POTENTIAL FOR SUCCESS – HOW WE EVALUATE AND SUPPORT EARLY AND GROWTH STAGE COMPANIES
By Tim Sheehan
At Commenda we are often approached by early stage and growth stage companies seeking capital. The general premise is, “if only I had more capital, I could really make this work.” We often find that capital alone is never enough. In fact, for many companies the grind of constantly raising capital is often a distraction from doing what matters most – focusing on your clients.
Starting and growing a business can be an exciting and rewarding experience. It also is fraught with unseen risks and challenges you seldom can fully predict. Over the years we have had and seen a lot of successes and failures. So what distinguishes those that succeed from those that fail? Sometimes it is just good luck or timing. In most cases it starts with good planning, an ability to adjust the plan based on new information and a willingness to recognize your mistakes, learn from them and move on.
When evaluating any opportunity we start with an analysis of the strengths and weaknesses in six (6) key areas. We categorize the information into that which is known, that which is assumed and that which is unknown. We then gauge the potential upside and downside and the uncertainty surrounding our evaluation. In this analysis we are looking for opportunities for removing uncertainty by validating assumptions, answering the unknowns and identifying areas where we can improve any weaknesses.
We have summarized below the basic questions we seek to answer in each of the key areas. This is just a summary of the framework. We will follow up in subsequent blogs with more detailed descriptions and examples of the things we look for in each area.
1) Product/Service – Why do you exist? What pain points does the company’s product/service solve? How does this solve it? Where is your product/service in terms of market adoption? What is the current gold standard and what other technologies might disrupt it?
2) Market – What is the size of the total addressable market? Is it growing or declining? Who are the major players and what is the concentration among them? What are the economics and opportunities for disruption?
3) Sales and Distribution – How are you delivering your product/service to the market? Seems obvious, right? Many companies spend so much time focused on their product that they fail to ask the client what they really want. What are your client’s pain points and how can you address them? By the way, what is your digital marketing plan? Your success depends on it.
4) Team – Who is on your team including the Board of Directors, Advisory Board, management, employees, major vendors and contractors? Does everyone know your value proposition and their role in seeing it realized? The value of human capital is immeasurable. So is the culture that makes the whole greater than the sum of the parts.
5) Operations – How is your product/service manufactured? Have you properly calculated the time, costs and risks of scaling up? Trust us when I tell you it will take twice as long and cost twice as much as you expect. How well is your intellectual property (IP) protected? What are your regulatory requirements? Is this a strength or weakness?
6) Financials/Capital – Is everything properly accounted for? Is there a defined and understandable system of accountability? Keep in mind what Peter Drucker pointed out many years ago, “What gets measured gets managed.” With early stage companies, investors are often willing to invest in the vision and performance is measured in milestone accomplishments. Once the commercialization of the product/service begins, institutional investors measure the company’s success in top line performance and cash flow. At this point there is no place to hide, anything. Many growth stage companies often ask us, “What is the cheapest and least dilutive form of capital?” We think it is the cash flow you generate from your business.
Robert Kennedy said, “Only those who dare to fail greatly can ever achieve greatly.” We agree. We also believe with proper planning and insight you can increase your chances of achieving greatly. Just remember:
- » Starting and scaling a business is hard for even the most accomplished individuals.
- » Companies go through distinct stages of development and successful companies know where they are in this development and where they plan to go.
- » While every situation is unique, there are patterns that are often repeated.
Commenda exist for one reason – to help you create transformative value. We bring both human and financial capital. We maintain a broad and deep team of individuals and firms with experience in Management (interim CEOs, COOs, CFOs), Branding and Marketing, Human Resources, Sales and Distribution, Operations, Financial Management, Capital Formation and Corporate Development (M&A).
Please feel free to contact me, Tim Sheehan, with any comments or questions at [email protected] or 317.508.3388 or any other member of the Commenda team who can be found at www.commendacapital.com.
