viva start-ups - by ben botes

Social Media for SA Entrepreneurs

noreply@blogger.com (Ben Botes) — Tue, 09 Mar 2010 19:40:00 +0000

As an indicator of just how popular social media has become amongst South African entrepreneurs we recently created a Facebook group for South African entrepreneurs and investors and within the first three weeks, membership grew to well over 1000, showing not only the popularity of entrepreneurship in the country but also how social media is increasingly becoming an option for entrepreneurs to source the resources need to drive their businesses forward.

South African entrepreneurs are flocking to social networks such as Facebook and twitter as new avenues to finding the business finance needed for starting or growing their businesses.

With the growth of social media and its uses in the last few years, innovative entrepreneurs are going online in the hordes to attract the business finance they require. Following the recent economic slowdown banks may have tightened their lending policies and entrepreneurs around the country has seen this simply as an invite to find alternative sources of financing and support.

Where services such as Facebook, Twitter and LinkedIn have been successful bringing entrepreneurs, clients and business investors together based on affinity and mutual interests, business-networking services are increasingly being used by small business owners to source the business finance that they need. Along with LinkedIn are such offerings as Ryze and Tribe.net. My take? This use of online, friend/associate-based networking will prove to be one of the most valuable business tools the Internet has yet provided.

Although the number of these services available to entrepreneurs and business people is growing, LinkedIn strikes me as the easiest to embrace, and the most effective. Typically, each service has formal sign-up steps that assist you in creating your online identity. This may include information relating to your current job, previous positions, and general interests. Some business networking sites enable you to publish you own "blog," or join specific community discussion groups.

Often, the key to using a business network successfully involves the creation of your personal friends — or business connections — group. The registration process is similar across the various social networking websites but LinkedIn boasts one of the simplest methods of inviting and maintaining your social network. By simply uploading an exported file from your contact manager, LinkedIn can immediately tell which friends of yours are members of the service. This method of contact maintenance and connection group development makes LinkedIn a breeze to start with, immediately enabling you to gain access to your contacts, without having to laboriously enter emails to discover if associates are already there.

What is seed capital?

noreply@blogger.com (Ben Botes) — Thu, 25 Feb 2010 22:21:00 +0000

What is seed capital and what is it used for? You may have asked yourself this question when searching the internet for ideas on how and where to find business financing for your new business. With so many types of funding being mentioned, how do we differentiate between seed capital, venture capital, angel finance, private equity financing, bank finance and what ever other type of business funding you may have heard of.

Seed capital enables businesses to launch a new product or service without depending fully on a business loan. The funds for this form of financing are typically provided by private investors who are looking for a high return on their investment of at least 30 percent. The investors look to invest in an industry with a market of at least R1 billion, and they also want an industry with few competitors for your business.

Businesses that typically obtain seed capital are young companies around one year of age that have not produced a product or service for commercial sale yet. The companies are so new, so it can be difficult to obtain a regular commercial loan that is sufficient for covering all of the related start up expenses.

Regular lending institutions also don't like taking large risks in companies, but an investor will take a risk for the hope of a high return on the investment.  There are some things about seed capital that are extremely important for a business owner to understand. An investor often will want partial control of the business, so you have to be willing to give up a portion of your business if you want financing from an investor. Another thing to keep in mind when seeking investors is that you will have to share confidential information about your business with them.

It’s best to be creative and explore all possibilities when looking for money for your start-up. It is also important to know that all money is not the same- each offer for financing comes with its own terms. Make a smart decision by understanding and comparing the options. Decide what terms you can live with, and then explore the possibilities.

Note that there is a difference between seed money and professional venture capital. Most of the programs listed below are offering true start-up support. They will offer you the money to fund the initial stages of forming the company, creating your plan and then approaching serious Venture Capital Funds. A key part of seed money is providing the start-up with mentors, ideas and suggestions to start the company off on the best foot possible.

For Investors Network, some of the criteria on their website are:

You must be a developer, or your co-founder must be a developer, or you must have identified a specific developer who has the ability to deliver a prototype of your product or service.
Your product or service must make use of the Internet, preferably in a new and exciting way.
Your project must never have raised serious money from an institutional investor
You should have a prototype to show us before you apply. Mention it in your application.

For Y Combinator, in addition to filling out the application, they say this:

• “The people in your group are what matter most to us. We look for brains, motivation, and a sense of design. Experience is helpful but not critical.

• Your idea is important too, but mainly as evidence that you can have good ideas. Most successful startups change their idea substantially.
• We’re more likely to fund people we know are smart from their submissions and comments on Hacker News. In fact, that was one of the main reasons we wrote it: so that we could get to know people before they applied.

“We have a simple, straight-forward application process. We care most about the quality of your idea (boldness and simplicity are two characteristics we’ve seen correlate with success), and the talent and commitment of you and your team. This is as much a bet on people as it is on the idea. If you have some initial design/software done, that’s great—we’d love to see it.

TechStars
“We fund technology oriented companies, typically these are web-based or other software companies, but we’ve funded companies that don’t quite fit that mold as well. We’re also looking for companies that can have national or worldwide reach. Specifically, we don’t fund medical device companies, biotechnology companies, restaurants, consultancies, or other local service oriented companies.”

Charles River Ventures
“What we do look for is outstanding people, with a vision of how their company can play a role in the evolving technology and business landscape. It’s really that simple. The best way to get our attention is not with a 100-page business plan, but rather to network through someone in our portfolio.
Because the lay of the land changes so quickly in our key industries, a detailed business plan is often a futile exercise. Instead, a concise executive summary, an expense budget for the first two years, the revenue model, and a PowerPoint presentation are generally the materials we’re interested in seeing.”

DreamIt Ventures
“As we review applications we are going to focus on the following questions:
• How BIG is the idea?
• How big is the market opportunity?
• Can you complete a prototype, beta or market-ready product within 3 months?
• Is the team comprised of bright, capable, enthusiastic people with whom we can work?

Capital Factory
"We like lean companies that can get to profitability quickly and can scale rapidly. Most of us have technology backgrounds and while it is not a requirement, it is very likely that the companies we select will have technology components to them. We're happy to start with just an idea on a napkin, but we'll also work with companies that have some customers or angel investors and are now ready to scale their business. ...Most importantly, we want to get involved with companies that we can have the biggest impact on."

So if you think that seed capital is indeed what you are looking for, log on to your local investors network and find an investor that provides this type of funding for your business

Banking Support for Entrepreneurs

noreply@blogger.com (Ben Botes) — Tue, 23 Feb 2010 14:56:00 +0000

One of South Africa’s major banks recently announced increased levels of small business support, beyond what is normally expected from the banking industry. As one of the major stakeholders of the small business industry banks have for years benefited in many ways from the boom in entrepreneurial activity, often providing very little but high interest rates and tough terms to especially new businesses. In South Africa, small businesses account for about 40% of economic activity and provide a massive 60% of employment. Looking at the stats makes it easy to understand why banks would want to appear as small business friendly and this move hence comes as little surprise.
 
Nedbank Small Business Services recently announced that it is now offering a number of banking and nonbanking interventions to assist entrepreneurs as well as national social transformation. Business registration is a key focus area and the bank offers entrepreneurs the ability to register as a formal business entity through any Nedbank branch.  The entrepreneur will simultaneously be able to register a business and register for  value-added tax.  The bank does not earn anything from the registration, but merely plays a facilitation role by using its technology to allow entrepreneurs to link with service providers, such as com- pany registration business SwiftReg.

Enterprise development is also a focus point for the division and it has partnered with government financial institution Khula Enterprises to enable entrepreneurs who have inadequate collateral access to finance.
  
Further, Nedbank has noticed that South Africa has gone from being a largely resource-based economy to emerging as a sales-type industry.  More Internet and service driven businesses, are emerging and there is a move away from heavy retailing to an emergence of manufacturing and a large services component in the country.

South Africa of course has a large range of business support organisations, with a real culture of entrepreneurship starting to develop within our nation. South Africans are naturally entrepreneurial, both from a necessity point of view as conditions for finding employment has been challenging for many years as well as from an opportunity perspective where the rich mix of races and cultures have brought about a wealth of idea and resulted in a breeding ground for entrepreneurs.

The bank says that they have started to play more of a facilitation role by using its technology to allow entrepreneurs to link with service providers, such as company registration business SwiftReg.

Together with the various other nationwide service providers such as SEDA, the IDC, SA Business Plans and the Investors Network we are confident that entrepreneurs in South Africa have a wealth of support that they can rely on and that, going forward into the next decade entrepreneurship will play an even bigger role in the growth and sustainability of the country.

The Business Plan

noreply@blogger.com (Ben Botes) — Sat, 20 Feb 2010 15:34:00 +0000

Just why the business plan has become such an important part of the business financing process in recent years comes as little surprise. Very seldom do we find that entrepreneurs are all-rounder’s and have skills and experience in all the different functional areas of the business. Most often the potential business owner may have both an interest and experience in a certain area and for that reason that they may have come up with a solution to a current problem or challenge that he/she may have come across.

Most entrepreneurs are in essence advanced problem solvers and due to their strong self-belief and resourcefulness may take their solution further to the point where a new venture is created. Think about eh entrepreneurs that you know, consider their ideas and you will quickly see that they have really come up with a solution for either themselves, or someone they may know, whether that is a friend, customer or family member. So the point I’m making here is that the solution obviously comes from their area of expertise, plus of course a healthy serving of imagination and creativity.

When it comes to the actual starting and running of the business, numerous other skills are also involved, whether those are marketing, finance, operational, customer service or service delivery skills seldom would you have thought through the processes involved in addressing these areas. This is where the business plan becomes such an important issue.

Banks and business investors are very well aware of the large failure rates for start-ups. It’s their business to understand the risk that they are taking on and hence believe that one way for the risk to be managed is to ensure that the entrepreneur have actually through thought the various issues while engaged in the process of writing he business plan. The plan will require you to look at just about everything from marketing, to ecommerce, operational aspects, sourcing suppliers and even the legal issues involved in starting and running your business.

It’s a pity then that too often today, the only reason why someone may draw up business plan would be to comply with the demands from the bank or investor as it really can serve as a major tool to ensure that the all too often mentioned business failure rate can be improved and more entrepreneurs can make a success from all the initiative, energy and capital that goes into starting a new business.

Necessity Driven Entrepreneurs

noreply@blogger.com (Ben Botes) — Fri, 19 Feb 2010 21:16:00 +0000

After an interview almost three months ago, I recently found this great article on Necessity Driven Entrepreneurs, and as always, happy to be mentioned.

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Academics call them entrepreneurs motivated by Push factors. We call them necessity-driven entrepreneurs, they have different motivations than opportunity-driven entrepreneurs, and yes, we’re seeing more of them.

Ben Botes, director of program and service delivery at the South African Investors network in Gauteng, said the organization, which encourages would be entrepreneurs to start businesses, has seen so many people who have been laid off that it started a business start-up support program that regularly attracts 30 t 40 people who are looking for a helping hand with both the writing of their business plan as well as the crucial are of finding start-up finance. In 2009, attendance at the Centre’s “Exploring Entrepreneurship’’ sessions in Johannesburg, Durban, and Cape Town almost doubled in numbers from the previous year.

Barbara Nkosi was among the dozens of first-time entrepreneurs filling the seats at a beginner’s business seminar at the center. Nkosi said her job as an executive assistant will go away in March, when her employer, moves to another province and she has to find a way to make ends meat.

“Nobody is hiring,’’ she said. “I’m here because I’m taking care of my own destiny.’’

Sarah Buchannan from Durban who, between her and her husband, between them have decades of experience at local architectural and design firms, started getting together informally with a group of fellow designers and strategists last summer, after both were laid off.

“Initially, we just wanted to share our situation,’’ Buchannan said.

The group of eight women decided to collaborate, starting a business to offer clients multiple services, from print and architectural graphic design to strategic marketing. That led them to an investors network meeting.

“Because of the economy, we’re seeing more entrepreneurs who are pursuing opportunities because they don’t have to take that leap from a secure job,’’ Botes said. “They are already out of work, so why not pursue something that you’re passionate about?’’

“The people who were laid off ahead of us, none of them were getting jobs,’’ Barbara recalled. “So we knew we had to come up with a new plan, to beat the bad economy.’’

The couple honed their skills in the latest, most sophisticated 3D visualization software available, the kind that architects use to pitch projects. They also established ties to a large community of 3D designers locally. One good sign for their young business: they landed a big job before they even had a chance to print business cards or launch a website.

“It’s a little scary, but exciting at the same time,’’ Sarah said. “We’re trying to see this as an opportunity to turn adversity into an advantage.’’

John Gosling, their business coach said his advice to those planning to start a business for the first time is to give themselves “an honest self-evaluation.’’

“You should really be building on your experience, your skill sets, and your interest,’’ he said.

But he cautioned that entrepreneurship is “not a quick fix’’ for unemployment, adding that while he tries not to be “a dream crusher,’’ he often advises unemployed would-be entrepreneurs not to regard a start-up idea as 'fix all' solution.

“Even successful start-ups often don’t generate significant income for two or three years,’’ he said. “In fact, many require a significant investment up front.’’

The entrepreneurs are hoping that their fledgling enterprise will be able to overcome some of the issues that bedevil start-ups. The principals will work in “virtual teams,’’ from their home studios so overhead costs will be low.

Still the two first-time entrepreneurs admit that after years working in architectural firms, they are in unfamiliar territory as they plough through the documents that a new business requires.

They are also working through a business planning “homework assignment’’ from their SA Business Plans consultant that includes a business plan, a financial plan and a sales forecast.

“They each could have gone out on their own,’’ said Botes, “but they are better off as a team.’’

But he added that the group still has to fine tune its business plan, and possibly reduce the number of graphic services they will offer.

“They have a pretty good shot,’’ Botes said. “But it’s still a long road they have to travel.’’

Business Plan Competition draw 6000 Entries

noreply@blogger.com (Ben Botes) — Mon, 01 Feb 2010 21:55:00 +0000

The now annual business plan competition organised by Enablis, First national bank and SEDA, have so far this year drawn a massive 6000 entries from hopeful entrepreneurs, hoping to gain access to the almost R50 mil in prizes and start-up capital provided by the sponsors.

The competition launched in 2006 is increasingly sponsoring larger numbers of entrepreneurs to support entrepreneurship oin South Africa, job creation, the small business sector and of course the wider economy.

Jane Steinacker of Times Live writes:

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Despite the almost 50% contribution that the small business sector makes to the output of the South African economy, the sector's contribution to GDP and employment, its growth has stagnated at about 5% for the past three years, says Heather Lowe, head of enterprise development at FNB Commercial.

Lowe believes that it's not only South Africa's culture of employment and entrepreneurship that is at fault, but also small business's limited access to funding and support.

Lowe says early-stage development finance is missing, adding that South Africa has a limited pool of angel investors and venture capitalists to help stimulate the sector.

In an attempt to stimulate the sector, the bank and other institutions with an interest in SME development have for the past five years clubbed together to host what has become the largest business plan competition in South Africa.

Organised by the Canadian-based entrepreneurship development NGO Enablis, the 2009 FNB Enablis Seda Business Launchpad competition offers winners preferential access to a pool of R50-million in funding, as well as a goodie bag that includes a new laptop and bag, Microsoft office software, Microsoft training voucher and Enablis membership.

In its first year the competition received 500 entries.

Five years later, 6000 hopefuls in 10 industry sectors submitted business ideas for consideration.

This year the competition went online, and entrants needed simply to fill in a business plan template to enter.

Long-winded business plans were not necessary. Additional support was provided by the small enterprise development agency (Seda), whose offices assisted entrants with their submissions, says its executive manager for corporate services, Kaybee Motlholoa.

The South African Institute of Entrepreneurship waded through the entries and supplied the competition organisers with a short-list.

"Of all the entrants, about 2500 went through for judging," says competition director Martin Feinstein, adding that if the plan submitted was "worth something, it was going to get somewhere".

In its first year the competition had five winners. This month 19 winners were chosen, and this number is expected to grow. "The day is not far off where we will get close to 100 winners, provincially and nationally," says Feinstein.

This year's winners are spread across South Africa, from Sello Moloantoa's electrical business in Pretoria to Elana Marie Snyman's theatre stage props design and manufacturing business in Stellenbosch.

"We believe we can assist the winners with both financial and non-financial support to accelerate their path to success," says Feinstein, who calls upon the services offered by the sponsors of the competition to assist.

These include FNB, the lead sponsor and funding partner, the Seda, Microsoft, Khula enterprise finance, Gauteng Enterprise Propeller, Western Cape provincial government and Red Door, Mpumalanga provincial government, Eastern Cape Development Corporation, SA Institute for Entrepreneurship, Softstart BTI, Raizcorp and INSEAD, which is the mentorship partner.

Enablis and its partners continue to invest in the competition with a view to assisting as many entrepreneurs as well as 18 to 24- year-olds who Feinstein believes have "bleak prospects for the future".

"We want to help entrepreneurs build sustainable businesses for themselves," he says.

Financing for Young Entrepreneurs

noreply@blogger.com (Ben Botes) — Thu, 14 Jan 2010 18:17:00 +0000

An increasing number of young people are opting to become an entrepreneur as their career of choice. With entrepreneurs such as Richard Branson, Steven Jobs, Duncan Balentine, Peter Jones and numerous others are receiving an increasing amount of air time in the press and young people becoming ever more independent, becoming an entrepreneur through starting their own business is an attractive option. So if you are a young entrepreneur and you have your business plan drawn up, what are your options for business finance?

The entrepreneurial drive for twenty-somethings is increasing every year, and there are plenty of successful entrepreneurs who began their enterprises well before their twenty-fifth birthday. Age doesn't matter when it comes to building a strong business plan and coming up with great ideas; in fact, one could argue that the younger generations are even more creative. One of the main problems that holds young entrepreneurs back is financing; they don't have the experience or the business history to secure financing through traditional means.

My best advice for the young entrepreneur is to plan as much as possible in advance. You can't walk into a bank or credit union with a sketchy idea for a business and expect to be handed a check; instead, you'll have to go to even more extensive means in order to get your point across. A great concept is all well and good, but you'll need more than that to convince a lender.

Your first step will be to put together a notebook that details every aspect of your potential business. For example, let's say that you want to open up your own restaurant. Your notebook will include possible locations, key demographics, furnishings, decor, utensils, estimated number of employees, building permits, equipment and everything else you will need to start the business. You should include pricing estimates from at least two vendors for each item as well as pictures if possible. The more information you include in this notebook, the better prepared you will be.

Next, young entrepreneurs must consider all possible sources of financing. In most cases, it will be better to seek several small sources of financing from several different lenders. For example, if your first round of financing requires $100,000, you will be better off seeking four sources of financing of R25,000 each. This increases your chances of being approved and lets the lender feel more comfortable in approving the loan.

Many young entrepreneurs make the mistake of seeking financing in the form of credit cards. Even if you can obtain a credit card with a sufficient credit limit, I would advise against it. Credit cards are dangerous when you don't know how quickly you'll be able to pay them back, and all start-up businesses - particularly for young entrepreneurs - stand on shaky ground for at least the first year.

It is also difficult for young entrepreneurs to get financing through angel investors, which are wealthy individuals who take large risks in providing finances to start-up businesses. Most angel investors are more comfortable dealing with experienced business owners who are pursuing new start-ups rather than young entrepreneurs who are "more likely" to run their businesses into the ground. However, you might have some luck pursuing financing with angel investors in the smaller increments I mentioned above. You'll just have to remember that small investments are not necessarily high priorities, so it might take some time.

And finally, many young entrepreneurs get their starts by seeking financing from relatives. If you have wealthy parents, grandparents, aunts, uncles or friends, you might consider approaching family members with your start-up business plan. This will likely depend on your relationship with that person and your track record for handling debts and loans, but it is certainly something to think about if you think a relative might be ammenable.

The one big trap to which young entrepreneurs frequently fall victim is a lack of patience. Make sure that you are patient, work hard to achieve your goals and keep your eye on the prize.

The process of finding investment for a new venture

noreply@blogger.com (Ben Botes) — Thu, 14 Jan 2010 14:48:00 +0000

Irrelevant if you are a new or growing business, for most business owners the time will come when further business investment is needed. With many entrepreneurs realising that going to the bank for a loan is no longer the only or most beneficial avenue, other sources of business finance needs to be considered. So what are the steps that you need to take for this to happen? Michael Weaver, chief executive at investor network Beer & Partners, has compiled the following guide to securing funding.

1) Decide level of funding required
The level of funding required is largely dictated by what stage of evolution the business is at. Established companies with revenues, profits and an order book, and that are seeking working capital or replacement of bank debt will typically fall in the R350,000 to R1.5 million bracket. Broadly speaking, start-ups or early stage businesses seeking funding for final product development/take product to market will tend to require R150,000 to R450,000. In both cases, the amount must be sufficient to fund the delivery of the planned stage or end result.

When considering the amount of funding required, businesses must take the long-term view. It is important that the level of funding is sufficient to see the business through all of the identified stage of development. Otherwise they risk not achieving the desired goal and having to halt progress part way due to cash running out.

Remember to:

· Take the long term view
· Identify your end goal and ensure the funding is sufficient to get you there

2) Put in place a strong management team
Few early stage businesses have complete management teams and very few can claim to hold all the skills required to maximise the potential of a business. These skills include general management, finance, marketing, sales, production and licensing, to name a few.

Entrepreneurs who can recognise their weaknesses as well as their strengths and plan accordingly are well placed to raise investment. Many of the complementary skills required are available on a freelance or part-time basis, sometimes on a sweat equity basis and can on occasion be provided by an investor. Sweat equity is where someone invests time and skills in exchange for a shareholding stake in a company instead of cash.

There are different general management skills required to run a small business compared to those for required for larger firms. It may even be that the founder is not best placed to lead the company through all the stages of its growth and will at some point need to step aside.

Remember to:

· Consider what skills you and your existing team have and what needs to be brought in
· Be broadminded about your relationships with employees – putting someone on the payroll is not the only option

3) Create a business plan identifying the strategy
A solid business plan that identifies the strategy is crucial. The plan must contain a commercial idea which will provide an eventual profit for investors or, as a minimum, sufficient profit to repay the interest and the principal on a loan. However, not all plans need to be unique as many ‘me-too’ but better businesses are established to take advantage of a niche or to stake a claim for a share of an existing market.

The business plan must set out the key factors that determine success or otherwise of the business. In addition, the entrepreneur should be prepared to monitor these factors and not be afraid to set out the risks. If an entrepreneur does not recognise the risks, it may be either because they do not fully understand their own business or they are ill-prepared to manage these risks adequately.

Remember to:

· Always have a business plan
· Only include as much within the business plan as is necessary to keep you on track and to give investors a clear idea of where you are taking the business and how you are going to get there

4) Determine a sensible valuation of the business
Early-stage businesses are notoriously difficult to value. There are different ways to approach this. One rule of thumb is:

· A solid business idea alone: R10,000
· A solid business idea with a reasonably presented business plan: R50,000
· Both of the above, plus a good management team with relevant CVs: R250,000
· All of the above, plus a sale: any figure upwards of R500,000

A perhaps better approach is to apply the rule of thirds, with the valuation split between the inventor, the management team and the investment. As such, the level of funding sought determines the post-money valuation. This ensures that the management are sufficiently incentivised to drive the business forward. It also ensures that investors can retain an important stake after second and third round funding which is sufficient for them to make a respectable rate of return on final exit.

However, the bottom line is that the valuation is essentially what a willing investee will accept and a willing investor will pay.

Remember to:

· Be realistic
· Make sure you can justify the valuation
· Don’t be too greedy – remember that if you fail to secure any funds you may not have a business that can go forward

5) Define the unique selling points (USP)
Aside from coming up with a compelling business proposition, the entrepreneur must ensure that nobody else is offering exactly the same product or service, or have a particular USP which makes it different and potentially more profitable than competitors.

If the entrepreneur is certain that any competitor, even one with unlimited resources, will take at least two years to come up with the same product, then they are in a strong position to claim that they have a chance to establish their brand. However, in this example, it could be a case of weeks or a few months. As a result, the market will be saturated by other similar products, some of which may be backed by known brands.

Another valid USP is a unique management team mix. However, this would have to be very specific as it could be replicated. Alternatively, a patent or other Intellectual Property Right by definition would fit the bill perfectly. There are many further examples, but the crucial point is to have a clearly defined view of how viable the business proposition is in the long term.

Remember to:

· Research the market
· Research the competition and put yourself in the mind of the competition to figure out how they will react to you entering the market

6) Protect your business
Depending on the business, there are times when protection is an absolute must-have. An easily replicable product for example, if protected, can be a great investment. Entrepreneurs should also ensure they understand how patents and other forms of intellectual property work, which may require seeking professional advice.

Without replacing professional advice, it is worth remembering that once an idea is in the public domain, it is not possible to then apply for a patent. Therefore, it would be a mistake to assume it is possible to find the funding first and then look at a patent – if investors have told people the idea, the business will not be able to apply. There are many forms of protection for different aspects of the business and products. Patents are just one, which is why professional advice is very worthwhile.

Remember to:

· Seek professional advice

7) Prepare your business for due diligence
Due diligence is usually carried out when an investment or acquisition is going to be made and is the process of checking the facts of a business, including its market, key staff, directors, financials and legal position. Any investor and many banks who do not have a direct relationship with the entrepreneur will require a level of due diligence on their affairs before investing or loaning funds to the business. However, there is a real danger that investment deals will fall through if factors are uncovered during the due diligence process that were not already apparent. It could be that the investee had failed to recognise the point as relevant.

Companies can save themselves a lot of time and energy when negotiating an investment by completing much of the groundwork and making it available to the bank or investor during negotiations. There are certain legal advisors or financial services professionals who work with business investment networks who can provide specific assistance around due diligence. This includes providing a pre-packed questionnaire which reduces the risk of deals falling through and minimises legal costs on completion.

Remember to:

· Always expect due diligence to take place so be prepared
· Seek professional advice if you are unsure how to do this

8) Appoint a solicitor
It is essential to appoint a solicitor who has experience of similar forms of investment in small businesses. Just one example of where this is required is that, in line with the Financial Crime Prevention Procedures, the business and the solicitor will have to verify the identity of investors before accepting any investment. This will require a copy of an official photographic ID such as a passport, driving licence, services ID card or national ID card.

Remember to:

· Make sure the solicitor you choose has the relevant experience
· Make sure legal charges are commensurate with size of investment and try to obtain fixed fee for the work

9) Have an exit plan
Businesses that are a lifestyle plan for the entrepreneur often find it difficult to attract investors. One example is a business that will provide the entrepreneur with long-term employment and remuneration but which they will want to continue with until retirement. However, in these instances, a secured loan may still be viable. Having a well thought through exit plan is therefore a key element of obtaining investment. Exit strategies can take several forms, the most common of which are:

· A trade sale, which is arguably the most common
· A listing on a stock exchange, such as PLUS, AIM or London Stock exchange
· A management buyout.

It may be difficult for an entrepreneur to imagine selling their business when they are just starting it. However, most investors are looking for capital gains rather than a dividend stream so will want to know how they will make their profit. In many ways, the actual form of exit is less important than the principal that there will be an exit at some point - generally within three to seven years.

Remember to:

· Always have an exit plan in mind
· Ensure that the route to exit is front of mind when speaking to any potential investor

10) Find an investor
Arranging investments is a category of regulated activity which can only be carried out by firms authorised to do so by the Financial Services Authority (FSA). This must also be done with information authorised by a FSA-approved firm. It amounts to acting for a business with the expectation that they will be introduced to an investor. Direct approaches to potential investors by individuals can be a criminal act and result in the individual making the approach becoming personally liable for any losses incurred by an investor. This is unless the individual has received certain certifications from the investor before seeking investment.

The FSA aims to protect consumers; both companies and investors. It does this by regulating the way in which financial service providers operate, paying particular attention to the integrity, skill, care and diligence with which they are run and to the competence of those people delivering services.

Regulations under the FSA lay down, in some detail, the framework within which approaches to investors must operate in order to comply with the Financial Services and Markets laws.

Remember to:

· Take heed of the legal requirements when seeking investment
· Find a reputable business angel network or corporate finance house that has a proven track record
· Ask the right questions

To find business finance or investment in South Africa visit the SA Investors Network.

Financing for home based entrepreneurs

noreply@blogger.com (Ben Botes) — Mon, 07 Dec 2009 11:13:00 +0000

A key issue for many businesses hoping to start or grow is the ability to raise financing for the business. Financing your business can be challenging despite so may sources available today. With bank lending becoming less popular with many entrepreneurs, business owners are increasingly turning to alternative sources of funding. As the owner of the business you are responsible for the rasing of finance. Few others in your business will be as committed to the process as you may be.

With the use of the internet, trade publications and newspapers it wont be long until you have a number of possibilities for business financing. However, while venture capital may be overflowing for the Internet start-ups, the real scenario for small businesses (and worse, home-based businesses) is far different.

Then again, business means risk, and success comes to those who focus on their goals and actually do something. You first step should be to start making phone calls -- talking to people, and making appointments to discuss your plans with the people who have money to invest. When you're looking for money, it's essential that you get the word out to as many potential investors as possible.

There are several sources to consider when looking for financing. Don't make the mistake of thinking that the only place you can find the money you need is through the bank or finance company. Explore all of your options before making a decision. These include –

Personal Savings.

The first place to look for financing is right at home and personal savings and assets are the easiest source of capital. If you have money set aside, you use it instead of borrowing or rounding up investors. Or, you can take an inventory of items you do not need and have a garage sale. Most people are pleasantly surprised how much cash they can raise in a single weekend. You can also use your stocks, bonds, pension plans, life insurance policies and real estate to raise the needed capital. Those who own homes oftentimes secure equity loans and use the proceeds to start a business.

However, most beginning entrepreneurs don’t have adequate personal savings to fund a business start-up. Others, on the other hand, have savings but refuse to dip into their piggy bank for a variety of reasons. It may be their retirement money or for emergencies; while others would rather use their savings as collateral and borrow against it at a low interest rate.

Family Members and Friends.

Next, turn to members of your family or close friends who have faith in you and want to see you succeed. Borrowing from a friend or relative is generally the most readily available source, especially when the capital requirement is smaller. Relatives and people you know need fewer assurances and are more open to your ideas than professional investors. They are also more patient if your business takes longer than expected to get off the ground. Offer to repay them through profit sharing.

If you are borrowing from family members instead of asking them to invest, maintain a very businesslike and impersonal procedure. To avoid putting strain on the relationship, it is better to draw up a formal agreement in order to put the terms of the loan in writing. It is important to view the participants as business associates.

Venture Capitalists.

Venture capitalists are professional investors who may be in charge of a large pool of capital gathered from a range of sources. These firms invest in new, even high-risk or speculative businesses without a proven track record, with the potential for rapid growth and high returns in a short time. They generally want equity or part ownership of a business in exchange for substantial returns (25 to 40 percent or more) when they exit typically in three to seven years. Particularly in the Internet sector, several venture capital firms have achieved capital gains of 300 to 500 percent, which are used to offset by a wide margin any losing ventures. These firms are mostly interested in potential projects that require R500,000 or more because of the high cost of investigation, evaluation and administration. While a venture capital firm may receive as many as 1,000 business proposals a year, it will typically investigate less than 10 percent and may actually invest in only 3 or 4 percent.

Angel Investors.

Angels are private investors interested in making more on their capital than they can make through traditional markets such as mutual funds or publicly traded stocks. These “angels” can be your accountant, attorney, doctors or other individuals who seek out new businesses to invest in return for equity ownership. Usually providing additional capital in the range of R25,000 to R500,000, expect angel investors to demand high returns for their investments. Relative to venture capitalists, though, angel investors are less demanding and can also be expected to provide expert guidance and mentor the start-up.

As you explain your plan to them, and ask for their advice, casually ask them if they'd mind letting you know of, or steer your way any potential investor they might happen to meet. Do the same with your banker. Give him a copy of your prospectus and ask him if he'd look it over and offer any suggestion for improving it, and of course, let you know of any potential investors. In either case, it's always a good idea to let them know you're willing to pay a "finder 's fee" if you can be directed to the right investor.

Professional people such as doctors and dentists are known to have a tendency to join occupational investment groups. The next time you talk with your doctor or dentist, give him a prospectus and explain your plan. He may want to invest on his own or perhaps set up an appointment for you to talk with the manager of his investment group

Note, however, that most angels and venture capitalists do not invest in home businesses.

One key to a successful business start-up and expansion is your ability to obtain and secure appropriate financing. Raising capital is the most basic of all business activities. Remember, it takes money to make more money.

Flip open trade publications and business newspapers, and you will be bombarded by reports of abundance of available capital for entrepreneurial start-ups, particularly for the dot.coms. The financial news would have you believe that more money is available for new business ventures than there are good business ideas.

However, while venture capital may be overflowing for the Internet start-ups, the real scenario for small businesses (and worse, home-based businesses) is far different. Capital is hard to come-by, especially if: (a) you do not have a good business idea or business plan that will make rich backers run to you in the hope of multiplying their savings exponentially; and (b) you may have a good business idea, but you do not know anyone who matters. The problem is that most beginning "business builders” doesn’t know what to believe or which way to turn for help.

Then again, business means risk, and success comes to those who focus on their goals and actually do something. Who knows, you may be lucky and dispel stories of “tight money.” You first step should be to start making phone calls -- talking to people, and making appointments to discuss your plans with the people who have money to invest. When you're looking for money, it's essential that you get the word out to as many potential investors as possible.

There are several sources to consider when looking for financing. Don't make the mistake of thinking that the only place you can find the money you need is through the bank or finance company. Explore all of your options before making a decision. These include –

Personal Savings.

The first place to look for financing is right at home and personal savings and assets are the easiest source of capital. If you have money set aside, you use it instead of borrowing or rounding up investors. Or, you can take an inventory of items you do not need and have a garage sale. Most people are pleasantly surprised how much cash they can raise in a single weekend. You can also use your stocks, bonds, pension plans, life insurance policies and real estate to raise the needed capital. Those who own homes oftentimes secure equity loans and use the proceeds to start a business.

However, most beginning entrepreneurs don’t have adequate personal savings to fund a business start-up. Others, on the other hand, have savings but refuse to dip into their piggy bank for a variety of reasons. It may be their retirement money or for emergencies; while others would rather use their savings as collateral and borrow against it at a low interest rate.

Family Members and Friends.

Next, turn to members of your family or close friends who have faith in you and want to see you succeed. Borrowing from a friend or relative is generally the most readily available source, especially when the capital requirement is smaller. Relatives and people you know need fewer assurances and are more open to your ideas than professional investors. They are also more patient if your business takes longer than expected to get off the ground. Offer to repay them through profit sharing.

If you are borrowing from family members instead of asking them to invest, maintain a very businesslike and impersonal procedure. To avoid putting strain on the relationship, it is better to draw up a formal agreement in order to put the terms of the loan in writing. It is important to view the participants as business associates.

Venture Capitalists.

Venture capitalists are professional investors who may be in charge of a large pool of capital gathered from a range of sources. These firms invest in new, even high-risk or speculative businesses without a proven track record, with the potential for rapid growth and high returns in a short time. They generally want equity or part ownership of a business in exchange for substantial returns (25 to 40 percent or more) when they exit typically in three to seven years. Particularly in the Internet sector, several venture capital firms have achieved capital gains of 300 to 500 percent, which are used to offset by a wide margin any losing ventures. These firms are mostly interested in potential projects that require R500,000 or more because of the high cost of investigation, evaluation and administration. While a venture capital firm may receive as many as 1,000 business proposals a year, it will typically investigate less than 10 percent and may actually invest in only 3 or 4 percent.

Credit Cards

Some entrepreneurs use several credit cards to provide a substantial cash bankroll for the business start-up. In fact, credit cards are used by nearly one-third of start-ups. It is relatively easy to obtain, and eases the bookkeeping systems. However, using credit cards to launch a business is the least wise, since credit card money is the most expensive money that you can borrow. If you intend to carry a balance, the annual interest charges (12 to 21 percent) are quite steep. While credit card advances is one of the most commonly used sources for start-up financing, it is dangerously close to gambling.

Small Business Investment Companies

Don't overlook the possibilities of the Small Business Investment Companies in your area. Look them up in your telephone book under "Investment Services." These companies exist for the sole purpose of lending money to businesses that they feel have a good chance of making money. In many instances, they trade their help for a small interest in your company.

Business Development Commissions

Many states have Business Development Commissions whose goal is to assist in the establishment and growth of new businesses. Not only do they offer favorable taxes and businesses expertise, most also offer money or facilities to help a new business get started. Your Chamber of Commerce is the place to check for further information on this idea.

Money Broker or Finder

Organiations such as these normally take your prospectus and circulate it with various known lenders or investors. They always require an up-front or retainer fee, and often may nor be able to guarantee getting you the loan or the money you want. There are many very good money brokers, and there are some that are not so good. They all take a percentage of the gross amount that's finally procured for your needs. The important thing is to check them out fully; find out about the successful loans or investment plans they've arranged, and what kind of investor contacts they have all of this before you put up any front money or pay any retainer fees.

Start thinking about the idea of inviting investors to share in your business as silent partners. Think about the idea of obtaining financing for a primary business by arranging financing for another business that will support the start-up, establishment and development of the primary business. Consider the feasibility of merging with a company that's already organized, and with facilities that are compatible or related to your needs. Give some thought to the possibilities of getting the people supplying your production equipment to co-sign the loan you need for start-up capital. This is truly the age of creative financing.

The truth is this: Now is the time to make your move. Now is the time to act. The person with a truly viable business plan, and determination to succeed will make use of every possible idea that can be imagined. And the ideas I've suggested here should serve as just a few of the unlimited sources of monetary help available and waiting for you!

Investment Rands are not out of the question for a home business, but it isn’t a likely situation unless your business has the potential to gain significant stock value. This also means that your company will need to be larger than just an extension of yourself. To attract investors, you will have to make the case that the business could be sold at some point to another person or company that could pick up where you left off and continue to grow the business. If this is the case with your enterprise, you might consider going through the pain to gain investors, but be prepared to learn how the system works before you send off proposals.

Business Plan Errors to Avoid

noreply@blogger.com (Ben Botes) — Thu, 26 Nov 2009 11:55:00 +0000

Writing a business plan can be a challenging yet illuminating process. If you're following this blog you would have read about the importance and usefulness of a good business many times. In as much as it is important, writing an investable business plan is also a bit of an art to many and the more plans you come across the more obvious it becomes.

When speaking at events and workshops on the topic, "what re the common errors made by entrepreneurs and what should I avoid doing when writing my plan" I'm often asked. I recently came across this useful bit of comment from the guys at Inc magazine about this exact issue and I must say that I could not have put it better myself.

1) Being All Things to All People
You cannot expect a business plan to appeal to every possible audience. With this in mind, try to pick one business model, and to focus on one industry or one problem. Otherwise, you risk spreading yourself too thin, and potentially creating a sprawling plan that makes a bad first impression.

2) Being Boring
If a potential client gets two pages into your plan and is bored, that's a terrible sign. It is important to have the reader interested right from the executive summary on the very first page. And don't neglect your cover page: a well-designed logo never hurts.

3) Measuring the Size of the Market Too Optimistically
Although it may seem impressive if you project vast markets and the potential for huge sums of revenue, outsize financial estimates often appear gimmicky to investors. Worse, big numbers often make you sound as if you don't know what you're doing or how hard it will be to penetrate your target market. Don’t make big promises unless you're absolutely sure you can keep them.

4) Lacking the Confidence to Sell Your Product
In an effort to portray confidence, too many business plans ignore the competition that a new business will face. Doing so betrays a lack of sophistication. Few if any ideas face zero competition. Even if your concept is completely original, you should take into account forces that compete with your product or service, including different solutions to a problem, different ways that customers might choose to spend their money, and inertia in the marketplace.

5) Repeating Yourself Too Much
Avoid repeating a few catchphrases and a few simple ideas in ten different formulations. Nobody wants to hear the same thing over and over again. Be sure to keep your plan's fundamental message consistent throughout, but employ creative language and appealing imagery to flesh out your ideas.

6) Using Too Much Jargon
Remember that not everyone in business is familiar with cross-industry lingo. If you have a background in a specific industry – this is especially true in science and engineering – try to use simple, specific, and concrete phrases to describe your business. Rely on general terms that most everybody will understand.

7) Not Being Consistent
Eliminate contradictions. Make sure that the information in your plan is consistent — that, for example, a financial chart deep within the plan does not undermine a fact used in an earlier section. Make absolutely certain that every fact about your industry, the market, and key competitors is accurate and readily verifiable.

8) Failing to Incorporate Feedback
Presenting a business plan about which you have not received feedback is an easy amateur mistake to make. Remember: Presenting to a top investor a draft business plan that contains silly errors or gaps in logic is worse than presenting no plan at all. Try reaching out to a few friendly contacts who have vetted business plans in the past before you begin to share it with qualified potential investors. However....

9) Taking Too Many Perspectives Into Account
...Do not go so overboard in anticipating lines of questioning or identifying possible flaws in your thinking that a reader will have a hard time following the narrative thread. Make sure you address some likely investor objections, but balance the desire to be clear-eyed with the overall objective, which is to make a persuasive pitch.

10) Failing to Acknowledge the Competition
Successful plans come in all shapes and sizes and formats, so don't worry about crafting one that looks and reads exactly like every other plan that's out there. Your goal isn't to fit in; you want your business plan to stand out. Remember: If you create a proposal that expresses your idea and your personality, you will be more comfortable and confident when you are called on to present it.

Happy planning!!

Silver Lining Provided by Entrepreneurs

noreply@blogger.com (Ben Botes) — Mon, 23 Nov 2009 19:55:00 +0000

Those of us passionate about entrepreneurship will quickly tell you that the solution to any economic problem lies with the innovative thinking of the entrepreneur. Coming up with new, innovative and ultimately profitable solutions to current problems is what entrepreneurs are all about. Whether its a business finance, business planning, customer retention, product or services related or marketing challenge, somewhere there will be an entrepreneur ready with a answer.

A new study has confirmed it. A close look at our entrepreneurial history reveals that entrepreneurship is an engine for job creation and economic growth even during difficult economic times. The study, The Economic Future Just Happened reveals that more than half of the 2009 Fortune 500 companies started in a recession or bear market. Similarly, nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies were launched during a recession or bear market.

This new study by the Kauffman Foundation’s Dane Stangler suggests that policies that support entrepreneurship also support recovery. It also reveals that job creation from startup companies tends to be less volatile and sensitive to downturns when compared to the overall economy. Are there factors in economic tough times that encourage potential entrepreneurs to take the risk of translating their ideas into a startup?

Several are identified. First, firm founders might perceive that their prospective competition might be weakened. Second, entrepreneurs may view unemployment as an opportunity to start a company. In other words, they beat unemployment with a startup. Further, unemployment presents the opportunity to tap into a larger pool of potential employees.

Naturally, not all new ventures survive, not even during healthy economy times. But although the link between new firms and aggregate economic performance is not so straightforward — some of the startups experience an initial expansion only to contract in its second to fifth year before expanding again — in times of recession, the important contribution of new firms regardless of their ultimate fate constitutes their immediate positive impact on job creation. New firms also contribute to innovation, thereby driving economic growth and often restructuring the economy with new patterns of economic activity.

Companies that reach the Fortune 500 and Inc. fastest-growing lists demonstrate strength, innovativeness and flexibility. These companies were once invisible, but their founders were able to turn a problem into an opportunity. I encourage you to read about some of these success stories in “Profiles in Innovation” section. I would not be surprised if some of the entrepreneurs behind these big companies failed for various reasons beyond a depressed economic environment before successfully reemerging. The entrepreneurial process is complex, but as this new study shows, risk-taking offers big rewards in an entrepreneurial economy both to the entrepreneur and the larger economy.

Knowing this, is the government’s response to this recession supportive of entrepreneurs? Despite the spur of entrepreneurship during recessions, obstacles remain, potentially mitigating the positive contributions of entrepreneurs during such difficult economic times. On top of the list is perhaps the tight capital market. In this regard, Financing the Entrepreneurial Recovery: A Kauffman Foundation Summit, offered interesting insights. Its participants, which included economists, researchers, investors, and entrepreneurs, discussed and debated a wide range of policy recommendations. Most urgently, they called for relief from the strangling costs of providing health care and Sarbanes-Oxley compliance. When asked for new models of financing entrepreneurs, participants expressed strong support for the continuation of the SBIR program, federal support for university proof-of-concept centers, and a national tax credit for angel investments.

More is sure to come from this and other similar discussions, but one thing is certainly clear – entrepreneurship is the path forward to recovery.

Jonathan Ortmans is a senior fellow at the Kauffman Foundation where he focuses on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues.

Supporting more than 14 000 small businesses

noreply@blogger.com (Ben Botes) — Thu, 05 Nov 2009 10:50:00 +0000

Latest figures suggest that various government incentives with services like business finance and business plan support have helped over 14 000 small firms in the last 12 months alone. SEDA, with the help of well chosen alliances such as SA Business Plans and the South African Investors Network is delivering on its promise of supporting the economy of South Africa through helping small business owners everywhere.

A recent article on the SouthAfrica.info website explains:

South Africa's Small Enterprise Development Agency helped over 14 000 clients with services ranging from business planning and registrations to cooperatives support and access to markets in 2008/09.

In all, 199 830 potential and existing small businesses accessed the agency's services through its 42 branches countrywide, an increase of 7.3% over the previous year.

Briefing a National Council of Provinces committee in Cape Town this week, Seda CEO Hlonela Lupuwana said that out of those, 46 695 clients' needs were assessed and 14 373 were helped.

The Seda technology programme assisted 835 small businesses with a total turnover of R129-million, through its network of 27 incubators, and also helped to create 224 new small enterprises, Lupuwana said.

Its Community Private Public Partnership programme, which offers support to co-operatives and community-owned projects, has also been revived.

In-house advisors
Seda had decided to limit the use of consultants to the supply of more technical services, and to 20% of all services offered by Seda, with the remainder being offered by in-house advisors, Lupuwana said.

Last week, a group of 25 Seda business advisers embarked on a seven-day visit to Taiwan, where they were expected to gather more diagnostic skills and training on helping business owners.

Another group of 25 advisers were expected to visit Brazil later this year, Lupuwana said, adding that the visits were a cost-effective way of supporting advisers as Seda only had to pay for "minor expenses".

Forging partnerships
Lupuwana said a random survey of 902 clients had shown that 80% of clients found that Seda's assistance had a positive effect on their business.

This support had come amid limited resources, and despite a six-month moratorium on the provision of all services by the agency to small enterprises.

The limited budget – the agency received R331.2-million for 2009/10 – was a "major problem" in terms of meeting the agency's targets.

Lupuwana said the key to widening the agency's support on a limited budget would be the partnerships it could forge with key partners such as provincial and local governments.

In the Eastern Cape, for example, a number of municipalities had donated buildings and paid for rent so that Seda centres could be set up there.

Source: BuaNews

Business Finance in Difficult Times

noreply@blogger.com (Ben Botes) — Fri, 30 Oct 2009 14:02:00 +0000

Although many small firms have been experiencing difficulties in the current economic climate, both with trade and accessing
business finance , many smaller businesses are booming. So what does the future hold for small businesses in South Africa?

Both entrepreneurs and small business experts have said that we are through the worst, while other believe it may be that a W shaped, basically a short but unsustainable recovery. Trading conditions may continue to be challenging. Business finance from risk-averse lenders may continue to be an issue and as the case currently, Angel finance together with other types of funding may be the only option available to business looking to start or grow.

Given that small business account for 60% of all businesses in the South Africa, it will be this sector which will help lead the country out of recession. But is the SME sector currently in a fit enough state to effectively kick-start the economy? Many SMEs outside the financial, property and transportation sectors have not felt the same pain as larger businesses. Many continue to have good orders, profitable work and, if finances were pre-arranged before the clampdown by the banks, many have little difficulty in continuing financial arrangements.

The outlook is difficult but workable. Strangely, where the greatest challenge to SMEs lies is when the economy begins to recover.

The climb out of recession is the time when the greatest number of businesses fail. Those failures are not caused by poor sales or losses – many of those businesses that fail are profitable and expanding.

Rather, the reason is simple: a growing business needs increased working capital – it needs cold, hard cash. Cash to fund the next sale, cash to fund the next increase in turnover.

A lack of working capital can lead to over-trading. Despite increased turnover and profits a business may not generate enough cash to cover its daily needs. It’s a risk all companies face. If a business has a conflict between profitability and cash flow, it must choose cash flow every time.

Being a profitable growing company also means a business has greater need for finance. As turnover grows, so stock grows along with the money owed to suppliers, tying up increasing amounts of cash in these areas.

So where can businesses get the finance they need to survive the upturn?

Banks are being tougher on businesses – reviews are more common, renewals tougher and banks are demanding increased security or other guarantees, suggesting shorter repayment terms or alternative finance options.

Banks want more information, projections and plans and on a more regular basis. If they don’t like what they see, or don’t see what they expect, they are increasingly likely to withdraw facilities. Despite that, the South African banking figures show that bank lending to non-financial businesses increasing by R100 million in May, but that was after the slump in April of R2.3 billion.

Business finance is out there. Businesses needing extra capital can look to peer groups or to venture capital. This venture capital comes from two major sources – either business angels or Venture Capital funds.

These individuals or funds put up money for shares – and they risk losing the money if the project fails. Demand for funding is increasing and there is less money available, but people still want good businesses to invest in.

Given the current recession, what do small businesses need to think about, and what should they do differently?

The simple answer is that nothing should be fundamentally different – the basics always apply in good and bad times: you need to be providing the products or services that customers want. Look at those organisations that managed to thrive despite the economic slow down. When times are tough you need to be selling the product or service that customers think of first when there is a specific need. Solid client relationships are also key. The relationships you have with your clients will help them to not only trust your product or service but also refer you to their friends and colleagues. Last but not least, ongoing market research to understand the needs and situations of your clients are essential. The better you understand your customers, the better you can provide them with the product or service that they require, at the price they are willing to pay.

Google Profit Means Recovery May Be Near?

noreply@blogger.com (Ben Botes) — Fri, 16 Oct 2009 12:30:00 +0000

With the news today that Google has made record profits of $1.6 Billion for the last quarter, the good news is that it may be due to the fact that those advertising on the search engine is seeing light at the end of the tunnel.

For many small businesses Google remains the most effective advertising channel through its pay per click strategy where businesses only pay for the visits they receive from potential clients searching for something on specific. Mainstream advertising can be extremely expensive and often buying what small business owners can afford. But Google has revolutionized the way we look at advertising.

With many of the businesses we have started, advertising on Google has been a key contributor to the success we have experienced and moving forward this will keep on being the case. Press advertising is not only expensive but often difficult to measure in terms of results. Visits from potential clients to websites such as SA Business Plans and the Investors Network has soared and this is solely due to the increasing customer confidence in the future.

With the recent profits announced its clear that businesses are increasing their ad spend and web visitors, being the real power behind the increased inflow of profit is importantly clicking on ads and hence on the look out for products and services to purchase.

Getting Finance for Growing a Business

noreply@blogger.com (Ben Botes) — Thu, 08 Oct 2009 14:11:00 +0000

Corry and Jaco Coetzee started their small business four years ago. They decided on a goods supplier to the local community as there was a clear gap in the market at the time and they wanted to have flexible working hours. Recently they decided to grow the business further and have now secured R5 250,000 in funding to expand. Here Corry shares her top tips for getting business investors on board.

Update your business plan
A clear business plan is essential. If you acquired funding for your business when you started up you will probably already have a business plan. Now is the time to update the plan to reflect your business and its needs as it is today. Without one people aren’t even going to look at you. You need to make sure you have done your research properly so when you get grilled you aren’t going to loose people’s confidence. It doesn’t have to be long, it just has to contain the key factors.

Consider business angels
Business angels invest capital in new businesses and can also give a huge amount of advice. We were introduced to ours through an angel network called Investors Network and secured R2 000,000. At the beginning we didn’t feel worthy of their help, but it’s amazing how many people are prepared to give advice and invest their money in your business.

Be realistic about how much ownership in the business you want to give away
If it’s too low you’re not going to win confidence in your investors. Obviously you want to give away as little of your business as possible so decide the maximum and the minimum first and stay within that.

Get a good business manager
It’s important to have a good business manager at your bank to get advice from. After building up a relationship with ours we managed to secure R2 500,000 with the help of a local business loan guarantee scheme. The very fact the bank was prepared to give us this amount of money meant other investors had more confidence in us.

Be resilient
You are going to get knocked back lots of times. It’s not a quick process. We emailed a lot of people, and I think it paid off to keep revising the proposal to make it look more professional until it got somewhere.

Get an accountant on board
Be sure to get professional advice, even if this means spending money. No matter how excited you are about your business, the investors are going to be even more concerned because it’s their money at stake.

Few things as exciting as starting a business

noreply@blogger.com (Ben Botes) — Thu, 01 Oct 2009 13:50:00 +0000

Amongst all the exiting developments, projects and business deals from last year, one of the highlights for me was the successful start up of a community for entrepreneurs and investors where business ideas get funded. Together with my business partner, we have long dreamt of contributing to business funding to support entrepreneurs in South Africa. Finally we were able to launch Investors Network and today the business is going from strength to strength. During the process of doing this though, I realised just how much I love setting something up.

Amongst the many experiences I recall from setting up the business, what really stands out for me is the realization of the challenges that entrepreneurs face when starting a business in South Africa. The difficulties with telecommunication, the struggle with the banks, the many bits of paper work and the fact that almost everything takes much longer than first anticipated. But most of all the day we first opened the doors is what stands out most. Few things in the business world beats that feeling.

Starting a business is one of the best feelings you can experience (along with jumping out of an aeroplane – but that is for another day!) You realise that entrepreneurs don’t do these things just for money but for the sheer thrill. I have met many would be entrepreneurs seeking investment from me in the last few years. I do get turned off immediately if I suspect the only desire driving the team is money. It simply is not enough to keep you going.

I also remembered a quote from an entrepreneur that I had worked with on a project a few years ago. She said that you do not have a business until you have a customer. The events of last week brought that to life for me. Many of us come up with great business ideas and some of us may do something with this idea (like form a company) but very few take the critical step of turning that idea into a business. That is truly the scary bit – but it is about emotions rather than money.

Investors will not invest in a business that cannot prove strong customer demand. Sometimes all you need is a letter of intent or pre-orders and you have transformed your idea into a business.

My advice in this blog is to all of those of you who have a great idea but have not done something with it….

Go for it – make it happen. I promise you that even if you crash and burn – the thrill of having gone for it will give you a smile that will last for eternity. To misquote Dickens “Better to have loved and failed, than not to have loved at all”

All the best, and as always, I am happy to help

Where to find a business angel in South Africa

noreply@blogger.com (Ben Botes) — Wed, 23 Sep 2009 07:42:00 +0000

When looking for business finance, the term business angel is perhaps not as well known in South Africa as compared to the US, UK and Europe. Business angels who are often individuals who are well of from previous business success, may have strong industry links in specific business industries and come with plenty of experience, unsurprisingly really can be a great asset to a new business.

It comes as no surprise that in some countries, business angels are preferred partners for business finance and moral support. 'Wow that sounds like a great option for my business' you may be thinking at the moment, so where can I find a business angel?

Contacts with business angels are often made informally. You really need to be keeping a look out for these individuals where ever you are and may find the ideal person amongst:

Personal friends and family.

Wealthy business contacts.

Individuals known to your professional advisers (eg your accountant).

Major suppliers and clients of your business.

You may want to approach an angel networking organisation such as Investors Network.
Many of the most active business angels use these services to find out about interesting investment opportunities.

You usually have to supply a credible business plan and financial forecasts as part of the registration process.

Once you are registered, the organisation passes information on to business angels. Typically, angels will attend presentation meetings (where you present your business to them) or receive bulletins.

In addition to the above you may also attempt to find Angel Finance through the business to business sections of various newspapers include advertisements from investors and from businesses looking for finance.

If you want to advertise your business, the advertisement will have to meet the newspaper's standards.

The benefits of angel finance is well known and although it may not be as straight forward as walking into your local bank to apply for funding, as a new business just starting out it will certainly be worth your while to get a business angel on board as soon as possible.

Business Plan help: writing the executive summary

noreply@blogger.com (Ben Botes) — Mon, 21 Sep 2009 08:18:00 +0000

Today, with many organisations, especially those with much at stake preferring to opt for professional business plan consulting firms for business plan help, the art of writing a good executive summary for a business plan has largely been lost. With banks and business investors in countries such as South Africa, the US and a number of others, requiring a business plan before funding or business finance is considered, its easy to see why. So how do you write an effective and professional executive summary for your business plan?

The executive summary is the most important section of your business plan. It is normally the first section of your business plan that investors will read, and could be the last if it is badly written. An executive summary should describe the company, the product or service, and the unique opportunity your company is offering. It should also provide a short description of your management team and a summary of the investment you are seeking. Don't forget to tell the reader why you need the money and how and when they can expect to be paid back!

It creates a first impression (remember what your Mum said about first impressions!) in the Angel’s mind of both you and your business. Use clear and concise language and words that command attention, and excite your Angel.
Be honest. It is often tempting to exaggerate or Gild the Lily, but you WILL get found out eventually and Angels will not be happy. Angels like the truth. Your summary should promote trust and if "just one little white lie" creeps out, Angels start to look for the others. Now you are on the back-foot.

The executive summary is neither an introduction nor an abstract; it IS the business plan in miniature. It should stand alone and be interesting, concise and clear. It should take no more than 5 minutes to read and when finished the Angel should be able to say "So that’s what these people are up to"

Here are several common mistakes that can make your executive summary less effective:
Too wordy, and failing to get to the point. Angels are busy.
Trying to be all inclusive (it should be a summary)
Failing to show a unique or exciting opportunity
Failing to summarise the investment sought
Failing to generate interest in the reader

Some suggestions to combat these problems:
> Limit your executive summary to a maximum of 3 pages; 1-2 pages would be best
> Focus on the opportunity and explain why it is special
> Make certain that the opinions and claims in your executive summary are fully backed up by the other sections of your business plan.
> Use only concrete facts and figures that explain your business concept, market niche and financial projections.

Don't forget to include the details of your investment (the amount you need, what you will spend it on, and the return you offer your Angel)
Keep the Angel Investor in mind - why are they reading the plan and what response are you hoping to generate?

A good executive summary should demonstrate:

A business opportunity that makes sense

A clear plan for success

A capable management team

A clear, specific, and definable market

Significant competitive advantages

A solid and believable summary of the financial projections

An excellent chance for Angels to receive a healthy return

The outline of your executive summary will vary based upon your particular business. But regardless of the format, every executive summary should include the following areas:

The Opportunity
It should immediately grab the attention of your Angel. This is often best achieved by explaining why your business is different or unique. Clarify your business advantages, how you can break into your market first, the benefit of your proprietary product, or how research supports a significant customer demand for your product or service. Essentially, what differences or characteristics will lead to success?

The Product or Service Description
Describe your product or service in terms of its benefit to your potential customers. How does it work? What is it used for? Where is it sold? How much does it cost? How does the customer benefit? Remember to limit yourself to highlights in this section. Be brief.

The Market
Who is your customer? How large is your market? Who are the competitors? Why are you better? What are your market share projections? Your reader must be convinced that potential customers will have the want, need, and ability to purchase your product. Don't try to avoid the fact that you have competitors. Instead, explain how you can gain market share with your business advantages.

The Management Team
Describe the management and how they will lead to your success. Is it clear your team is well-rounded with the experience, expertise and capabilities to achieve the goals outlined in your business plan? Does your board of directors or advisors bring credibility and experience to the table? Be warned – management weaknesses will ensure that Business Angels will go no further.

The Finance Requirements
How much money has been invested to date? What are your earning projections for the next three years? What amounts are currently required? What will the funds be used for? From whom do you expect to receive your investment? What specific return do you offer an investor? What is the exit strategy, in terms of both time and return?
At what point in the writing process is it best to write your executive summary? There are three schools of thought. The first says prepare it before you write the rest of the business plan. The second says write it before, then again afterward to combine the best of both. The third says prepare the executive summary only after the rest of the plan is complete.

Which approach is correct? It's really a personal decision, but it has been our experience that preparing the executive summary when the rest of the business plan is complete is fairly effective. This allows us to summarize the plan after all the information has been laid on the table with the hindsight of compiling the entire plan.

Remember to review your executive summary many times and ask yourself whether it grabs the reader's attention. Will they be excited about your business? Will they want to read the rest of the business plan? If the answers to these questions are no, rewrite it. Show it to a friend or business associate and ask them to be critical. Many times after someone reads your executive summary they will say "It's great, but what about…?"

Most business plans are only given any concideration once the executive sumary has been read and created enough interest for the business finance provider or investor found what they were looking for within the executive samary. Best of luck with your business plans and for business plan help, don’t be afraid to ask or seek help.

Tips for Young Entrepreneurs

noreply@blogger.com (Ben Botes) — Wed, 16 Sep 2009 20:27:00 +0000

One of the ma great things about becoming an entrepreneur is that there is no age limits. Any one young or old can be an entrepreneur and if I knew what I know now when I was 15 I would have started then. Young people often have few responsibilities and less to lose, plus with your whole life ahead of you, why not give it a try?

The entrepreneurial landscape today is of course much different from the one 20 years ago. With the benefit of the Internet and an electronic commerce not only have entrepreneurs have almost instant access to a world wide market but startup costs are of corse much lower.

In a recent interview with Business Link, Internet entrepreneur Marc Day, founder and creator of SwapGame.com spoke about the joys of being an entrepreneur, his challenges and what he would do differently if he started a business again:

Marc Day founded SwapGame.com Limited, an internet-based, games-rental subscription service, two years after graduating. A professional attitude and thorough research has helped him finance and build his business, set to achieve a turnover of £1 million in its fourth year.

What I did
Take time for thorough research
"After I left university I took on admin-type jobs just to get by. During this time I did lots of research into my business idea. I also carried out field research, questioning people coming out of video games shops. I got as many facts and figures together as I could and found out all the costs involved before I approached anybody for money.

"It took about 16 months. I wanted to go into the market as quickly as possible, but I knew I needed to cover every angle before I did. I knew people weren't going to throw money at me and that they'd want to know all the details. Besides, it was important I knew that the business was going to be viable too."

Explore all funding possibilities
"When I was first looking for start-up capital I approached private investors and venture capital companies, but they all wanted to see more experienced management in the company. It was a difficult situation because I didn't have the money to bring that experience on board. The feedback was always that I had a great idea, but they'd like to see me start the company and how it went first. It was very frustrating. "But I plugged away and eventually I got the money through loans - personal and family ones.

Importantly, I also secured a R300,000 bank loan. The bank was apprehensive, but I was able to use my parents' property as security and I made my father chairman of the company, which gave the bank more confidence. My father was experienced in business and I used him as a sounding board anyway.

"Two years later I wanted to raise working capital for expansion, so I used the Department for Business, Enterprise and Regulatory Reform Small Firms Loan Guarantee scheme (now replaced by the Enterprise Finance Guarantee). Age wasn't a factor at all. It was my track record that counted, the partnerships I'd made and my growth strategy. We got R1 000,000 and can go back for another R1 500,000 if we reach certain targets."

Show confidence
"A lot of my contact with people when I started was over the telephone and nobody questioned my age because I came over in a professional manner, knew what I was talking about and wasn't frightened of negotiating with people. I think that makes a big difference."

What I'd do differently
Scrutinise my business plan regularly
"I finalised my business plan when I got my finance and though I kept figures in my mind that I had to achieve I didn't look at the plan again properly until I entered the Shell Livewire competition. It was then, a year after starting up, that I discovered how high my packaging costs were and how that was impacting the business on a daily basis.

"I managed to trim those costs down by about 40 per cent and it really affected profitability. If I'd looked at my business plan after, say, six months, I could have made the business leaner much sooner."

Marc's top tips:
• "Get as many facts and figures together as early as possible to back up your ideas."
• "Find a mentor you can ask for advice and run new ideas past."
• "Keep plugging away - even when you come up against obstacles."

Business Idea: Micro Loan Guarantees Scheme

noreply@blogger.com (Ben Botes) — Wed, 09 Sep 2009 18:13:00 +0000

This weeks business idea is all about business finance, albeit not the normal kind. Apart from the usual options to finance your business like bank loans, angel funding, Micro funding, covered recently in the Angel Investment Blog and of course venture capital, what about those who do not qualify for any of the above?

Recently on Springwise, a really interesting business idea was discussed, that of Micro loan guarantees. Based on the idea of California-based nonprofit organisation United Prosperity does not provide funding for micro businesses but rather providing loan guarantees.

A traditional micro loan or donation of R1000 delivers roughly that same amount to the entrepreneur in need, but providing a loan guarantee of the same amount can result in a much larger loan from a local bank, United Prosperity says—as much as R6000.00, in this case.

How does it work: Potential guarantors browse the United Prosperity site, which features a number of pre-screened entrepreneurs in developing countries. They then choose one to help, and contribute a loan guarantee of any amount through PayPal. United Prosperity then consolidates the guarantees on multiple loans for the micro finance partner involved and issues a guarantee, which is deposited as collateral with the local bank. With the assurance of that collateral, the bank is then willing to lend funds—the amount depending on the guarantee percentage it requires—to the micro finance institution, which in turn lends to the individual entrepreneur who was supported. The guarantor can track the entrepreneur's progress building their business, and when the entrepreneur repays the loan, the funds are returned to the guarantor's PayPal account. United Prosperity, meanwhile, earns interest on guarantee funds; it's also considering charging its partners a small fee for providing the guarantee.

Now in beta, United Prosperity cites many advantages to providing loan guarantees rather than simple p2p loans: the process allows recipients to develop a credit history, making future loans easier to obtain; it reduces the interest rates banks charge the micro finance institutions involved; and it better manages risk while providing a more scalable model. So far, 111 guarantors have used the site to help 105 entrepreneurs with more than USD 11,000 in guarantees. One to partner with, emulate, or otherwise get involved in...?

Our Opinion:

Strengths: Great idea for business investors who really want to make a difference. Also a great idea for the SA Government for that matter. Your investment (and small risk) go to a worthy cause, you get to give input and share your expertise. Small guarantee can grow into somethings substantial.

Down Side:Its difficult to see a down side here. Of course your monetary returns wont be nearly as high as a fast growing tech start-up investment but that is about it.

Conclusion: Great idea for both entrepreneurs and investors. As the entrepreneur behind the business you should not find it to hard to recruit investors, you should find it fairly easy to get a bank that goes along with the idea and although you may not make a fortune in cash, hundreds of livelihoods may be created and supported through your handy work.

Marketing Plan

noreply@blogger.com (Ben Botes) — Thu, 03 Sep 2009 08:30:00 +0000

What is a marketing plan and what is the importance of this for someone writing a business plan, applying for business finance or starting a new business?

During a conversation yesterday with a decision maker at a well known South African business finance provider, I was pleasantly surprised when the it came to light that funding institutions in South Africa are increasingly looking at the viability of the marketing plan attached to the business plan when someone is applying for business funding.

To me this is logical. One of the biggest challenges a new business will face is to find and keep customers. It seems unthinkable that banks, SEDA, the IDC, angel investors and venture capital firms will not consider this part of your business strategy as key to future success.

Take a minute to consider the start-up process. It really dies not matter how good your idea for a product or s service is. If know one knows about it, it will remain as that, a good idea. With frightening statistics about business closure rates being banded about in so many articles and blogs today, the solution is a simple one. As a business you need to focus on finding clients and keeping them.

What is a marketing plan? Well it really depends on what type of business you are running. A marketing plan is a road map detailing the "route" you'll take to get your business noticed by potential clients. By following a properly crafted plan, you'll know what to do and why you're doing it, while avoiding some of the mistakes that can cost you money and future growth. When it comes to applying for business funding, the funding institution wants to know that you as an entrepreneur knows how to get your product to the market in such a way that those people buying your product will do so again in the future and maybe even tell their friends about you.

Without getting into to much detail and boring you with theoretical speak at a basic level you still need to consider your:

Product or service you will be selling and how that will benefit those buying it.
The Price you will be charging and whether this can be used as a marketing tool and how it will help you attract your customers.
Place of sale, whether it be on the internet, a physical location such as a shop, or which ever which way you can think of that is effective and cost efficient.
The Promotional method or how people will come to know about your product
The People who sell your product or service and this is especially important when dealing with people face to face. Your sales people and this providing the service is the face of your business, they need to reflect what you envision your business as being.

When starting or running a business these issues need to be thought through carefully and implemented with attention to detail and adjusted on a regular basis based on what works and what does not. It not rocket science, but it needs a marketing plan and constant attention to detail.

Business finance - Getting the best deal from your bank

noreply@blogger.com (Ben Botes) — Tue, 01 Sep 2009 13:12:00 +0000

When applying for business finance through a bank there are a number of useful tips that you may want to consider to get the best deal from your bank. In the current economic climate where banks are a bit more risk averse and entrepreneurs often may op for alternative business finance its important that you know your way around the financing landscape.

New business owners often turn to the bank that holds their personal account when finding funding, but you should compare charges from at least four banks (for example, how much does it cost for cheques, deposits, standing orders and overdraft facilities). If you’re already trading, changing banks is now much easier than it used to be and it could save you money. For more advice, read our guide to

Many banks offer free business banking for a set period, but find out what charges apply after the introductory period. Ask what ‘free banking’ means – it may be free only if you’re in credit or your turnover is under a certain figure.

When choosing a bank ask these questions:
What support is offered? – Do they have a dedicated small business team, will you be allocated a specific adviser and is there support material, such as free websites and guides?
What services do they offer? – For example, do they offer internet or telephone banking? If so, do they charge for this?
How are charges levied? – Is there a fee per transaction or a one-off charge?
How close is it to your premises? – If you’re likely to have a lot of transactions requiring you to visit the bank, then proximity is a key issue.

How to keep banking costs down
Negotiate with your bank manager – Everything is negotiable, from overdraft interest rates and charges to loan repayment schedules. Get any special terms in writing
Reduce transactions – Try to avoid cash and cheques. Automation – direct debits, standing orders, internet banking – tends to be cheaper
Review charges regularly – Ask your bank manager to suggest how to reduce charges Earn interest – If you have extra funds, put them in a high-interest deposit account.

Make sure the charges are correct – Check any discrepancies between statements Avoid unauthorised overdrafts – Telephone and internet banking can help you keep track of your account, to see approaching problems What to do if the bank says ‘no’One in 10 business loans applications are rejected. If this happens, find out why, so you can then revise your plan and try again.

There is also non-bank capital available. The South African Investors Network has a list of institutions that help fund businesses. Usually funding depends on the owners being from certain communities, age brackets or geographical locations, as well of course the viability of the business idea.

Angel Investor Tips and How-to Slide Show

noreply@blogger.com (Ben Botes) — Thu, 13 Aug 2009 20:22:00 +0000

If you have ever considered becoming an angel investor or wondered how to attract angel investment for your business then you may find either of these two slide shows extremely interesting.

How to become an Angel Investor

How to present your business idea to an Angel Investor

Enjoy!

Check out the SA Angel Investors Blog

noreply@blogger.com (Ben Botes) — Mon, 10 Aug 2009 09:30:00 +0000

For those of you not aware of the SA Angel Investors Blog, it may be useful to to pay the blog a visit. They are currently featuring a number of great articles including:

Investor Partnerships the Key for Small Business

Where to find small business funding

Angel finance much more common than VC's

How to Attract Angel Investors

Let us know what you think.

Innovation Fund News

noreply@blogger.com (Ben Botes) — Mon, 10 Aug 2009 08:49:00 +0000

The Innovation fund is once again offering some attractive incentives and business investment for entrepreneurs, this time in the renewable energy sector. The latest call for business plans and proposals close in the latter part of September. With just more than a month to go you should have enough time to tweak your proposal and who knows you may be the next idea to get funding and support.

Details are
The Innovation Fund, through its Technology Advancement Programme (TAP), invites all South Africans (inventors, techno-entrepreneurs, engineers and researchers), who are engaged in the research and development of novel and inventive technologies, to submit their proposals.

The investment sought must be for research and development resulting in a working prototype, or similar, which is ready for commercialisation. The proposed technology must be a renewable energy technology.