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Tips for entrepreneur investor engagement 23 Aug 2016

A June 2015 study by Approved Index, a UK-based business-networking group, ranked a number of African countries at the top of the list of the most entrepreneurial countries in the world. Uganda was ranked number one, while Cameroon and Botswana were placed fourth and eighth, respectively. In fact, developing countries ranked better than developed countries because entrepreneurship is a ‘necessity’ in many developing countries. The study states that, “When unemployment is high and the economy is weaker, people are forced to start small businesses to provide for themselves and their families.”
    
At the 2015 Global Entrepreneurship Summit (GES) in Nairobi, United States President Barack Obama talked about entrepreneurship and its promise for Africa. As the key to addressing youth unemployment, he said, “Entrepreneurship creates new jobs and new businesses, new ways to deliver basic services, new ways of seeing the world — it is the spark of prosperity.”

So you have a great business idea

However, being an entrepreneur is not for everyone. I suspect I am not alone in thinking that I had great business ideas. The problem was that I never went ahead and did anything with these ideas. I eventually figured out that I was better at advising and investing in entrepreneurs rather than being a true entrepreneur myself. So I am always impressed with people who take that step of setting up their own business and try to grow it with all the pain and pleasure that go with it.
    
I know people who have succeeded and others who have not. Some have gone back to being employees after the trials and tribulations, whilst others have quit working altogether. There are those who succeeded and have gone on to build large successful businesses. The general consensus seems to be that it’s tough starting your own business. However, it can be rewarding. It also teaches you invaluable lessons and gives you experiences that you would never have had as an employee. And running your own business does have its upsides: More control, no boss, choice of working hours and the potential to make it big and to see your sweat and tears reflected in money in your own pocket.
    
So the next step to a business idea is to actually do something about the idea. But do what? Lots of things. But here are some of the more important ones from someone who is not a true entrepreneur but who deals with entrepreneurs regularly.
    
Articulation: You can have the best ideas and be the smartest person in the world; but you need to be able to sell your proposition. This selling process starts at the beginning and it is a continuous process – from selling the idea to your friends and family to potential partners, investors, financiers, employees, etc. So you need to be good at it or learn to be good at it by constantly adapting and refining your pitch to match every situation. The world is constantly moving and a good entrepreneur needs to move too; but faster.  
    
And remember ABC – ALWAYS BE CLOSING, a sales strategy  about persistence and focusing on closing the deal.  
    
Whether you call it a pitch, flyer, teaser or something else – you need a short document articulating your business proposition. However, it’s not just about selling. It is the tool you can use to set out your ideas and invite people to challenge them; discuss with others and take on board comments, observations, criticisms and plaudits; modify your ideas as things change or for different audiences; capture the essence of your business proposition.
    
Writing things down also focuses your mind and helps you think through the issues and the key ingredients to make the business successful and/or attract investment.
    
Short is beautiful: When you send out a teaser campaign, it is likely that it will hit inboxes of very busy people who see hundreds of teasers every day. So the chances of your teaser being “the chosen one” are low. How do you make your teaser stand out and investors or venture capitalists to engage with you and ultimately invest in your company?
    
Winston Churchill had a rule that he would not accept responses from his staff that were longer than one typewritten page. This rule also applies to teasers: One page! The point about the space limit is that the teaser needs to sell your business idea in a short and concise manner. The space constraint will make you choose your words carefully. Remember KISS? Keep It Simple Stupid.
    What else: Here are some other dos and don’ts about writing a teaser:
•    It should be formal and professionally-written.
•    Use simple, clear, and unemotional language with good grammar and no typos or spelling q    mistakes.
•    Be honest and truthful.
•    Keep it real and don’t make unachievable promises – it’s better to under-promise and over-deliver than to overpromise and under-deliver.
•    Be prepared to back everything you say in the teaser with evidence, numbers and projections which are professionally done.

Information in the teaser should include:
•    Why the business is unique and is different from others in the same field (but don’t make wild promises or use phrases such as “once-in-a-lifetime business opportunity” or that the business will be a “game changer”).
•    Who your customers are/will be, that they like your product and are prepared to pay for it.
•    How “lean” the business is/will be and how the business will generate revenue.
•    Details and background of the management team.
•    SWOT analysis of the business.
•    Projected financials including revenue and cash flow requirements.
•    Valuation of the business, the investment required and what you get for that investment.
•    How investors will realise their investments and what your plans are for investors to exit the business.
    
Importance of the teaser: Although the teaser may be short, it is probably the most important document you will need to start a business (or to sell a business). It’s your shop window and the filter which every potential partner or investor will use to screen potential businesses. If your teaser is not good enough you won’t even get a meeting to discuss it with investors. The teaser is the bedrock on which the rest of your investment proposition will be built.
    
All the other documents that you will need (e.g. formal business plans, cash flow forecasts etc.) should be on the backburner (or in the background) until you have finalised the teaser. In fact, the teaser will help you build your business plan. Engagement with people on the teaser will help put the building blocks and information for the business plan together.
    
The business plan: The business plan should not be ignored. It's the roadmap you will use to move the business forward. However, a common problem with business plans is that they are usually too long and detailed.
    
Whilst investors want to see a business plan and like to know that the entrepreneur has thought the business issues through properly, the reality is that most investors are unlikely to read it thoroughly. They may read certain sections and the executive summary (very important); but be prepared to answer questions from the investor who does read it thoroughly.

The astute investor

So that’s it for the entrepreneur’s side of things. But what about the investor looking to invest in a start-up? You have received the teaser from an entrepreneur. Then what?
    
Understanding the business: I believe in the Warren Buffet school of investing, which says you should not invest in businesses that you cannot understand. I don’t think you need to understand all the nuts and bolts of a business to invest in it, but it helps if you understand the basics. For example, I would invest in a brewery. I like beer and broadly understand the process and supply chain for a brewery. I would probably not invest in a software company, as my IT knowledge/skills are limited to using my laptop and turning the Wi-Fi router off and on when it does not work.
    
Of course there are always exceptions to the rule and you can learn about a business that you don’t understand.
    
Don’t get emotional: There is an old saying on Wall Street to the effect that you should not let fear and greed overtake you. This principle applies equally to start-ups – both as the entrepreneur and the investor. This particularly applies to the issue of valuation of a start-up. Entrepreneurs and their businesses are like parents with their babies. They both think that their business/baby is the most amazing wonderful creation and everyone else should have the same view.
    
The reality is, of course, rather different. Being able to be unemotional about the business and putting a realistic (even conservative) valuation of the business can save a lot of time and aggravation in discussions with investors. It's a fine balance.
    
Invest in people: Whatever the sector or type of investment, ultimately you are investing in people. I like investing in people who are experienced, motivated, incentivised and have good grasp of the industry or sector they are working in. However, perhaps more importantly, I like investing in people that I like.
    
Notwithstanding, you are not just investing in the entrepreneur. It’s a team effort and you are only as strong as your weakest link. So make sure that there is a good team that sits behind the entrepreneur.
    
Invest with others: Whilst you should always be wary of the herd mentality, there is a lot to be said about investing with others, particularly if they are smarter than you or have a better knowledge or understanding of the business you are investing in.

The grand rules

Two rules: Warren Buffet (aka the Sage of Omaha and billionaire) of Berkshire Hathaway writes only one letter each year to the CEOs of the 63 companies he owns, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEOs only two rules:
•    Rule 1: Do not lose any of your shareholder's money; and
•    Rule 2: Do not forget rule 1.
These two rules should be (metaphorically) inscribed on the hands of every entrepreneur. Adhere to them and you will be well on the road to becoming a successful entrepreneur.
    The third and fourth rule: I would add my own third and fourth rules to Mr Buffet’s:
•    Rule 3: Set out your agreement with investors in a contract; and
•    Rule 4: Be transparent with your investors and always keep them informed.
If you are thinking of being an entrepreneur or investing in an entrepreneur (in Africa or elsewhere), good luck and I hope my ramblings are helpful. Do let me know!