinders that tend to benefit most from a lot more outbound marketing relative to growers.

 

This is in the DNA of the company if you’ve got a grinder your fate is to grind, these can be great companies but you need to be aware of the importance of the constant push.  If you’ve got a grower you’ll still have to grind, you’ll face other challenges but the push for the market will be less intense making it easier to scale faster provided all other variables hold true.  Essentially, Silicon Valley is largely an environment where entrepreneurs are constantly starting new companies in search for growers and VC firms are investing little bits looking for one that will take off and they can run with it to make all the other work worthwhile. This in contrast to the general business formation environment where most people create grinders to provide them with a living and a lifestyle but without the intention of scaling rapidly into something huge.

 

If you’d like assistance in evaluating an opportunity please contact us.  Click “ask a question” in the lower right corner of the screen and we’ll be happy to assist however we can.
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How Do You Get Banks to Lend You Money?

Banks have fairly straight forward lending criteria; it can be as simple as a formula you learn (and you should learn it if you are looking for bank financing whether a mortgage, line of credit, or other financing).  On the other hand it’s amazing that someone who doesn’t know what they are doing can walk into a bank and ask for a loan and get turned down, then someone else can walk in representing the exact same business with identical needs and get the loan.  What’s the difference?

Your first assumption might be the individual in question has a relationship with the banker, might have better credit, more personal assets, etc.  Those things might all be present and yes in certain circumstances those can make a difference, but those are not the differences we’re talking about.  In this case (and this is an actual example I have personal experience with and have seen happen many times) none of those details were different from the original bank visitor, in fact the second individual was merely acting as a representative of the first.

When I or many others like me did this what did we know and how did we act differently than the first person who couldn’t get the loan?

The answer lies in understanding the language of the banks, what they are looking for, and being committed to getting the result.  When you walk into the bank you need to be focused on what they want in order to be able to give them what they want in order to get what you want.  Banks aren’t out to deny you loans; they’d rather give you the loan provided it meets their criteria.

What banks care about is security, they are generally asset lenders and their most important concern is the assurance not from you but from what’s backing you that they’ll get repaid.  In other words if things go badly how are they protected?  If you can make it next to 100% that they’ll be protected if things go wrong you’ll be very likely to get the loan.

Think about it what are the three easiest loans to get?  First, mortgages, why?  Because the value of the house is typically greater than the amount of the loan so worst case scenario they can sell the house and recover most of their money.  Second, collateralizing life insurance policies.  Again this comes down to the same thing they know there is a fixed value to the life insurance policy so when in doubt they can recover their money from the asset.  Third, loans backed by cash or GIC deposits.  In other words if you walk into a bank and put down cash or a GIC as security the bank will essentially always give you a loan based on that security because they are protected, it’s like they are lending you your money back to you and who wouldn’t make that loan?

First lesson put yourself in the shoes of the lender.  The lender makes money by making the loan so they want to do so.  The lender is generally in a better position when you repay since it’s a hassle to go through the collection process if you default.  The first most important thing to the lender is that you repay.

Second lesson banks determine whether you’ll be likely to repay primarily through three factors.

  • Assets as security such as: real property vehicles, equipment, land, cash, bonds, securities, etc.
  • Cashflow on the personal side this is measured by before tax income, in the case of a business it’s profitability. Keep in mind when it comes to cashflow you need to show track record again think as the lender they want to know it’s steady income and not one time income, in other words do you have the income to make the debt payments?  With this in mind there’s one more factor to consider when it comes to cashflow and this is the relative amount of debt.  In other words it’s all well and good that you’ve got a certain income but if you’ve already borrowed so much money it consumes your whole cashflow then it’s not safe for the bank to lend you more.  This is called the debt service ratio.
  • Credit is essentially a measurement of how likely you are to repay.

Some banks will work and get resourceful to help you and find ways but generally that’s not the case.  Generally, they won’t know what resources you have available at your disposal in terms of different profit centers, different assets, etc. to call on to provide them with what they need so it’s up to you.  You’ll need to understand what types of loans are available to you and how to qualify for them.  For example, typically, lines of credit are more difficult to qualify for than loans for vehicle or property purchases simply because of the security.  Sometimes you can restructure debt to improve your debt service ratio, other times you can provide cross company guarantees to provide more cashflow to support a loan, the list goes.  The bottom line is when you walk into a bank if you do so with the understanding of what they are looking for and what you have available as resources you can present them with plans A, B, and C about how they are going to get paid back, in essence remove the risk from the deal for them and then they’ll be able to do all kinds of great things for you.

There are lots of little things to know that vary from bank to bank, but the above points form the essence of it.  The moment I learned what banks were after and was then able to engage in conversations with them about what resources I had available that I could manipulate to give them what they needed it become comparatively easy to get approved for loans.  You won’t always be able to borrow money from any institution this way, there are times when you won’t qualify, but it gives you a massive advantage.

For further detailed training and resources on this matter please check out our Richucation training programs.

What’s The Best Way To Make Money?

I’ve been following a lot of online forums lately about internet marketing and how to make money online.  Over and over again I hear a similar question asked “what’s the best way to make money/make money online?”  This is typically followed by a litany of options such as “blogging, affiliate marketing, article marketing, creating an info product, a membership site, etc.”  I hear similar options thrown out in other fields such as “MLM, real estate, forex, trading stocks, etc.”  This is an atrocious place to start the conversation and these people are likely to be unsuccessful.  I thought I’d give a brief guide on where you should be looking to get the optimal results.

First, start by realizing that there is only one way to make money and that’s by selling something be it your time, your product, someone else’s product, eye balls, someone else’s time or product, etc.  The bottom line is the focus of making money needs to be on selling.  Every successful business is a sales organization, always and without exception.  So, for example, blogging or writing a book or article marketing won’t make you any money.  Selling a blog, or selling a book, or selling articles, or selling advertising will make you money potentially.  The starting question then is “what are you going to sell?”

Quick interjection here, some people might believe the initial question is “who are you going to sell it to?”  In building a marketing campaign that’s accurate but fundamentally you need something to sell before you can decide who to sell it to.  It is possible to look at a market find a gap in that market and fill it and understanding your market is critical but understanding your market won’t make you money, only selling something will make money.

So what to sell?  Understand that expertise adds value now and forever, in other words the best things for you to sell are things you’re an expert in and you might not be an expert in anything right now.  If that is the case you need to develop some expertise and the best thing to develop expertise in is something you’ve got a pre-existing interest in.  Trying to pick something you care nothing for and trying to become an expert in it can work but generally isn’t advisable because it can crush your motivation.

This area of interest will determine the industry/market you’ll be entering for example magic, or health, or dating, etc.  Generally, the more specific the better, though you can become too specific and consequently narrow your market so it’s too small.  Don’t be concerned about being too narrow initially just pick an area you have an interest in and have expertise or develop expertise, you can always widen later.

You might be asking doesn’t building expertise take a long time?  Yes, it does, this isn’t an overnight process it’s going to take learning but it’s going to be worth it long term.  There are lots of people trying to make money overnight, most of those people end up going broke fast, be committed to long term success and you’ll do much better the whole way along.

Having identified your market or industry you’ll be faced with “what do you sell within this market space?”  Here you need to recognize that you can sell anything, but what you sell will affect your lifestyle choices.  To quote Tim Ferris from “The 4 Hour Work Week” “I was sick of services and needed a product to sell”.  The message here is selling different things might be possible but each has consequences.  For example, if you were going to sell advertising then the key would be to produce a steady stream of content to attract an audience, which is what the advertisers will pay for, examples might be news, blogs, podcasts, online videos, etc.  If you’re going to sell services you might find you’re geographically restricted and you have to be present to deliver the service.  If you’re selling products you might have to physically purchase and ship them (though you could resell someone else’s products and use drop shipping), if you sell information you can deliver it easily electronically with virtually no capital investment required but the average dollar sale is typically lower.  Long term you’ll probably want to expand into multiple areas to maximize your assets but you need to start somewhere and where that is will depend on what resources you have available and what lifestyle you’re pursuing.  Typically the fastest easiest way to make larger amounts of money is by selling services, this is because your time adds value not found in other areas and each sale can be worth quite a lot.  Selling advertising takes a while because you need to build an audience so isn’t great if you want money quickly.  Selling products often requires up front capital so isn’t good for those who don’t have capital.  This means for most people getting started selling information, or services, or selling for someone else (affiliate) tend to be best because you can lower the capital required to get started and decrease the cycle time (services and affiliate sales are the fastest cycle time).

A quick note about being an affiliate, often people jump into this and they can make money at it, but the best way to do it is to be an affiliate for something in a field where you have an interest and expertise.  For example, what do you buy?  The reason this is helpful is because many people will get into a business only to discover what they are promoting isn’t that great and they have to invest in changing whereas if you have expertise you can promote what’s best and you’ll build sustainability, which offers better returns and is easier to promote.

The situation is a little more complex than this though, to make money at something you need to be able to not just sell it but sell it profitably.  What this means is your costs need to be low enough relative to what you’re selling it for that you’re keeping some of the money you bring in.  For many people this is the hardest part, anyone can make sales, but to make sales profitably is quite another matter.  This is part of the reason being an expert and selling something outstanding is helpful because it will make it easier to sell and potentially allow you to sell it for a premium but you still need sufficiently high margins to make it worthwhile.  Look for products where what you’re getting for selling them is higher for example say you’re acting as an affiliate for internet hosting services.  Yes, you want to select the best one, but you also want to select ones that will pay you well and that tend to convert well.

You also need to look for something where you can make repeat sales; this is where building a list comes in.  Understand this, virtually all the profit in business is made off repeat business.  The costs to get the customer to buy the first time will almost always eat up virtually all of your profit on that first sale, so long as you’re breaking even or slightly profitable on that first sale you’re in a good situation…assuming you can make subsequent sales to them because your cost to make those sales will be much lower.  In other words look for something to sell where you can get them to come back and buy something else, there’s very little money in one time sales and you have to be good at it to make it work.

There’s something else, your fastest, easiest, cheapest sales will come from people in your immediate circle, so pick something to sell that might appeal to people within that circle, it will give you someplace to start and build from.  This can apply to any area, products your friends buy, subjects your friends are interested in (in the case of providing news, information, etc.), or services your friends (or their friends) want or need.

That’s as good a start as any:

  • Focus on what you’re going to sell
  • Pick an area you have expertise in or develop expertise in an area you’re interested in
  • Sell something that supports you where you’re at and where you want to go
  • Sell something with good margins so you can do so profitably
  • Build a list and sell something where you can have repeat sales
  • Sell something your existing circle is interested in to kick start the process if possible

You’ll notice we haven’t talked about whether you should blog or article market or use PPC or social media or solo ads or print or direct sales, etc.  Those things all come later once you’ve got these fundamentals established.  Once you have those fundamentals established you look to answer the question “where are my most profitable buyers?” and then invest in marketing to them through those channels using compelling offers.  Test and measure what’s working, correct and continue.  That’s the formula.  For example, if you’ve decided to sell an information product on rose bush care you might do keyword research to see if people are searching for anything related, test it with PPC and then do SEO.   On the other hand maybe they aren’t searching for it and so you need to look at guest blogging on related blogs for people who love gardening, or get in the media, etc.  You need to do that research after you’ve determined what you’re going to sell and in fact you don’t even need to have anything to sell in order to do that research.

One of the best things you can do is test your assumptions by doing market research prior to producing the product to make sure there is sufficient demand.  This again is where going for something you’re interested in and some people in your immediate social circle are interested in is helpful because that proves there’s at least some demand probably fairly reasonable demand if you know 5-10 people who are interested because that’s a pretty significant percentage of the total people you know.

Start there and then come back to us for the next steps.  Contact us with any questions you might have by clicking “Ask a Business Question” in the lower right of the screen.

What Would Make Me Invest With YOU?

I was approached the other day by someone looking for investors in a new business asking “what do you consider?”  Essentially, they were asking “what do I have to do, say, etc. to get you or someone else to invest?”  You’ll hear lots of different opinions about “what investors are looking for”, and mostly those generalizations aren’t worthwhile because investors come in all shapes and sizes, about the only completely predictable group of investors are banks, who are really lenders not investors, but that’s another matter.  The lending criteria of banks isn’t the subject of this conversation though.

The point is any business idea can get funded regardless of what rules it may appear to break or not, simply because of the range of investors.  For example, it’s common to get friends and family to invest in a new company (please note I’m referring to a new business here as somewhat different from what I’d define as a start-up, which is more the game of silicon valley and angel investors) and family will invest in some cases based on helping family members not based on a solid investment criteria.  This being said, it isn’t a reliable way mindset to take when seeking investment and there are definitely things to do to increase the investment potential.

Let’s start with the basics; investors are looking for a return.  In other words the basic law is “capital wants to grow”.  Your job in seeking investment then is ultimately to persuade the potential investors that their capital will grow by investing in your business.  The corollary of this is they don’t want to lose money; preservation is a necessary part of production.  Yes, you can convince them what you’re doing is cool, or visionary, or any number of other things, but from an investment standpoint there are the core elements of mitigating the risk of loss while offering a reasonable, ideally great, rate of return.

Essentially, you need to demonstrate how you’ll generate sufficient profits and growth in shareholder value relative to the capital invested.  What does this mean?  If you’re losing money most likely so will the investors so the investors are going to want to know how you’ll make money, the more of it the better.  There are rare occasions where you can lose money and make it up when selling the company but that’s a different game and we won’t discuss it here, so let’s focus on profit, which is the heartbeat of sustainability and growth.

The obvious piece that follows is your costs will be lower than your revenues, which means you’ll need to be able to show both how your costs will be manageable and your revenues will be strong.  This is where a potential investor had told the particular individual who was asking for advice “if I invested in your business I’d have to know where every penny was going”.  This was much to the ire of the person looking for the investment and all investors are different but it belies an important point.  You should know where every penny is going in order to better manage the use of someone else’s money.

The most important thing is proving sales.  This is why it’s so much easier to raise money after you’ve gotten started than before and one of the best ways to raise money when possible is to go get some sales (pre-orders) and then take them to investors saying “look, I’ve already got these pre-sales, I need financing to deliver”.  If the numbers work that can be a slam dunk investment.  This is also where if the investor is a potential customer you’ve got an advantage.

There’s something more important than all of this though, which was the message I delivered to this individual and it might sound harsh but it’s worth noting.  I often meet people struggling to raise money, they often think it’s because they don’t know the right investors or don’t have the right pitch etc. and those things make a difference but not nearly as much a difference as this thing.  Money is attracted to growth, the moment you’ve proven you can provide consistent returns you’ll have little trouble raising money.  Think about it, it doesn’t matter what it’s for, Warren Buffett would have no trouble raising money, purely because he’s Warren Buffett.  This is why the United States has a virtually unlimited borrowing capacity because the United States is very credit worthy.  In other words you are the biggest factor in whether you can raise money.  What I told this person is I probably wouldn’t invest in them no matter what because it was them doing it.

This isn’t to be mean; it’s simply that the person had absolutely zero business experience.  They don’t understand costs, or marketing, or management, or leadership, or team building, or operations, or assets, etc.  In other words I know they are going to go through a huge learning curve in growing that company and I’m going to have to pay for that learning curve as an investor.  You have to learn before you earn and I’m not earning on someone else’s learning.

Does this mean they can’t make money?  No, certainly not, they might well succeed and I hope they do, but it’s very high risk because of their lack of skills.  Does this mean no one who has never run a business is worth investing in?  Certainly not, the question isn’t whether you’ve run a business the question is what are your skills, often the best people to invest in are people who have worked for someone else within the same field and are striking out on their own because they know most of what they need to know and just need some capital to get started creating an opportunity to prove that expertise.  In other words you develop the expertise before you show the results of the expertise and as an investor you get a much better deal investing before there’s a track record because there’s less competition from the market (you wouldn’t get very favorable terms investing with Warren Buffett).

So, what do you do if you don’t have the expertise?

You could go try raising the money anyway and there are people out there who will invest in you if you look long enough and work at it hard enough.  But I’d recommend two other strategies the first is find a way to develop the expertise.  The best options here tend to be go work with someone whose got a business helping to grow theirs or take some training (note training not information learning, reading books doesn’t give you the skills nor does listening to talks to seminars) such as the Richucation training.  The second is to find someone with expertise to join you in an operational capacity.  What this person who approached me would need in order to get me to invest would be to come with a partner who had expertise who was going to help them run and grow the company.  They’d still have to show me a solid business model, etc. but having someone with expertise could be the make or break factor.

If you’d like training on growing a business as well as learning how to raise money please check out our Richucation training programs where we walk you step by step through the skills development and process of becoming rich.