Full Steam Ahead
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The rice fields spiraled below me. From the air, the flooded paddies reminded me that I was entering a foreign and exotic land. Although I had performed months of recon, I was unprepared for the feeling of irreversible change. My whole future revolved around the successful completion of my mission. I had left behind my home of 16 years in search of a golden future in this unearthly place-Northern California. My comfort zone vanished into thin air.
I had one suitcase, a duffel bag and a briefcase stuffed with a laptop. My most sacred possession was draft 22 of a thorough business plan full of information-painfully heavy, I mused, as the rain slapped against the windshield a few hours north of Sacramento.
This is not a story of blind luck, instant success, or starting a business with seed money from a kindly uncle. This is about starting a new national chain of retail stores called Victory Mobility Centers with an old laptop, an idea, and the purchase of two existing stores as a starting point. What I've learned on my quest for business ownership could make you millions-or at least save you from wasting time on a half-baked idea.
My journey started on a bleak Texas day in early January. For nearly a decade, I have contributed or reported on the business success of others through my writing and consulting. Suddenly, that was no longer enough. I started searching through my stack of Entrepreneur magazines for an answer to what my future would hold, when I saw a blurb about Ability Center, a San Diego business that sells mobility devices such as wheelchairs and minivans adapted for the physically challenged. The business was growing at a rapid clip and was in a position to help our aging population-a business that makes you feel good about yourself. A smile crept across my face. Days later, I was on a plane to San Diego to visit Ability Center. That was three years ago.
The Workable Deal
We all need to find our "workable" deal. The hallmark of an entrepreneur is the capacity to dream. Yet most of the time, people seem to be content to wish for something. Wishing is what happens when you buy a raffle ticket. The key to a more realistic vision for success is to discern what is workable for you and what isn't. Success depends on the concept, your team, the presentation and your timing.
Working the workable deal means sweating the details and producing a plan you can execute. Be realistic. If your team has never worked in an ice cream store, don't pitch a plan for global domination of the ice cream market.
It isn't wise to broadcast your plans, but our market will grow by no less than 10 percent per year for 15 years. Current customers are underserved by small operators who don't advertise and are undercapitalized. The service helps the aging with their needs for everyday living. There's no national brand, and the whole market segment is about to bust wide open, because baby boomers will fuel it with their decreased physical mobility and unprecedented earning power. Our concept is a category killer with the right people behind it. The day we close on the acquisition of two of the industry's leaders, we will be the fourth-largest company of its kind in the country. Two years from now, we will be the largest in the nation.
What you just read is known as "the elevator pitch." It's designed to attract attention to the value of your proposition. If you can't articulate what your business is about in one minute, you may never attract the talent or capital you need.
The meeting in San Diego would begin a year of frustration and false starts. Many business owners love to be courted by potential purchasers. The idea of selling and leaving the daily grind behind is compelling. But when it comes to actually signing a deal, many founders can't part with their babies. In San Diego, no amount of cajoling, bonding or alcohol would create a workable deal. The owner of Ability Center wouldn't agree to anything until I had a few million dollars in the bank. Investors don't put millions of dollars in the bank until you have a binding deal. This is the conundrum for those without sufficient capital. I learned the importance of creating a binding letter of intent early on-it gives you time to raise capital and do due diligence. When you visit potential investors, having this document shows you're serious.
Without a binding letter of intent, my potential deal in San Diego was dead. Then the phone rang. It was a consultant who had worked with the owner in San Diego, and his message was simple: "I scrutinized your plan. I feel your vision is right on, and I want to work with you." I had my first team member. That was two years ago.
- Explain the pain in the marketplace that your concept will relieve
- Accurately point out risks to your plan
- State clearly how much money you need
- Have an experienced team in place
- Have a logical and sensible investor exit strategy
The Team, the Results & the Future
To raise capital, you need a plan and a team. I have to agree with inspirational speaker Baggett Byrd when he says, "Show me your friends, [and] I will show you your future." Great advice, but all my friends are looking for their own seed capital. My new partner and I don't have $4.6 million, but we did know people we could talk to about joining us. We hit the road to find another seller and more team members.
Consultants, accountants and lawyers will be your best friends-as long as you pay them. In my case, I needed advisors with great contacts, and technicians willing to work long hours for free. To attract this kind of talent, you need a plan that has a lot of blanks in the "Management" section.
Your goal at this point is to outline your vision and add people who will propel each other to success. The qualities of the people on your team will attract others. It also helps to create momentum by adding top-notch talent.
One of our big breaks occurred when I approached C5 Partners with draft 13 of our plan. C5 Partners is a Dallas consulting group that helps potential hypergrowth companies prepare for financing. C5 was excited about the idea, but I couldn't afford their monthly retainer. I had to find a solution.
Amazingly, people who share your vision will help without immediate return, as long as you're willing to share. I've found that the people who are the most concerned about what they can take from a deal are the ones who will frustrate the process or drop out early when the workload is steep. Weaker players insist on the most security upfront, because they fear their inadequacies will be uncovered.
In the case of C5 Partners, I told them we could not pay their retainer, and, if they wanted to be on board, it would have to be for a piece of the equity. A week later, we had a signed contract, granting them a big chunk of the company-but only if they succeeded. That's when the real work began. That was 18 months ago.
The Long Haul
Not long ago, I attended a workshop where one of the featured speakers had won an Academy Award for best original screenplay. "Yes," he said, "after 10 years of repeated rejection, I became an over-night success."
In context, this statement was not only about perseverance, but also about timing. Business investment goes through phases and trends. Your timing must be right. For example, in 1999, if you were not the champion of some Internet concept, capital firms weren't interested. Today, investors are seeking strong potential for a consistent return. If you show up with a scheme for the Internet, it had better be an extension of an already proven business model. Investment firms formed to handle high-tech companies are now taking a closer look at low-tech businesses. So if you have an old business plan on the shelf, it may be time to dust it off.
After 18 months, draft 42 of our business plan has been finalized and is ready for submission. I've spent $10,000 of my own money and about $100,000 of my time. Every holiday for the past two years has been spent in pajama bottoms with a bottomless cup of coffee as my glassy eyes bore holes into my computer. My obsession kept me in the office on Christmas. The consultants will permit no shortcuts, evasive answers or uneducated conclusions. This is the "work" in the workable deal.
We submitted our business plan to some A-list investors, and it feels as if I just spent $110,000 on a lottery ticket that has a 50 percent chance of winning $13 million. I've pitched the project to interested investor groups, and one group in particular is scrutinizing the thoroughness of our thinking, preparing to make their investment.
I am now in Northern California as the general manager of Nor-Cal Mobility Inc., a store we have a binding contract to purchase. The furniture in my quarters is made of cardboard boxes, and my bed is a mattress on the floor, but I don't despair. In fact, I feel empowered. The owner has also joined our team and signed the sales contract, knowing full well that my checking account had $2,500 in it at the time. He is subsidizing our inevitable success, and I am helping him prepare for growth. Key people in the industry have approached us and have expressed a desire to join us. The seller's controller has burned the midnight oil with me. The train has left the station, and there are many who wish to ride with us.
I wish I could tell you that this story has a happy ending, but I can't, because too many hurdles remain. In my years as an attorney, I've seen fully negotiated deals fall apart at the closing table. It's amazing what an adrenaline high this journey has been. The harder you work on something worthy, the more you appreciate it. Right now, our collective business dream is like one of those trick birthday candles-many have tried to blow out the candle, but it just keeps relighting itself.
The next step will be to negotiate with the investors about what we must be willing to lose in order to use their cash. If that doesn't work out, we will start again, because the only thing more painful than discipline is the pain that comes from regret. It would be crazy to let this vision die. I can see the day when the funds hit our account and the morning we change the signs on the storefront. They tell me that's when the real work begins.
Today, we have a phone conference with the newly formed board of directors. Our recently appointed chairman of the board is Nathan Morton, former chair and CEO of CompUSA. In the spirit of making this deal a workable one, he has also agreed to defer his compensation until we are funded. In a week, we'll hear from our potential investors. Things are good. Could we have our check, please?
- Make vague or unsubstantiated comments or claims
- Exaggerate growth or income claims
- Overcompensate your team or be greedy in allocating equity to investors
- Let your competition know of your plan
- Send a mass mailing of the plan to venture groups
is a franchise attorney and small-business consultant.