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The Process I have noticed throughout the many years I have been engaged as a financial consultant, either for a financing firm, for whom I worked or for my own consulting firm, that most folks are either dubious of the process or just not enlightened to the process. Therefore, I would like to just simplify our approach to what we will call the free thirty-minute compulsory assessment interview, taking place on site or on the phone in chronological order, while restating my above premise that "FINANCING IS NOT MAGIC, IT IS A SCIENCE". I say this because what we contribute to a client's needs in the form of financial consulting is based on decades of "TRIAL & ERROR" approaches as to what works and what does not work, from creating an effective business plan to actually launching financing probes/options; such as, the ones recited below, beginning with a chronology of "ACTION PLANS". 1. INITIAL INTERVIEW-we listen to the entrepreneur’s developing history of the project, sometimes with a non- professionally written business plan usually taken from an internet template with no direction as to the audience intended (huge error); nevertheless, it is a start. This will also typically include our signing an NDA (non-disclosure agreement to protect the prospects intellectual property). FYI: A Prospect is an applicant not yet booked vs a Client, who was a prospect but after a contract is signed becomes a Client. Now whether we have a business plan or not we will take notes and assess the project and its merits or lack thereof based on our own research (due-diligence including value analysis) and industry trends which will eventually lead to an assessment and the feasibility of the project and report back to the prospect, SO WE DO NOT WASTE HIS/HER TIME OR OURS. 2. REPORT-we will contact the prospect and either express our interest to move forward by sending our consulting agreement to them and discuss the terms of our initial recommendations or pass on the prospect’s project with some friendly advice for him/her to move forward on their own, if applicable. 3. FOLLOW UP/EXECUTION-once the prospect receives our agreement and the terms are explained, which is fairly clear in the language of the agreement itself and the prospect signs the agreement, we go to work to achieve our mutual goals, which range from our rebuilding their business plan to suit the interest of our network audience and advice on raising working capital, much of which depends on the Client’s stage of development.. 4. ADVICE RANGES FROM: A. Structuring or re-structuring management and/or the company to make the business more appealing (like staging a house for a maximum gain) to our contacts. B. Capital Raise exploration and recommendations from a variety of sources beginning with
Once the legal documents are prepared by the applicable attorneys and are ready to be presented to perspective investors or lenders then we give our client a list of possible entities (Institutions, Equity Investment Firms or Individuals interested in their “IP”) and the founder calls these entities after we introduce our client’s project to the possible participants and our client usually carries the ball from there, which may include group or individual meetings. FYI: The above is only a representation of what transpires between a possible client (prospect) and to what happens, as each transaction has its own unique characteristics.
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TO THE RESCUE There are many professions where the professional is advised to not get personal with the patient or client, and that is typically true in most cases, but when you are in my profession as a business consultant and you have clients that have made serious business errors, sometimes un-recoverable or start-up pioneers and you are cognizant of the sacrifices the latter (early stage entrepreneurs) make from borrowing every last dime from parents, siblings, other relatives and friends, plus unending dedication, at least someone like myself wants to help them before it is too late, even as it applies to family owned businesses (succession) or just Dad’s company. Maybe it is because I have been there and done that, starting and growing three businesses; pledging my home and losing it to a bank called note from a so-called community bank, who advertised their community spirit but still needed borrower value-added collateral or no loan, regardless of the assets of the business, which in many cases are usually exhausted by the time a visit to the bank is necessary and the appeal goes for naught and the need for greater working capital to expand is met with too many turn-downs, thus the need for a battle-hardened, battle-tested advisor emerges. I am no hero, but I try to help wherever my experience can help or be effective, which is why I do what I do, much like my book explains (Entrepreneurial Decision Making). My own experiences, both good and bad can and does help from debt financing and re-financing to finding synergy partners; from contract manufacturing to licensing and from advice on staying the course, bankruptcy to selling the business. Our clients come form many different walks of life, from first generation owner/founders to second generation inheritance; from recently fired/job loss to controlling their own destiny; from good businesses that are falling on bad times to existing businesses needing growth advice. Our company has a smorgasbord of business opportunities for the newly minted entrepreneurs to seasoned business persons wanting to get involved in our client’s business. Ronald Mitchellette Mitchellette and Associates; LLC Blog 38
Food for Thought Ok, I am deviating from my usual posts on business consulting to write this article as I am sitting listening to Dr. Ben Carson on this evenings FOX NEWS discussing this country's Homeless problem; such as, those in SF and Seattle with very little creative solutions, nothing personal doctor, and here is my take on solving the problem. I spent a full month in basic training/boot camp, at Fort Leonard Wood, Mo. using tents as shelters, digging latrines, going to mess, doctors, hospitals even church with no real inconvenience and it was actually a healthy life style; so why can't we buy and/or dedicate some land and set up a military compound for these folks? They already have their tents or we can buy them from them and set up common tents; no class structure unless we do want to appoint a camp leader per neighborhood (similar to platoons or company units). This military lifestyle will be good for the individual giving him/her a sense of belonging and commanderie they do not enjoy in their present environment. We can even set up and pay the healthy one's as quasi military police or impose mandatory Military Police cycling on our present MP's? The advantages of this approach are numerous and would depend on volunteers from the medical and other professions but the results would be earthshaking as everyone would benefit from the citizens, store owners, local governments and society as a whole, to name a few. What would be wrong with re-starting or re-dedicating an old retired military camp (Fort Ord in Northern California, where I spent advanced training would have been ideal but it had been re-dedicated to university level education and other uses)? There must be some still around! I learned a lot about myself, especially as a college graduate-digging a latrine, standing inline waiting for everything from food to showers. The Military is the best thing to happen to a teenager and should be compulsory once again-under certain conditions. I went on to serve in the reserves for 7 years and to this day love every minute of the time I served. I could write a whole business plan on this subject if any official is reading this article as the potential is enormous and, who knows we might even witness an emerging entrepreneur or future politician, police-person et al from this group, since many homeless are just victims of bad luck and need a break from society. Well, enough said to wet the appetites of the more fortunate and military minded, who may be reading this article. Respectfully Submitted, Ronald Mitchellette U S Army Artillery Retired Mitchellette and Associates, LLC (go visit our website MitchelletteandAssociates.com) for more info. Report this Published by Status is online Ronald Mitchellette Founder President at Mitchellette and Associates, LLC Published 37 articles Follow This article has been posted for public knowledge and help for our homeless, many of whom are veterans! LikeComment Share BLOG 37
THE DOCTOR’S IN RE-EDITED It has been a 14 months since I had written my last Blog on the above subject; however, I feel compelled to refresh the subject as so much has happened since that first Blog; beginning with why people in business wait so long to call a business doctor (alias consultant) when they have been experiencing serious symptoms for months or even years? So rather than going into a textbook explanation of the WHY’S and ANSWER’S to address these problems; I thought it best to describe the actual ILLNESS and SOLUTIONS for each case we encounter, beginning with the first case below ( sort of a match test to see what you the reader may identify with). CASE 1: START UP to GROWTH This Founder Entrepreneur comes to us with a sterling new invention which will revolutionize the industry and has developed a technical team that has brought their invention to “Proof of Concept” status, throughout the four years he has been raising seed money from friends and family, and now he wants to raise even more money to continue his research or he and his invention will go down in flames having missed the strategic market window, which is closing fast. His problem is no more working capital to continue-What does he do? What are his options Where does he go to find solutions? Fortunately for him he came to the right place as most of my team have been there and done that ourselves and know of what we speak. One of the first questions we ask is, in addition to determining if the invention is patented or copyrighted and assuming it is one or both, how badly he/she wants to keep control of his/her technology or is he amenable to bringing in equity partners or is he “OK” with giving up control of his/her company as answers to these questions determine which direction we should take him/her. (This is like a doctor asking his new patient if he/she is allergic to certain drugs or other allergies before exploring or determining a cure.) Once we know whether our patient, now client, has no known reaction as it relates to founder control then we are ready to offer our suggestions, which covers a smorgasbord of financial options (re: our website for details/www.mitchelletteandassociates.com); such as, equity or debt in the form of refinancing and/or restructuring the current company’s debt or finding an investor(s) or even a buyer for the business, perhaps a synergy partner or seek-out contract manufacturing if applicable and if there are hard assets in the company such as machinery and equipment, then there are finance companies that do that kind of financing. These options are just for starters as there are many more to explore and like a doctor who administers different drugs, we do this until a solution is found or we keep on searching from our arsenal of weapons from which to choose. FYI: Just for the sake of options that are available for this situation and other similar cases, all involving financial restructuring in one form or another, let’s list the weapons we can suggest/recommend or employ: Traditional Banking-Banks with a special commitment to entrepreneurs or start-ups; of course, they will want extra-collateral and personal guarantees even from others that may not be involved in the business but will pledge their assets on behalf of the Founder. Non-traditional Banking: This group is commonly known as “HARD MONEY LENDERS” and charge much higher interest rates than traditional banks but are not as strict in the COLLATERAL area, which is why their rates are higher but they do have some similar loan requirements as traditional banks, which needs to be explored before any closing. Asset Based Lenders: This group of lenders are focused on accounts receivables applying certain percentages to eligible receivables, if they exist, or no need to talk to them unless the founder’s company has inventory, which under certain circumstances could also qualify for a loan percentage and if the applicant has machinery and/ or equipment, that to can be leveraged in the loan process. Startup Investors: This group, which is growing consists of wealthy RISK TAKERS (a la Shark Tank) who for the right deal and project will make many kinds of offers; some too onerous to accept and other offers that make sense and can launch the IP of the founder into major markets, thus insuring the perpetuation of the Founder’s dream. This approach depends largely on seeking a Consulting Firm (like ours) with a large network of “SHARK-TANKERS” to contact. Purchase-Order Financing (POF): there are also companies that specialize in advancing money against valid yet to be shipped and converted into a receivable, order based on the quality of the order; for example, the Founder’s company makes a product that a major buyer/customer orders and the Founder’s company cannot fill the order because they do not have the cash or credit to order the material to fill the order. Then the POF entity will advance the cash for the Founder’s company to buy the material and take the order as collateral, relaying on the product shipment to convert to a receivable, which becomes the ultimate asset to justify the advance. Equity or Hedge Firms: This is yet another group to contact as they have their own standards for investing and are, in some respects, similar-to SHARK-TANKERS and they are well connected to their own money sources, if the concept is worth pursuing. Contract Manufacturing: As an inventor with a patented idea and short on operational cash, you may develop an interest to contract your work out to a vendor, who has the equipment to build your product and drop ship it to your customer or ship to you, the founder, and you then can ship to you customer if you want your customer to think you produced the product in your own facility. This is a great and innovative way to avoid any kind of financing to purchase your own equipment and hire and train employees to build and ship your product. (we do this a lot with our early stage inventors, even as a precaution for them not to go through the exercise to build an in-house operation until the Founder’s invention/concept is market tested, which makes it easier for the founder to raise money once the proof of demand is established in the market). SBA: The Small Business Administration: This group is often overlooked because it gets a bad rap due to the amount of documents required but in some cases it is worth exploring, especially if we have the lenders that are regionally and locally approved by the SBA to shepherd a loan request on behalf of the borrower. Licensing: This is a great way to build and market your own company or concept as the advantages are numerous from not needing any serious working capital to build an in-house business to just sitting back and collecting your share of the licensing revenue, known as ROYALTIES while sitting on a beach somewhere reflecting on life with a toddy in your-hand. Synergy Partnering: This is how I started my first company. I had the idea but needed a machine shop to produce it, thus visiting many shops until one of the shops I visited needed a businessman to help grow the business. So, after numerous discussions we partnered into a single entity, which worked-out perfectly I provided what he needed, and he did the same for me. It was a good brain trust as I knew nothing about milling and he knew nothing about business, which is often the case when trying to find a synergy partner, just like finding a marriage partner. Broker Referencing: We have a substantial Broker Network to call upon if any form of an IPO would be in the mix or if a sale of the business is being considered. Crowd Funding:This is something to consider as there are two basic types of Crowd Funding (Reward or a Securities offering); the former as well as the latter depends on the network of the applicant in both scenarios and the security offering must be through an SEC approved/crowd funding/internet savvy adviser; however, success is still dependent on the applicant's own personal network and the medium to accomplish the task of raising money becomes the Internet and the group the applicant selects to implement the internet process, which to some extent replaces the traditional broker. OK, the above options depend on the experience and knowledge of the consulting firm you engage and will apply to the various case studies that we will use as examples of what option(s) from which to choose in the following exercises. (More to follow) Ronald Mitchellette Mitchellette and Associates; LLC BLOG 36
Growth Financial Options It has been a 14 months since I had written my last Blog on the above subject; however, I feel compelled to refresh the subject as so much has happened since that first Blog; beginning with why people in business wait so long to call a business doctor (alias consultant) when they have been experiencing serious symptoms for months or even years? So rather than going into a textbook explanation of the WHY’S and ANSWER’S to address these problems; I thought it best to describe the actual ILLNESS and SOLUTIONS for each case we encounter, beginning with the first case below ( sort of a match test to see what you the reader may identify with). CASE 1: START UP to GROWTH This Founder Entrepreneur comes to us with a sterling new invention which will revolutionize the industry and has developed a technical team that has brought their invention to “Proof of Concept” status, throughout the four years he has been raising seed money from friends and family, and now he wants to raise even more money to continue his research or he and his invention will go down in flames having missed the strategic market window, which is closing fast. His problem is no more working capital to continue-What does he do? What are his options Where does he go to find solutions? Fortunately for him he came to the right place as most of my team have been there and done that ourselves and know of what we speak. One of the first questions we ask is, in addition to determining if the invention is patented or copyrighted and assuming it is one or both, how badly he wants to keep control of his technology or is he amenable to bringing in equity partners or is he “OK” with giving up control of his company as answers to these questions determine which direction we should take him/her. (This is like a doctor asking his new patient if he/she is allergic to certain drugs or other allergies before exploring or determining a cure.) Once we know whether our patient, now client, has no known reaction as it relates to founder control then we are ready to offer our suggestions, which covers a smorgasbord of financial options (re: our website for details/www.mitchelletteandassociates.com); such as, equity or debt in the form of refinancing and/or restructuring the current company’s debt or finding an investor(s) or even a buyer for the business, perhaps a synergy partner or seek-out contract manufacturing if applicable and if there are hard assets in the company such as machinery and equipment, then there are finance companies that do that kind of financing. These options are just for starters as there are many more to explore and like a doctor who administers different drugs, we do this until a solution is found or we keep on searching from our arsenal of weapons from which to choose. FYI: Just for the sake of options that are available for this situation and other similar cases, all involving financial restructuring in one form or another, let’s list the weapons we can employ: Traditional Banking-Banks with a special commitment to entrepreneurs or start-ups; of course, they will want extra-collateral and personal guarantees even from others that may not be involved in the business but will pledge their assets on behalf of the Founder. Non-traditional Banking: This group is commonly known as “HARD MONEY LENDERS” and charge much higher interest rates than traditional banks but are not as strict in the COLLATERAL area, which is why their rates are higher but they do have some similar loan requirements as traditional banks, which needs to be explored before any closing. Asset Based Lenders: This group of lenders are focused on accounts receivables applying certain percentages to eligible receivables, if they exist, or no need to talk to them unless the founder’s company has inventory, which under certain circumstances could also qualify for a loan percentage and if the applicant has machinery and/ or equipment, that to can be leveraged in the loan process. Startup Investors: This group, which is growing consists of wealthy RISK TAKERS (a la Shark Tank) who for the right deal and project will make many kinds of offers; some too onerous to accept and other offers that make sense and can launch the IP of the founder into major markets, thus insuring the perpetuation of the Founder’s dream. This approach depends largely on seeking a Consulting Firm (like ours) with a large network of “SHARK-TANKERS” to contact. Purchase-Order Financing (POF): there are also companies that specialize in advancing money against valid yet to be shipped and converted into a receivable, order based on the quality of the order; for example, the Founder’s company makes a product that a major buyer/customer orders and the Founder’s company cannot fill the order because they do not have the cash or credit to order the material to fill the order. Then the POF entity will advance the cash for the Founder’s company to buy the material and take the order as collateral, relaying on the product shipment to convert to a receivable, which becomes the ultimate asset to justify the advance. Equity or Hedge Firms: This is yet another group to contact as they have their own standards for investing and are, in some respects, similar-to SHARK-TANKERS and they are well connected to their own money sources, if the concept is worth pursuing. Contract Manufacturing: As an inventor with a patented idea and short on operational cash, you may develop an interest to contract your work out to a vendor, who has the equipment to build your product and drop ship it to your customer or ship to you, the founder, and you then can ship to you customer if you want your customer to think you produced the product in your own facility. This is a great and innovative way to avoid any kind of financing to purchase your own equipment and hire and train employees to build and ship your product. (we do this a lot with our early stage inventors, even as a precaution for them not to go through the exercise to build an in-house operation until the Founder’s invention/concept is market tested, which makes it easier for the founder to raise money once the proof of demand is established in the market). Licensing: This is a great way to build and market your own company or concept as the advantages are numerous from not needing any serious working capital to build an in-house business to just sitting back and collecting your share of the licensing revenue, known as ROYALTIES while sitting on a beach somewhere reflecting on life with a toddy in your-hand. Synergy Partnering: This is how I started my first company. I had the idea but needed a machine shop to produce it, thus visiting many shops until one of the shops I visited needed a businessman to help grow the business. So, after numerous discussions we partnered into a single entity, which worked-out perfectly I provided what he needed, and he did the same for me. It was a good brain trust as I knew nothing about milling and he knew nothing about business, which is often the case when trying to find a synergy partner, just like finding a marriage partner. OK, the above options depend on the experience and knowledge of the consulting firm you engage and will apply to the various case studies that we will use as examples of what option(s) from which to choose in the following exercises. Reprinted from Previous Blog: When is the best time to hire a Consultant? That question looms over just about anyone in business today, beginning with the pre-startup, note I said pre-startup, because that is when the structure of the company and the feasibility to fund it must be considered to ensure a smooth transition into the many issues needing resolution to successfully move the startup forward. There are many issues to consider, among which is the legal structure, maybe a Delaware Corporation, a limited Liability Corp, S-Corp, C-Corp and even incorporating in your own state? Officers, Board of Directors, Board of Advisors (preferred), authorized and issued Stock, Incorporator’s equity position and what percentage of the company the incorporator is willing to exchange for raising money in the many forms available, with which to do so; such as, straight equity for cash, debt to equity conversion options, loans and even in-kind exchanges and/or sweat equity et al. It is better to formulate all the inner-structure of the company in the beginning than undo the mistakes usually made early by the entrepreneur before he or she hires a consultant; but wait, most of the above is the work of an attorney and necessary; however, the role of the consultant at this early stage is to put the structure of the startup in perspective, usually including a professionally written business plan that will serve as a roadmap for the startup at which point the consultant will most probably recommend an attorney or law firm, with whom they have a rapport or professional relationship to execute the legal documents as referenced above, including various investment documents for any forthcoming fund raising, which the consultant will quarterback, using his/her network of potential investors and contacts. FYI: It is very important that the consultant and the attorney understand each other’s role and work together as a team for their mutual client, since any disagreement in legal structure and/or fund-raising campaign must be amicably resolved to effectively move forward within the total compliance of the law applicable to the fund-raising effort; such as, SEC regulations & restrictions regarding qualified investors et al. Then, because of the fact we are dealing with a startup, we probably have an invention or an idea that needs to be patented, enter the need for an attorney to file for patent protection. This is an early stage must for the typical startup before they even begin to raise funds so as not to give-away their idea and lose their market edge. The above, not only takes some seed money, usually raised from family and friends, for the initial payment to a consultant and attorney, but also, takes time (usually three months) before the incorporator sees the first dollar raised for operations. GROWTH COMPANY Your startup is now a successful company, perhaps with three to five years of financial history under its belt and needs growth capital to expand thus, they may want to rehire their original consultant and law firm, which would be preferred, or seek new guidance, as they may have outgrown the advice of their original advisors, either way, they may be considering a merger or acquisition to jump-start the growth rather than wait-out internal growth, which would take much longer to achieve, which opens-up a new set of issues beginning with finding a consultant with M & A connections, followed by a competent law firm equipped to handling M & A’s. The consulting firm will navigate the client through the business side of an acquisition; such as, market and financial feasibility, including valuations and may even require the services of an accounting firm, at some point; it is also important to know that the consulting firm has a broker component for any closing between M & A candidates, in addition their law firm. Of course, our growth company has options, other than an M & A; such as conventional bank and/or individual financing, synergy partnerships, bridge lending, just to name a few and should rely on their consultant for contacts and implementation. TROUBLED COMPANIES Typically, this group has a positive history of success that temporally has resulted into a cash crunch due to unfavorable market conditions, poor management decisions, cessation of bank credit, over-inventory or just too much debt and no extra borrowing capacity. This situation may be a candidate for selling, though painful even liquidation, as companies that fall into this category are literally, but not always, “birds of prey” open to hard money lenders with high interest rates or private individuals that want more than just an arm but a leg or more-you get the idea, not pretty; however, there are plenty of instances where these companies make it through and become successful once again. It just depends on the structure and how good the consultant and law firm are in structuring the right interim financing. BUY SIDE INVESTOR OR SELL SIDE SELLER Both groups would be best advised to interview and hire a good Consultant/Broker, who has the network and the moxie to link the connections to get the job done. The consultant should also have the experience to evaluate and recommend the right buy or sell side structure, since it is not just finding an entity to buy on behalf of the buyer client or the sell on behalf of selling client but to find the right match for both, which is not an easy task and requires a proven consultant/broker to accomplish the mission. Ronald Mitchellette MITCHELLETTE AND ASSOCIATES, LLC 2927 DEAN PKWY, STE 300 MINNEAPOLIS, MN 55416 WWW.MITCHELLETTEANDASSOCIATES.COM OFFICE: 612-925-8333 CELL: 612-715-9217 BLOG 35
SENIORS IN THE WORK PLACE This article is the second of the two articles I referenced in my previous Blog on entrepreneurs in the work-place and speaks directly to SENIORS and again comes from a timely WSJ article on Friday 12/13/18, titled “What seniors face in the job market” to which I will add my thoughts, below. It is one thing to be 60-ish and have the respect of your contemporaries and acknowledged would-be employers, which if smart, would hire you in a heartbeat and completely ignore you when you hit seventy and/or the eighties and have lost the recognition and even the admission that you still may have the right stuff to compete in the career in which you may have been immersed your entire life, the latter of which would make you an expert. In addition to hiring handicap of age, you as a senior will probably experience, at least in the first round of the interview, an additional obstacle of being interviewed by an individual, young enough to be your grandson or daughter, we now know as a Millennials, so kiss your-50-60 years of experience and/or “body of work” goodbye, relegating you to accept positions far-below your skill level. So sad, that for most of us we may well fall into the following categories, again from the same WSJ article: Nearly eight million older Americans are out-of-work or stuck in low-quality jobs; not the least of which are such jobs as grocery clerks/baggers, long days at a retail business and the following: Men • Delivery workers & truck drivers 4.9% • Janitors and other cleaning functions 3.8% • Ground and maintenance workers 3.2% • Retail Sales Persons 3.0% • Farmers and ranchers2.8% Even now, I cringe when I am at a grocery store and see some bright looking guy or women bagging my groceries or checking me out at a clothing store et al. I invariably wonder what happened in their lives that reduced them down to their present job? How much knowledge is lost that is in the heads of these people from which we could still learn, much like history is lost to the young of which I was once apart and as guilty as those millennials I now detest. I am 82 and very use to the finer things in life and formed a consulting firm 25 years ago after my “so-called” career track in finance and retired from my last venture as a Chairmen and CEO of a bank that I purchased along with an investment group when I was a young 57 years-old. Yes, I am fortunate enough and blessed with a sound mind filled with 60 years of adult life experiences, much of which relates to the world of finance and have been able to use that experience in my present role as a business consultant advising on business strategies and debt/bridge financing. So why do I still work? The answer is complicated, beginning with the simple fact, I need the cash to augment my expensive lifestyle, to which I have become accustomed, since my investments, Social Security and savings are not enough to match the buying power of the erosion of the dollar called inflation, which is essentially econ 101. This situation, which is essentially not too different than what most people face as upper or middle-middle class folks living in this great country of ours, face daily; oh yes. We could reduce our life style there by reducing our need for more cash and simply retire, living on what I referenced above, but why do that when I am having more fun and, in many ways, giving back as I perceive that my knowledge and experience is worth much more than what I charge for such services that I provide, even pro-bono in many cases. OK, “back to the future.” My message to all those who are working in jobs less that equal to your knowledge is to give thought, no matter what your age, is to take your life experience and leverage it by writing a book, starting a consulting firm, buying an existing business or even starting your own business, whether you are a former carpenter or banker there is always a need for your skill or your experience at the advisory level or even in the field, especially if you are healthy and have the support of your spouse. I say this not to be arrogant since even now some, no-many, of my clients and business associates are in their late sixties and seventies-even our new Speaker of The House, who is seventy- eight, just got a new job, as our 72 year-old president, Donald Trump did two years ago and still in-the-mix, as well as our viable presidential candidate Bernie Sanders is still going strong. I even have a client, who is in her seventies and as sharp as ever, running her own gourmet chocolate business for the last eighteen years and two partners, who are in their early seventies. So, I am going to try to make a case, that as we live longer, thanks to modern medicine, we elders are not to be overlooked whether we can eliminate a task in the field saving big dollars or sitting at our desk creating the next TECH invention or any kind of inventions, we are not to be dismissed but acknowledged! Thanks for reading this article as I was fuming with the WSJ article portraying our seniors, including me, as “has-beens” on the contrary, we are still here to talk the talk, walk the walk and if necessary, fight the fight! Ronald Mitchellette www.mitchelletteandassociates.com rmitchellette@aol.com FYI: Thank God, some of our seniors are OK with being part of the 17.7% of the aged work-force but I hope this article will inspire more of us to “hang-in-there” and stay ! BLOG 34
ENTREPRENEURIAL AMBITIONS IN REVIEW ( The First of Two Articles on the Subject) I just finished reading an article in the WSJ (Monday 11/26/18 edition, sec. R1) covering a very interesting topic on how entrepreneurs build both business and personal relationships based on their management disciplines. This is a topic dear to my heart as it speaks to the first chapter in my book on entrepreneurship (Entrepreneurial Decision Making) and how an entrepreneur interacts with both his/her spouse, friend’s family and/or business associates, and how co-mingled the inter-action is and how success or failure depends on the effectiveness of that interaction. The WSJ article, as in my chapter, speaks to partnerships, and, ironically enough, those partnerships include the business side as well as the personal/marital side, as either or both can make or break a marriage and/or a business association, respectively. What the author, independent of my work, discovered from research, is my “war cry” there is nothing that replaces battlefield experience, yes textbooks and classroom learning is critical but, not always, essential, especially in the trades (mechanic, machine operator et al). However, as an entrepreneur, one must be equipped to handle both business as well as personal relationship, especially the latter since unfortunately, if the business goes bad so does the marriage; likewise, if the relationships with employees, vendors, customers is rocky so will that effect the business. An entrepreneur’s biggest threat is not start-up funding or cash flow, since both will eventually be solved, it is usually the business model which was probably flawed from the get-go, but how the start-up entrepreneur/founder deals with his/her business partner(s) and their personal partner. So, in my book, I recommend that every would-be entrepreneur take a battery of psychological tests; such as, the Myers Briggs personality inventory test, to determine his/her potential for success or failure. These tests are critical and worth the time and money to save, not only, the agony of a potential loss of money, spouse, friends, family and at large financial contributors, but also, yourself by virtue of the necessity of required bank guarantees, government fines associated with compliance issues and even personal bankruptcy. I know of what I speak having been in banking related businesses and executing Writs of Replevin (taking possession of the borrower’s personal assets including homesteads, cars Jewelry et al) to repay debt. It is much easier to enter-into a loan than exiting same without having to offer up an arm or leg or your third child (figuratively speaking). You as a newbie or start-up entrepreneur need to arm yourself with as much ammo (pertinent data) as possible, including those test referred to above and a savvy business consultant (priceless) as well as the right partners, including a potential spouse, but all too often the spouse is already a marital partner and did not sign-up for the risk their partner is about to undertake, putting added pressure on the spouse wanting to start a business. I could talk for hours on being involved in marital spats with the entrepreneur’s spouse on such subjects as co-guarantees on bank accounts, asset pledges and related liabilities, not to mention, and I won’t, personal issues. My office has experienced everything from complicated refinancing strategies buy/sell or M & A issues to divorce. It is funny, though I am not trying to minimize the importance of the WSJ article, these writers uncover the revelations as reported in the article as if it is new news, when, in fact, it is old news with just an update; nevertheless, the entire topic needs focus to save some poor individual or family a possible lifetime of recovery from a failed business or marriage. FYI: I made many of the mistakes I warn others to avoid before I was a business success, even though I am an academic the real test was how to survive my failures and live to fight another day! BLOG 33
DOCTORS ORDERS? Humm, I always equated my business consulting career with the medical profession in terms of doctor/patient relationships but even more so after reading a recent article in the WSJ (10/24/18), titled a DOCTORS prayer “Grant that my patients may have confidence in me and in my art, and follow my directions and my counsel.” This is my credo, almost verbatim; unfortunately, many of my prospects, especially pre-revenue startups, who I hope to convert to a client, are reluctant to pay for my hard-earned advice and try to take what I share with them and do it on their own and sooner or later their decision comes back to haunt them with no funding or other remedies that could have launched their dream. We just had that experience when one of our clients, innocently attended a network funding event and was approached by a group out of Colorado and fortunately our client contacted us to follow-up on the lead and not surprisingly so, the lead and the tentative offer died as soon as we called representing our client, as the group who made the offer knew they would not pass our validity test and three weeks was wasted in the process of the follow-up.. Circling back to the medical profession, and using applicable examples of patients/clients not listening when a doctor tells a patient to lose weight, or exercise more, or control their diet or stop smoking and they do not listen, the result is usually a funeral at some point in the life of the patient, thus my analysis of our patients, who do not listen and their project eventually dies and/or has been so shopped-around that no one will touch it. This Doctor’s prayer is advice specific in my world as in theirs. My synergy partners and I provide counsel, which falls on deaf-ears or maybe deaf brains; such as, advising a startup that the first thing they need is a business plan, not prepared by the entrepreneur him/herself but by a professional preparer, who understands the target audience (banker, investor or partner) and drives the interest of each target for maximum effectiveness. Well, what do many of these aspiring entrepreneurs do? They go to a website and download a generic template fill-in the blanks and vioila they think they have a worthy business plan, though probably missing many categories a prudent investor/lender would require; such as, ROI-timeline, best/worst case scenarios, exit strategies, percent of ownership (this is a killer for the founder, who typically is reluctant to give up control) and passes on many different deal structures that would have performed for everybody involved; only to change their mind and be equity flexible when it is usually too late and the investor(s) have moved-on or will take more equity than originally discussed because the founder is in a state of panic as he/she realizes that they are at the preverbal end-of-the-road. I have the above situation as we speak. A hard-working founder began his journey only wanting to give up 25% of his company to an investor, regardless of the perceived valuation of his “IP” and proven field test of his engineering marvel (proof of concept) then when he was offered $1M for 51% he said no, now he wants to sell the whole company after repeated attempts to find investors, all of whom left the party, no longer interested. Then there is the founder, who doesn’t think his venture needs a business plan of the type we are experienced to write, and we try to explain that a search for funding is not different that trying to sell your home or car without photos, descriptions and specifics. Yes, it cost money to have a professionally written business plan prepared but the odds of that plan raising startup and working capital will have been improved by, at least, double the efforts without it, just like spending money to advertise the sale of a home or car has the same positive effect. We here at M & A have a file cabinet full of examples of patients, who did not listen to us and many are still floundering around, going to network events where it is historically known that sharks, vultures and other unnamed opportunist are circling the prey (the founder) for a DEAL that usually does not turn-out the way it was initially purposed! Ronald Mitchellette Mitchellette and Associates, LLC 2927 Dean Pkwy. Ste. 300 Minneapolis, MN 55416 www.mitchelletteandassociates.com Office Cell: 612-715-9217 BLOG 31
TO THE RESCUE There are many professions where the professional is advised to not get personal with the patient or client, and that is typically true in most cases, but when you are in my profession as a business consultant and you have clients that have made serious business errors, sometimes un-recoverable or a start-up pioneer and you are cognizant of the sacrifices the latter (early stage entrepreneurs) makes from borrowing every last dime from parents, siblings, other relatives and friends, plus unending dedication, at least someone like myself wants to help them before it is too late, even as it applies to family owned businesses (succession) or just Dad’s company. Maybe it is because I have been there and done that, starting and growing three businesses; pledging my home and third child, so to speak, to banks who advertise their community spirit but no loan, unless the borrower has personal and/or business assets to pledge, which in many cases are usually exhausted by the time a visit to the bank is necessary and the appeal goes for naught. I am no hero, but I try to help where ever my experience can help or be effective, which is why I am posting, what I believe, to be real business opportunities, before that fledging entrepreneur aborts their dream or the owner founders of a company are forced to sell or file bankruptcy and I do not wish that on any of my clients as the results can be devastating with life-long negative consequences ranging from personal bankruptcy to legal entanglements and traps ta last a lifetime. So, I listed below some of my client’s projects in which, I believe, to be of enough merit to justify a new look and see where we go, anywhere, with these opportunities. Check my website (www.mitchelletteandassociates.com). Click on ”BIZ OPPS” tab for complete listings CATEGORIES FROM (A)-FOOD SERVICE BUSINESS OPPORTUNITY #1. GOURMET CHOCOLATE ENTERPRISE (PROVEN BUSINESS) This is an excellent investment opportunity for a Women, as my book suggest, who may be thinking about getting into business for her first venture; maybe because the kids are grown, and hubby has his career and she wants to have something she can to do besides being a homemaker. This opportunity is what we call in the business a “TURN-KEY” business, everything in-place from length of time in business (18 Years), to a strong customer base, repeating business clients, quality reputation, current owner will stay to train new owner, plenty of opportunities to expand and quality product, just to mention a few of the necessary attributes to assess before buying an existing business, and besides a women, who already has an outstanding reputation already owns the business. As usual information will be sent to a perspective investor/lender upon a signed NDA #2. HEART HEALTHY MEDERITERREAN FAST FOOD FRANCHISE (PROVEN BUSINESS) OPTION A: This is a first-in franchise opportunity in the new and growing high quality healthy food business with four company stores open and successful. The current ownership wants to try franchising as its next step to expand and will offer ideal terms to the right franchisee, including the first right to sell the franchise back to the franchiser at a premium price based on market value at the time of the offering. The franchise includes on-the-job training and the ease of purchasing all the supplies from the franchiser. This, once again, is a very minimal risk venture backed by years of experience and a proven recipe. A great way to start a family owned business with very favorable financing and a proven concept. OPTION B: Same as above except the franchiser is looking for an investment firm with whom to partner to take the franchise model national concurrent with the above search for a qualified franchisee for the franchiser’s first franchise. As usual information will be sent to a perspective investor/lender upon a signed NDA #3. PROTEIN LOADED “HEALTHY COOKIE” INVESTMENT OPPORTUNITY Their recipe has been developed over years of testing and now it is time to bring the recipe to market beginning with 2 national grocery chain orders that should range between $1 and $2 million each with a December delivery date. This is called in our industry PO financing whereby the orders are used as collateral against which a lender advances money to the company for working capital and the subsequent receivable created by the shipment becomes an account receivable, which when collected pays the loan down from the initial PO advance. The company is looking for an investment partner to help jump-start the first order with a range between $500K & $1M, which could be a debt to equity or straight equity transaction worth pursuing. As usual information will be sent to a perspective investor/lender upon a signed NDA (B)-PRE-REVENUE “IP” & PATENT RIGHTS Again, I find myself often recommending these types of business opportunities, simply because they are easy entry, and somebody has already done the thinking and the research with ready-to-go launch ideas and/or technologies; such is the case with numbers: 3). VENDING MACHINE CANISTER TECHNOLOGY-PATENT ALREADY APPROVED This design is based on food preservation that will provide 90- day shelf life as opposed to the present technology whereby content has only a 30-day limit giving the vending machine operator more flexibility and eliminating 30-day replacements. Again, this technology will have a real value when converted to a 3D model and tested for proof of concept followed by licensing the technology to food companies, who specialize in vending machine perishable food stuffs. This particular-technology is available only because of the unexpected death of its inventor and the family wishes to see their relative’s idea bear fruit and not go unrewarded, meaning they are very open to any legitimate offer to purchase, probably as little as $25K or something more creative like sharing in any royalties that may be earned from licensing. As usual information will be sent to a perspective investor/partner/lender upon a signed NDA 1). PONTOON BOAT “NEW” COMPANY The new owner of this pontoon boat company borrowed part of the money due to the seller to close the transaction, which he successfully did’ now he needs to repay those lenders, who acted as a bridge lender(s) in the next 60 days and also needs working capital, the combination of which amounts to $500K, for which the new owner is willing to exchange equity in his company or treat those funds as pure debt and/or a conversion instrument to equity at the option of the replacement bridge lender. This is a very good opportunity for a qualified investor to take this debt option, which would include a first position on $500K of R/E, plant and M & E, which in my language says that the perspective new lender would be over-collateralized, minimizing the risk if there should ever be a default. As usual information will be sent to a perspective investor/lender upon a signed NDA 2). PONTOON BOAT “IP” PATENTED TECHNOLOGY This is an amazing story of a loyal son, who promised his Father on his death bed that he would continue his dream of designing and finishing an Aeronautical- Hydraulic technology to expand a traditional 8’ pontoon deck to a 12’ deck, which doubles the people capacity of former for either social and/or commercial use. Perfect for the lake dweller, who entertains a lot or for the resort community, who needs larger boats to handle their guests, even paying passengers. I believe this technology will be worth big bucks at some point, either as a stand-alone company building proprietary boats or a license arrangement with an existing pontoon boat company. The best news is that this technology has been proven to work as the fourth-generation pontoon boat just rolled off the production line and has surpassed all the tests to make it now production ready, including speed test to over 20MPH and stability, both of which is essential to be market effective. Management has prepared a complete business plan with projections to be sent to any perspective investor with a signed NDA. C-MAJOR M & A OPPORTUNITIES #1). A very serious existing INTELLECTUAL PROPERTY company is looking to expand their market by purchasing other “IP” companies, whose founders may wish to retire by either selling, partnering and/or merge with their company. Currently, this M & A candidate is in the Midwest and aspires to reach the East and West coast ASAP. Their interest is in building their customer base and profits by merging the customer base of their purchased or merged entities with their existing personnel and other services. As usual information will be sent to a perspective investor/lender upon a signed NDA Blog 30
Staging your Business Ok, the kids are off to college or maybe they have already graduated and now you are empty nesters with rooms galore, and Johnny and Sara have taken jobs outside your community so there is no need for extra rooms, definitely not the 3000 sq. ft. house you lived in for the last twenty years, equipped with an entertainment center to die for; so lets sell the house take our money and enjoy life. Sound familiar, you bet, we have all been there and/or about to be there but, the twenty year old house you love is, in fact, old and the house needs painting, the roof needs new shingles, the garage needs a repainted floor on and on, all of which will cost you about 25K to sell the house at a premium value. So, you turn to your spouse as you are at a crossroads, do you spend the 25K to maybe sell the house at a premium or take your chances, maybe paint a room or two but the hell with the roof, and so it goes. We will leave the decision here for your own personal answer with the thought that the above analogy is a lead-in to this article on Staging for the business. We, as long time business consultants, often experience the above scenario, as it applies to businesses wanting to sell or be acquired and, unfortunately, some, not many, show us the door when we tell them what they need to do, which includes house cleaning of their own per the recital below: Hiring a professional business stagger, who will first, after their due-diligence, write a professional updated complete business plan including, but not limited to:
Then when the above is complete and the business is ready to sell, we will help you appoint a proven agent, one with whom we have had good experience, to actually sell the business. We can help here as we know the right groups, since we are well-connected to the local & national communities and can consult the seller on the terms and structure of any offer that is submitted by a buyer or merger prospect; in addition to bringing-in a proven business attorney, if the seller does not have one, who is part of our synergy partnership, just as are our accounts and computer gurus’. We also evaluate and can recommend what course of action to take after the seller receives a valid PO or a binding or non-binding LOI or MOU, all of which definitely needs the right language to establish the buyer’s commitment and the seller’s protection from an aborted offer. We also serve as advisors when, throughout the selling process, the owner/founder may second guess him/herself and wishes to discuss other options, which again often happens, especially after agonizing over undesirable offers from potential buyers; such as discussing other options:
Well, hopefully we have been able to clarify the Business Staging explanation of our mission and the reader will understand the nuances of selling their business and, not only, having a good real estate agent, but also, a professional business stager to prepare the business for maximum return on the seller’s long time investment in blood, sweat and tears, so rightly deserved! Thanks, ` MITCHELLETTE AND ASSOCIATES, LLC Ronaldmitchelletteandassociates.com 678-715-9217 Blog 29
BUSINESS OPPORTUNITY TEASERS We here at M & A are fortunate to have such a loyal network of individual and equity associations to now make this announcement that we are posting a list of some of our older and most recent client profiles in the form of what we call TEASERS found on our website (www.mitchelletteandassociates.com) under the heading “Biz Opps." We do this because so many of our contacts are either calling, emailing or texting inquiries to us with many different investment appetites; some like total buyouts, some like partial buyouts with present ownership engaged for three years, others just looking for an acquisition to boost their current product-line or expand into other industries, still others are more entrepreneurial driven and looking for that early launch or pre-revenue opportunity. Regardless of the appetite, we probably have all the bases covered, which is why we added the "Biz Opps" list to our website and there are more to be listed. We have no way of knowing just what to individually recommend to each of you, so we try to do a blanket posting and let you decide what best serves your interest; then, as most of you know, when you give us your preferences, we may have just the opportunity you are looking for. Here is our perspective on the current listings: FOR SALE OR ACUQUISITION $4M 1) This company is a rapidly growing 30-year-old company and best of all, it is local with a good history of profitability in the medical products testing field. Their average EBITDA ranges from $500K to $750K and current sales hoovers around $4M. Owner founders are willing to stay with the new buyer as equity partners or employed management. Their projections are very promising with backorders and trends building as we speak. ENTREPRENEURIAL PRE-REVENUE PATENT START UPS We also have pre-revenue companies that are ripe for new business opportunities from a straight purchase of their IP around which a new company could be formed to be a player in the industry or taking the IP and leveraging it as a licensing asset or even growing it from its current condition among which are: 2) Turn-key patent technology involving expanding an 8’ pontoon boat deck to a 12’ wide deck. A technology perfectly suited for licensing to existing pontoon boat manufacturers with a fallback of starting one’s own company to manufacturer OEM pontoon boats. This company is a sleeper as it has its own 4thgeneration demo unit, which proves PROOF OF CONCEPT ready to launch strategies. 3) Another one of these pre-revenue startups is an absolute beginning venture involving a patent of vending machine food preservation by stuffing different foods into a canister that has had oxygen removed and replaced with nitrogen for a shelf life of 90 days. The technology can be purchased for a very reasonable amount and may or may not include the founding group depending on the offer as the founder died unexpectantly and the family would like to continue the dream. 4) This project is an entrepreneur’s dream as the business would be a restart from a long history of boat building. We already have a buyer for the company, who needs a $500K loan to complete an approximate $1M transaction. The finished goods material can be converted to approximately $300K of new revenue when shipped to dealers, who have confirmed orders. We would suggest that a lender consider a bridge loan with an equity option and first position on all the assets, which should cover the risk if the opportunity fails. This transaction is an Asset Based Loan. 5) In addition to the above, we have also just added a revolutionary new premium healthy cookie company start up, about to receive their first order for $1M delivery in October 2018 followed by one more $1M order from a Grocery Chain, again for delivery by year end This client is a natural for Purchase Order and A/R financing and we are happy to advise that we have five offers fro ABL and P/O financing lenders to finance this project; however, our client needs $250K for some breathing room/operating capital and thus can use an investor(s). 6) We have also added a wood truss company to our growing list of divergent clients; however, this project is a broker's task and we will be working with one of our synergy brokers to sell the company. FYI: Interested parties can view any of the above clients on our website, as referenced above by clicking on "BIZ OPPS." Ronald Mitchellette and Associates, LLC email: rmitchellette@aol.com www.mitchelletteandassociates.com Office: 612- 715-9217 BLOG 28
BABY BOOMERS VS MILLENNIALS REVISITED FROM BLOG 12 In 2016, millennials composed a third of the workforce in the US, making it the largest generation in the labor force today. With ages ranging from 21 to 36 in 2017, millennials are starting to take on leadership roles, as well. So much has been said about this generation, especially by the ones that came before it, in terms of work ethics, values, and belief system. Millennials grew up at a time of 24-hour news, exposing them to events from all over the world, and as they entered the new millennium, they witnessed the 9/11 tragedy; and then later on, were taken to the information age and technological revolutions. All these contribute to this generation’s different worldview and multifaceted set of beliefs. Indeed, it can pose a great a challenge for organizations, which are still predominantly led by baby boomers, to manage such a complex group of individuals. In dealing with millennial workers, one must understand this generation and how they are different or even similar to the others. Mentorship Millennials appreciate regular feedback, and this comes from their need for constant growth and learning. They feel more valued when they get feedback from their superior – whether positive or negative. Since they grew up with high expectations from older generations, millennials also want praise and encouragement for them to have a sense of progress and importance; but above all, millennials prefer managers who are transparent and dependable and whose practices are fair and ethical. Working with Teams While millennials have a good sense of their individuality, they work well in groups. Evidence has shown that millennials believe that business decisions are better made when there is a variety of input provided by individuals. However, the study also showed that this belief is not at all unique in millennials as Gen X employees equally believe the same. Work-Life Balance Millennials value work-life balance for they know that it is beneficial to their mental health. Across all generations, mental health must be top priority in the workplace. A survey suggests that millennials felt more stressed and under pressure than their baby boomer counterparts, and this is due to factors such as low pay rates and high entry-level workloads . Being Challenged and Embracing Change Being the most educated generation to date, millennials are always up for challenges and are ready to take on changes within the organization, provided that they are shown transparency and inclusion in the decision-making. Integrity and Ethics of the Business A survey conducted on millennials showed that they put much value on how businesses put their employees first, as well as their solid foundation of trust and integrity. Employee satisfaction and fair treatment ranked number one among values that millennials look for in a business, while ethics, trust, integrity, and honesty came in close second. The Department of Labor implements more than 180 labor laws, covering various workplace activities for millions of employers and workers. These labor laws cover employees’ wages and hours, compensation and benefits, workplace safety, among others. Millennials are particular with the ethical and legal practices of organizations they associate with, so they put prime consideration on this aspect. Social Responsibility In valuing an organization, millennials look for authenticity and meaning. They go for companies that hold the same values as they do, and rally around the causes they feel strongly for. A study found that millennials look for reputation-related attributes in businesses when looking for jobs. These attributes include caring about employees, environmental sustainability, community relations, and ethical products and services. As millennials continue to saturate the workforce, as well as the consumer market, businesses must be more adept in the millennial belief system and workplace behavior. Any organization can benefit from knowing their employees well and creating an environment that best suits their employees’ strengths and potentials. Good employees make good leaders, and millennials will soon take the majority of the business leadership seats. It is then optimal to master the art of dealing with the millennial worker. For more information check out our new collaborators website; www.hoganinjury.com/millennials-at-work/ Blog 27
Exit Strategy Continued I just attended another network event last Friday morning and the featured panel consisted of an Investment Banker and two of his former clients who sold their company's, all based on the topic, as was my last blog (26) on EXIT STRATEGY posted on this website however, my Blog did not highlight some other strategies that are equally as important as those that I mentioned. Here is what the panel added, and I concur if you are contemplating selling your company:
This STAGING, as I referenced before is like a STAGER a home owner hires, at the request of the R/E agent to prepare the home to sell for maximum market amount. It may be something simple like painting or more complicated like major repairs, even upgrading the kitchen or bathroom; well that is what we do, go through a checklist including the advice we gave in our last blog and the advice in the above section, plus much more, if applicable. Just make that call before it is too late, remember your CONSULTANT is like your HEART DOCTOR, both have advice that will affect your future. RONALD MITCHELLETTE MITCHELLETTE AND ASSOCIATES, LLC WEBSITE (www.mitchelletteandassociates.com) Cell: 612-715-9217 Blog 26
EXIT STRATEGY: STAY OR GO? I just came from a luncheon featuring a topic on, I think, retirement as seen from the eyes of a business owner, who is considering selling his/her company. I say “I think” because I could not quite figure out the message; was it a SUCCESSION or a RETIREMENT ISSUE?
What will I do with the rest of my life (assuming the owner is in his/her 60’s) if I do sell; Maybe I can finally buy that summer home in a sunshine state or my beloved boat or take many exotic vacations, for starters? My read on the above issues is so subjective, because I have gone through all of the above material and psychological considerations and kept going back to work after brief breaks of boredom, the latter was twenty-five years ago, when I started my present consulting firm (retirement 3), after I sold my bank, which was a result of buying it eight years earlier (retirement 2), after I took an early incentivized (many perks) retirement offer from a bank, for which I worked, after twelve years (retirement 1). Naturally, I had other jobs before I began my entrepreneurial journey but what counts is when you are hanging by your finger nails, starting your own gig and the house, car and third kid are all collateral for what you hope will be a fruitful mission, that is when the “rubber meets the road;” nevertheless, those early jobs prepared me for the big step and set up a situational choice; do I stay in Corporate America or create my own destiny? Thank God I chose the latter as I was able to play endless rounds of golf, sail three oceans and live in some of the finest communities in this country, between retirement(s) and not give a hoot about whether my boss was having a good or bad day. My advice to any business owner considering selling and/or retiring is to get your advice from a multitude of sources, not the least of which and most important is the immediate family, then when you, the owner, has the vote of confidence from the wife and kids, follow your instincts and start talking to professionals in such disciplines as wealth management, experienced business consultants, preferably those who have been there and done that, and your personal accountant/tax guru; followed by your own personal introspection as to how you will cope with idle time, the latter being the case? FYI: Whatever you do, take advice with a healthy dose of skepticism as much of the advice you will collect can easily be based on what is best for the adviser-not you, since at the end of the day it will be you deciding what you will do that day, if you are not going to work. You can only play so much golf and at your age maybe handling trimming the sails, going for long bike rides, hiking et al may be a bit out-of-reach, especially if most of your adult life was spent building your business. So, here is what I did. After retirement (1), I sold my home in Minneapolis moved to Miami and bought a condo and a boat, both of which I sold as neither gave me any intellectual stimulation/challenges but plenty of headaches! Then I began looking around for my next venture and with the help of an old (literally-retired) friend, we decided to form an investment company, raised several million dollars and targeted undercapitalized financial institutions, among which were one bank and the management contracts of two Mutual Funds, all of which we later sold to another bank. Then, we moved to San Francisco, where I began to teach my favorite two subjects, finance and entrepreneurship, at U C Berkeley, while working on the early stages of online education for them. I did this for seven years, while I was routinely kept after class with questions from my graduate students on starting a business, which was the catalyst for me to start my own consulting firm and here I am 25 years later still practicing, and best of all having quality time meeting many exceptional people and on occasion witnessing the launch or growth of an entrepreneurial business. My path into retirement is not so unique as I meet many, even clients, who have similar experiences and they themselves are looking for their own next venture, which is why they hire me. So, what can be learned from my journey into retirement? “KNOW THYSELF” no one can know you better than YOU and again, at the end of the day it will be you making the decision to STAY or GO. Nevertheless, here are some ideas for you to contemplate before you make the final decision:
There are many more factors that go into the decision to STAY or GO; suffice it to say this POST is to just help my fellow entrepreneur properly prepare for the enviable before you just plain die at your desk as my boss (President) at the bank and his boss (Chair/CEO) did within six months of each other. FYI: My next book will cover this subject in detail as my first book was on how to start a business and grow it so it is only befitting that probably my last book (sequel) will be on “NOW WHAT”? Ronald Mitchellette Mitchellette and Associates, LLC 2730 West Lake St. Ste 300 Minneapolis, MN 55416 Website: www.mitchelletteandassociates.com Cell: 612-715-9217 Office: 612-925-8333 Fax: 612-925-8320 Blog 25
HEART DOCTOR/CONSULTANT COMPARISON Just about every time I am at a party and asked what I do for a living (yes, that question is still being asked); I find it more and more difficult to explain, since my consulting firm is so varied from advising on acquisitions, to financial restructuring, capital formation and sales just to name a few of our areas of expertise. So, I decided to compare many of my colleagues, including Mitchellette and Associates, to a HEART DOCTOR, whose mission is PREVENTION and/or SURVIVAL of his or her patients. So, let’s take a look at these three stages and dissect them as to their application to a business. PREVENTION (“An ounce of) DOCTOR CONSULTANT is called-in as a pure pre-vent avoidance of ever having a company with a HEART problem. This is the best and most preferred way of prevention as the prescription is simple compared to subsequent events like a heart attack. Here Doctor Consultant checks all the vital signs of the client/patient:
FIRST SIGN The day after or years later Chest Pains-The loss of key customer(s) and/or key personnel-including the founder, industry slump, asset devaluation and bank problems et al just what the Doctor Consultant, who you now need to call-back, warned against; nevertheless, plenty of time to work on the cure, even if you disregarded the Doctor Consultant’s early pre-vent advice, if caught in-time. EMERGENCY CORRECTION (is worth a pound of cure”) DOCTOR CONSULTANT may now prescribe such remedies as the hiring of an interim CEO or other positions, securing new bank lines, seeking outside equity capital, new product acquisitions (build, buy or lease), find synergy partners, not the least of which is consider acquiring or merging with another company and last but certainly not the least, sell the company while it is still marketable before other problems (known or unknown surface). The above is, of course, an over simplification of actual events and/or recommendations but should give the reader a general idea of what business consultants do to earn the trust and respect of their clients and in many cases save them from themselves. FYI: The above paragraph is so evident in many cases where the client dose not listen to their Doctor Consultant and does their own thing, only to end-up, unfortunately, in many cases-dead or dying. Hiring a professional business stagger, who will first, after their due-diligence is complete, write a professional current business plan including, but not limited to:
Then when the above is complete we meet with the principals in the company and discuss the options, which will include many of the observations recited in the above descriptions. Perhaps, it may be a simple cure as finding a fresh new contributory investor as the best solution or deciding the business is ready to sell; if that be the case, we have many potential buyers/investors to whom to offer a business opportunity; in fact, we post these opportunities on our website (www.mitchelletteandassociates.com) under the category of CLIENT TEASERS, which is a very effective match mate concept. We also help/advise our client on the structure of a reorganization or selling their business in part or whole, through our own experiences and/or through our legal team and if necessary our brokerage group; for example, we can recommend what course of action to take after the seller receives a valid PO or a binding or non-binding LOI or MOU, all of which definitely needs the right language to establish the buyer’s commitment and the seller’s protection from an aborted offer. We also serve as advisors when, throughout the selling process, the owner/founder may second guess him/herself and wishes to discuss other options, which again often happens, especially after agonizing over undesirable offers from potential buyers; such as:
Bottom Line, we have experienced just about any combination of start-up, growth or liquidation situations and like a HEART DOCTOR have saved many a company, not withstanding, a few that did not make it, mostly because they would not listen or we got there too late but to make burial plans, which in the business community is akin to liquidation of one type or another. Thanks, MITCHELLETTE AND ASSOCIATES, LLC Ronaldmitchelletteandassociates.com 678-715-9217 BLOG 24
STAGING We just wish to take this opportunity to acknowledge that our recent change from a conventional business consulting firm to a staging (pseudo R/E plan) is working well. We have found that so many company founders having reached that point of what to do next. Do I stay and build, borrow more money to grow, or mope along and wait several more years to see what destiny brings, or sell, semi retire with some kind of arrangement with a new owner, or just bite the bullet and retire, or even worse buy or build another company as I did this one? These are sensitive questions that need in-depth and prudent studies to find the right answer, which differs for any founder/entrepreneur, who also must consider his family as a continuing perpetuation of the his/her business or whether the money from an eventual sale will be enough to take care of the family for decades to come? We have no answers but plenty of advice all of which depends on the existing situation, so when we go in on an assignment such as the variables involved in the above scenarios we take our recommendations seriously. Essentially, STAGING is like selling your house, you go to a realtor to determine the market value or your home and the realtor tells you what you need to do to increase the value of your home like painting it, updating appliances etc, even adding new furniture, all part of increasing the value of your home, sometimes to the point the seller decides to keep their home and continue to improve it for a future market play. So, assuming we are hired we write a new updated business plan including financial projections and industry assessments, company photos, management bios, samples where applicable, prepare teasers to post on the social networks and our website (www. mitchelletteandassociates.com) along with direct contact with our network of possible lenders, buyers or investors. We may even begin to search the market place for synergy partners, mergers, product acquisition, anything to enhance the value of the company, which often, when any of the above approaches are executed, the business owner decides to keep his/her company and grow it, which we then start down a different path by looking for additional working capital, refinancing or investors, Personally, I am a good example of this dilemma, I sold my first company after I took it public, started a second company which I sold to a private group. After these two endevours went on to work in the finance business where I stayed twenty years, loving every moment helping other entrepreneurs fulfill their dreams. Then, as my bio relates, I decided that I had one more shot at doing something I always wanted to do. I bought a community bank and eventually sold that, only to really retire and play golf for the rest of my life since I was only 65 at the time. However, I was tired of both my golf game not improving and my golf friends and felt I still had something to give to somebody before I leave the planet and set out to start teaching as an adjunct professor for several major universities and wrote a book on the subject of Entrepreneurship, which was also my key course at the universities where I taught. After my students, graduate students, kept me after class asking way too many questions about starting their own business, I decided that I may have found my niche and started my own consulting firm twenty five years ago. OK, please don’t start adding up all the years represented in my above journey because you would probably figure out that I am of senior status, chronological but not mentally as I have all those years you just figured-out as a chronic entrepreneur, battle field tested and know of what I speak and have even surrounded myself with great partners, who are younger and equally experienced.. So, what is the bottom line, in this business of STAGING that makes M & A different than other consultants, even the big guys? We have been blooded in battle and know the terrain not just from books or hearsay but actual combat. Now, back to the present, I am not a psychologist but I can say each client that seeks our advice will get what we think is best for them and their family. Enough said, if any one reading this post is contemplating keeping, growing, merging or selling, just do yourself a favor an contact us for some early advice to determine whether you want to engage us. Ronald Mitchellette Mitchellette and Associates, LLC 2927 Dean Parkway, STE.300 Minneapolis, MN 55416 DIRECT: 612-715-9217 OFFICE: 612-925-8333 FAX: 612-925-8320 BLOG 23
WHEN TO HIRE A CONSULTANT? GETTING STARTED/MAKING CONTACT THE STARTUP When is the best time to hire a Consultant? That question looms over just about anyone in business today, beginning with the pre-startup, note I said pre-startup, because that is when the structure of the company and the feasibility to fund it must be considered to ensure a smooth transition into the many issues needing resolution to successfully move the startup forward. There are many issues to consider, among which is the legal structure, maybe a Delaware Corporation, a limited Liability Corp, S-Corp, C-Corp and even incorporating in your own state? Officers, Board of Directors, Board of Advisors (preferred), authorized and issued Stock, Incorporator’s equity position and what percentage of the company the incorporator is willing to exchange for raising money in the many forms available, with which to do so; such as, straight equity for cash, debt to equity conversion options, loans and even in-kind exchanges and/or sweat equity et al. It is better to formulate all the inner-structure of the company in the beginning than undo the mistakes usually made early by the entrepreneur before he or she hires a consultant; but wait, most of the above is the work of an attorney and necessary; however, the role of the consultant at this early stage is to put the structure of the startup in perspective, usually including a professionally written business plan that will serve as a roadmap for the startup at which point the consultant will most probably recommend an attorney or law firm, with whom they have a rapport or professional relationship to execute the legal documents as referenced above, including various investment documents for any forthcoming fund raising, which the consultant will quarterback, using his/her network of potential investors and contacts. FYI: It is very important that the consultant and the attorney understand each other’s role and work together as a team for their mutual client, since any disagreement in legal structure and/or fund-raising campaign must be amicably resolved to effectively move forward within the total compliance of the law applicable to the fund-raising effort; such as, SEC regulations & restrictions regarding qualified investors et al. Then, because of the fact we are dealing with a startup, we probably have an invention or an idea that needs to be patented, enter the need for an attorney to file for patent protection. This is an early stage must for the typical startup before they even begin to raise funds so as not to give-away their idea and lose their market edge. The above, not only takes some seed money, usually raised from family and friends, for the initial payment to a consultant and attorney, but also, takes time (usually three months) before the incorporator sees the first dollar raised for operations. GROWTH COMPANY Your startup is now a successful company, perhaps with three to five years of financial history under it’s belt and needs growth capital to expand thus, they may want to rehire their original consultant and law firm, which would be preferred, or seek new guidance, as they may have outgrown the advice of their original advisors, either way, they may be considering a merger or acquisition to jump-start the growth rather than wait-out internal growth, which would take much longer to achieve, which opens-up a new set of issues beginning with finding a consultant with M & A connections, followed by a competent law firm equipped to handling M & A’s. The consulting firm will navigate the client through the business side of an acquisition; such as, market and financial feasibility, including valuations and may even require the services of an accounting firm, at some point; it is also important to know that the consulting firm has a broker component for any closing between M & A candidates, in addition their law firm. Of course, our growth company has options, other than an M & A; such as conventional bank and/or individual financing, synergy partnerships, bridge lending, just to name a few and should rely on their consultant for contacts and implementation. TROUBLED COMPANIES Typically, this group has a positive history of success that temporally has resulted into a cash crunch due to unfavorable market conditions, poor management decisions, cessation of bank credit, over-inventory or just too much debt and no extra borrowing capacity. This situation may be a candidate for selling, though painful even liquidation, as companies that fall into this category are literally, but not always, “birds of prey” open to hard money lenders with high interest rates or private individuals that want more than just an arm but a leg or more-you get the idea, not pretty; however, thee are plenty of instances where these companies make it through and become successful once again. It just depends on the structure and how good the consultant and law firm are in structuring the right interim financing. BUY SIDE INVESTOR OR SELL SIDE SELLER Both groups would be best advised to interview and hire a good Consultant/Broker, who has the network and the moxie to link the connections to get the job done. The consultant should also have the experience to evaluate and recommend the right buy or sell side structure, since it is not just finding an entity to buy on behalf of the buyer client or the sell on behalf of selling client but to find the right match for both, which is not an easy task and requires a proven consultant/broker to accomplish the mission. Ronald Mitchellette MITCHELLETTE AND ASSOCIATES, LLC 2927 DEAN PKWY, STE 300 MINNEAPOLIS, MN 55416 WWW.MITCHELLETTEANDASSOCIATES.COM OFFICE: 612-925-8333 CELL: 612-715-9217 ,BLOG 22: MISSED OPPORTUNITIES
No, we are not talking about the Vikings missing the Super Bowl in Minneapolis, which was a performance made and executed in-hell; however, it is a good example of how many MISSED OPPONUNTIES all of us let slip by, too often to count. Our clients cover many different situations from start-ups to debt refinancing and capital infusion, so we are prepared for most issues regarding solutions for our clients; however, the one area that is the most frustrating is the company founder or the start-up/entrepreneur who consistently believes that their company or idea, usually converted into a patent pending is worth many more times that the market dictates. This is an area where we should be hiring a Psychologist to deal with reality vs fantasy, which we struggle to commit, which begs the question, are we the last stop on the entrepreneur’s path to find someone who can promise what they cannot produce? If that is the case we must recognize this dimension and kindly remove ourselves from any continuing discussion as we would be wasting our time and more importantly our perspective client’s time and money, which speaks to the title of the POST, simply because, though not yet, the client's million idea or invention, we still are reluctant to take on a project where we may not be able to help, especially if the project involves raising money, which is usually the case., even though we recognize that some of those project could eventually be the next HULA HOOP. Oh yes, we ask for the basics-PROOF OF CONCEPT, PROTOTYPES, FIRM ORDERS, PROOF RESEARCH and PROMISING FINANCIAL PROJECTIONS but that can backfire if there isn’t any acquired instincts that can move the project forward successfully, other than an academic approach to the project. So, we go to bed at night wondering if we should have signed a contract with the creator of the project and see if we can bring it to fruition or content in that we are better-off walking away? The only compensation for us is that we have never been sorry for walking away, yet; however, sad we may be that we could not help the client achieve their aspirations and that is because we can take heart in that some clients just will not listen to us and go their own way, only to find out that their way was not successful either. Here are just some of the failure checks that often lead to an aborted project, that are easily correctable if both parties can decide on a reasonable approach to reaching the goal of the client:
Even now we are in deep discussion, as we speak, since we have clients with whom we are discussing what direction they need to take to capitalize on their fully granted patents or their successful businesses or to launch a new business? The range of discussion covers such areas as an out-right sale, a license agreement, private labeling, synergy partnership and even continued research and prototype development/testing but the key issue is INSTINCTS. So why am I writing this Blog when most of us are aware of the MISSED OPPORTUNITIES we encounter almost on-a daily basis? When is WAITING too long? what scenarios, should I have executed? Should I have taken that last offer? It all boils down to INSTINCTS and EXPERIENCE in final analysis and NOT INTELLECT, which can cause over-thinking, maybe it’s EXPERIENCE, for sure it is probably a combination of all the above, but it is worth exploring these issues before a prospect becomes a client. My only point I wish to make is no matter what your issue, cause or objective, analyze and scrutinize every opportunity before a final decision is made, since in most cases that decision is irreversible Bottom-line, when it comes to hiring a consultant be sure they have the experience to give you the right advice. I often use the following example to prove my point; “Let us say you are on the battlefield and a seasoned Sargent issues an attack order based on the circumstances at hand and a young second Lieutenant, just out of West Point issues a different order, aside from the Chain of Command rule, who would you be more inclined to listen to? The seasoned battlefield experienced Sargent or the young book trained Lieutenant. “ Well having been in the Infantry and armed with an ROTC/Reserve rank and never having been shot at, I will take the Sargent-hands down-enough said! Ronald Mitchellette MITCHELLETTE AND ASSOCIATES, LLC 2730 WEST LAKE ST., STE.300 MINNEAPOLIS, MN 55416 OFFICE:612-925-8333 CELL: 612 715 9217 BLOG 21: The Business Consultant's Confessional Box
My Mother always wanted me to be a Priest, sending me to 12 years of Catholic boot camp, otherwise known as Parochial Schools, before I went off to a secular university (Missouri) and sure enough, while I do not wear the garments of a Priest but of a professional Business Consultant; I am still in somewhat of the preverbal confessional box, alias my office, where my perspective clients (prospects) come to visit me for a free one-hour interview discussing their businesses present and future strategy. Most of the interaction between the prospect and myself centers around whether they should sell, be acquired, arrange some kind of a family turn-over to their kids (sometimes already working for them) or grow, usually meaning re-financing, which is typically harder to do than what meets the eye, since their company may be struggling from too much debt, not enough collateral, sporadic profit performance, credit problems and lack of strength of personal guarantees; just to mention a few of the problems associated with the “stay and grow” strategy (excluding M & A options). In addition, there are so many personal issues that impact the business owner’s decision, which are not directly involved in the business, per se, but often become the most difficult hurdles over which to jump. These struggles involve more psychological issues (intangible) than business issues (tangible); such as, the length of time the founder has been in business (usually 20 + years), his on or off the court battles ranging from financing, revenue, grow or die, reality to dealing with marital problems from being an absentee husband/father, to decisions regarding using the house as collateral and in some cases even losing the house because it was collateral and just the plain fact that owning your own business is usually a day-to-day struggle with sleepless nights and constant survival pressure on the family budget and viola one day the owner wakes up and realizes he/she has a thriving business that has a value, thus the call to our office for that interview referenced above. Back to the confession box> the problem with offering suggestions to my hopeful-soon-to-be client is the penance they must consider to be absolved from their current condition (much like saying three Hail Mary’s) to be able to succeed in whatever course of action they decide (point of fact we offer suggestions, recommendations and implementation but the client makes the decision not us), which leads us to some unique cases scenarios worth reviewing; such as; CASE 1: The issue: The owner/founder has accumulated several minority partners over his thirty years in business, which is doing very well and now some of the partners want to cash out leaving the original founder with a decision whether to cash out with his partners and just sell the whole business or stay and buy-out the minority partners or replace them with a singular minority partner. The resolution: after considerable due-diligence on our part, our recommendation was to find a replacement minority partner with performance options to purchase the entire company over X period of time, while the owner/founder enjoys a diminishing role in managing the company and enjoying a few, long over-due, extra vacations with his deserving family. CASE 2: The issue: The owner formed her company 25 years ago and it has become her total identity. The company is her life and she has guided her baby through calm and stormy seas to this very day and is considering selling the company and, as is usually the case, wants to enjoy the “Fruits of her labor” by either selling the company or finding an on-site manager to run the company. The resolution: The owner has asked one of her key employees if she would be interested in becoming the company’s COO while she, the owner, remains as CEO with absentee management privileges. The employee has now been introduced to our consulting firm and is very excited to take advantage of the offer but has little funds with which to execute on the plan; so we are now looking for lenders or individual investors to get involved along with the company’s ability to self-finance. CASE 3: The issue: The owner has asked us to study his company and do the due-diligence to decide whether he should sell his very profitable company to entities at-large or his son, who works in the company. The resolution: We recommended he take his son out from the factory and start training him for management so as to expedite the smooth transfer of power when the son is ready. The good news is the son knows the implementation part of the business as well as anybody, including his Father, but needs experience with the P & L end of the business, which can be hired and now the son is ready for the big move, which was done and the business is running fine as we speak. CASE 4: The issue: Owner just wants to sell but does not know how to price the company to sell, which translates into a VALUATION ANALYSIS to arrive at a market value selling price with preferred terms of purchase. The resolution: We hired an appraiser for the M & E valuation and did our own due-diligence of the balance of the assets of the company and recommended a selling price after we went through all the staging cycles required to arrive at a fair market value for the company. We provided the owner with a complete report including market comps and a few recommended R/E brokers and stayed close to him as an advisor on any offer he received and are still looking for a bankable offer as we speak. Conclusion: We are not always successful with our advice and many times we are shown the Proverbial Door” for showering our interviewee (the prospect) with information he/she does not want to hear; such as, when we advise the prospect to sell when he/she really wants to grow but does not have the track record to do so without a major money player or the reverse when the prospect actually wants to sell but has not built a salable company with which to do so and our advice is egregious to him/her because it usually means that the prospect will need to stay in the business to complete a turn-around they are not willing to do-this is the Burn-out entrepreneur group of which there are many qualifiers. There are so many stories to tell from a 40 year life as a finance and business consultant that I should write my second book; the problem is once I start writing I find myself repeating the usual issues like the above stories, just the names of the principals change. “It is tough out-there!” RONALD MITCHELLETTE MITCHELLETTE AND ASSOCIATES, LLC 2730 WEST LAKE ST. STE. 300 MINNEAPOLIS, MN 55416 OFFICE: 612 715 9217 Blog 20
Ok, the kids are off to college or maybe they have already graduated and now you are empty nesters with rooms galore, and Johnny and Sara have taken jobs outside your community so there is no need for extra rooms, definitely not the 3000 sq. ft. house you lived in for twenty years, equipped with an entertainment center to die for; so let's sell the house take our money and enjoy life. Sound familiar, you bet, we have all been there and/or about to be there but the twenty-year house you love is, in fact, old and the house needs painting, the roof needs new shingles, the garage needs a repainted floor on and on, all of which will cost you about 25K to sell the house at a premium value. So, you turn to your spouse as you are at a crossroads, do you spend the 25K to maybe sell the house at a premium or take your chances, maybe paint a room or two but the hell with the roof, and so it goes. We will leave the decision here for your own personal answer with the thought that the above analogy is a lead-in to this article on Staging for the business. We, as long time business consultants, often experience the above scenario, as it applies to businesses wanting to sell or be acquired and, unfortunately, some, not many, show us the door when we tell them what they need to do, which includes house cleaning of their own, per the recital below: Hiring a professional business stagger, who will first, after their due-diligence, write a professional updated complete business plan including, but not limited to:
Then when the above is complete and the business is ready to sell, we will help you appoint a proven agent, one with whom we have had good experience, to actually sell the business. We can help here as we know the right groups, since we are well-connected to the local & national communities and can consult the seller on the terms and structure of any offer that is submitted by a buyer or merger prospect; in addition to bringing-in a proven business attorney, if the seller does not have one, who is part of our synergy partnership, just as are our accounts and computer gurus’. We also evaluate and can recommend what course of action to take after the seller receives a valid PO or a binding or non-binding LOI or MOU, all of which definitely needs the right language to establish the buyer’s commitment and the seller’s protection from an aborted offer. We also serve as advisors when, throughout the selling process, the owner/founder may second guess him/herself and wishes to discuss other options, which again often happens, especially after agonizing over undesirable offers from potential buyers; such as discussing other options:
Thanks MITCHELLETTE AND ASSOCIATES, LLC Ronaldmitchelletteandassociates.com 678-715-9217 BLOG 19: THE VAUNTED BUSINESS PLAN
Blog 18: CROWD FUNDING 103 I had written my first article on Crowd Funding in Blogs 101 & 102 and have since been baptized in the program with the successful campaign launch of my first client, who is now on the Crowd as of 9/18/17. This was an exercise in gathering a BODY OF KNOWLEDGE that took six months to conclude with a successful launch including the original Business Model, which my client had previously conceived based on matching pre-qualified auto-service repair shops through an (APP) with car owners on a budget, who have a car problem (like needing new brakes). We will withhold the name of the company until we have complete clearance to accept investor funds; however, the path with which to have achieved this moment was and will be through the State of Minnesota's special Crowd Funding program exclusive to startup and existing businesses in the State, the funds of which will also be raised and used exclusively in the State within a program titled MNVEST, which is the blanket umbrella under which pre-approved PORTAL operators operate to launch Crowd Funding campaigns. Believe me, my client and my firm started out as neophytes and ended up with, not only, a good working knowledge of the system, but also, who all the players and their vital roles and contributions. We chose, after many interviews, Dave Duccini’s PORTAL (SILICON PRAIRIE), who operates the most sophisticated PORTAL we think is available and from which we actually launched as referenced above. There is so much that went into this launch from developing the Business Model to researching the CROWD FUNDING options and learning who the players are and their role as well as making the ultimate PORTAL operator selection from which to launch the campaign. There are many areas of concern to work through before a launch, including but not limited to, a public business plan, video, power point, financial projections as well as stock distribution formulas in what amounts to a limited public offering if the fund raising involves an equity platform. If you remember from my previous Blogs, there are many platform versions ranging from EQUITY, to DEBT to CHARITY et al with each having its own compliance issues. My firm is also working with two other clients to market and launch CROWD FUNDING campaigns, one will be a DEBT TO EQUITY platform and the other a CHARITABLE contribution 501c3 campaign. The good news is we now have some experience with these campaigns to start new programs for our client’s. We will be announcing the details of the campaign within the next several weeks, so STAND BY for the opportunity. In the interim here are some observations gained from our experiences: FOR THE CROWD FUNDING COMPANY 1. Hire an experienced Crowd Funding consultant the cost is well worth the time saving to go to market. Also, hiring a quality videographer for the Crowd Funding video, which is a MUST is much better than you doing it on your cell phone. 2. Crowd Funding can be a daunting painful journey without having a guide to navigate you through the maze of issues involved to launch. 3. If you elect to do an EQUITY launch, remember that it is essentially a private placement and investors are weary of the risk since 3 out of five startups fail so you will need an army of friends and network contacts to accomplish your goals. 4. Crowdfunding is a very involved process (certainly more interactive than dealing with a bank) and unless you can dedicate the time to respond to questions and speak to potential investors on an almost daily basis through the forum, don't bother. 5. Openness is key. People will ask you questions - it's all transparent and online so you need to be ready for an active process. Look out for platforms that help you to prepare your answers if you're unsure. 6. At the end of the process your business should be all the better for it. Your idea will have been thoroughly examined and picked over by potential investors - try to see this as a positive process because it will most likely improve your overall end product. 7. Do the work. Make sure you have carried out in-depth research before you pitch your idea. Anticipate as many questions as possible, include them in your pitch, and use plain English not jargon. 8. People buy into a team or personality. Try and be as engaging and personable as possible - people do expect you to have a passion for what you do. 9. When all is said and done, go back and reread my Blogs 101 & 102. FOR THE INVESTOR/STOCK HOLDER 1. While you may receive a share of a business or project, dividends are rare and your investment could be diluted if more shares are issued. 2. You must also take a long-term view to any returns - it can take a while before start-ups begin making the big bucks and investors should not expect instant returns on equity investments. Your stake will only become worth something when the business floats on the stock market, in which case it will have enjoyed many years of success, or if management has a buy back stake from investors. 3. Most crowdfunds are illiquid, meaning it can be difficult, or even impossible, to claim back money invested or have it converted back into cash - an issue to bear in mind if you are thinking of taking the equity route. There is no secondary market to sell your shares or crowdfunding investment. 4. Alternatively, lending money through debt crowdfunding - or peer-to-peer lending - gives the option of regular income. There may also be the prospect of dividend returns and some projects will pledge to return ongoing profits to investors and even offer a convertible note to convert their note to equity, which is great for the debt holder. 5. In general, more ideas get financial support today than can possibly return capital so investors are advised not to risk more than they can stand to lose. 6. Unfortunately, where money is changing hands – and especially where it is all done online – there is a risk of fraud, so investors and donators should take care to protect themselves. 7. Make sure you sufficiently understand the business or project, how and when you might get a return, whether you will receive an equity share in the business or a regular dividend or interest payment, and the risks involved before investing in a crowdfund. 8. Have you thought about tax breaks? Some platforms allow you to search for companies signed up to the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Schemes (EIS). 9. Find out how your money is protected if the business, project or even the crowdfunding platform collapses – in particular, check whether the business has appropriate cash reserves or even insurance supporting it if it fails. 10. Invest in what you know. If you work in IT or the food industry, for example, you can use your expertise to help make better informed decisions for those specific industries. 11. You might want to consider lending money to a company rather than buying a share, in which case risks may be lower, as will returns (don't forget crowdfunding does not necessarily equal start-ups). 12. Do your research: Read through forum threads and work out what people are saying about a business model and ask your own questions. I believe with the publishing of Blogs 101, 102 and now 103 the Crowd funding candidate or investor will be better equipped to make prudent decisions to go forward. You can even call me for some limited, no obligation HELP! Ronald Mitchellette & Associates 612-715-9217 rmitchellette@aol.com Blog 17: RETIREMENT CONTINUED
I thought the article posted below would be of interest to my readers, since it is a continuation of my work on the MYTH OF RETEREMENT, in the first place. The information below comes from HEALTH PARTNERS MAY SELF-EXPLANATORY RELEASE on RETIREMENT. _______________________________________________________ Here are three reasons we might do well to retire as early as we can, even if that means retiring at 68 instead of 70 or 75. Reason No. 1: The future is uncertain None of us knows just how long we will live. Many people tend to assume that they have lots of years ahead of them, but some of those folks will be wrong. We may occasionally run across life expectancies in our reading and in our minds imagine living to our expected age or beyond -- but those are just averages. The reality is that while we may indeed live that long or longer, many of us will live shorter-than-average lives. Retiring early will give you a greater chance of being able to enjoy as many work-free years as possible. You'll also be more able to enjoy being active in retirement. If you want to play some rounds of golf in Scotland or go snorkeling in Hawaii, it will be easier to do that when you're 65 than when you're 75. The longer you work, the more you're rolling the dice on how good a retirement you'll have. If you are working in retirement, or even thinking about it, then join the crowd. According to a survey from Merrill Lynch, almost half of retirees have worked, or plan to work, sometime during retirement. And almost three quarters of workers over 50 say they will likely work in some form after they retire. Some retirees go back to work because they need the money. But today, most people can look forward to longer lifespans, and they may not want to spend all that time in retirement. So many people keep working, or they retire and move on to another job. Other people don't view retirement as an extended vacation, like their parents may have. They want to stay engaged in a purposeful activity that contributes to society. To be sure, working in retirement is often associated with people who have interesting jobs in the arts, education or business. They often possess special skills that allow them to stay on the job or retire to a part-time consulting position. But professionals are not the only ones working in retirement. Many people quit the rat race, then take a lower-paying but less stressful job – sans the office politics. You may have to swallow a little pride because you no longer get invited to power lunches, but you can work at your own pace and enjoy the flexibility of a scaled-down schedule. Here are four issues to keep in mind as you consider working in retirement. Retirees are not necessarily slowing down. Age 65 is the traditional retirement age. But life expectancy has increased over time. Americans can now expect to live well into their 70s, and many of us will keep on ticking through our 80s and into our 90s. Our extended lifespans often come with additional years of good health. In addition, despite lingering age discrimination, studies show that our mental capabilities do not decline significantly until we become quite elderly. What we lose in quick thinking we make up for with more experience and better judgment. You're no longer expected to retire. A century ago, retirement was almost unheard of. But Social Security, pensions and the post-war economic boom allowed more people to retire. At the same time, medical advances ushered in a longer life span, and many people can look forward to 20 or 30 years of retirement. For many retirees, this is too much time with nothing to do. They want to continue to contribute and be useful. Then there's the issue of financing retirement. It's one thing to spend a few of your twilight years without a paycheck, but quite another to finance two or three decades with no salary. And for better or worse, the government has recognized this new reality, raising the full retirement age for Social Security from 65 to 66 and soon to 67. If you retire at 65, you may be lonely because your friends are still at work. Retirees work because they want to, not because they have to. Few people will turn down extra income, but many retirees work more for experience than money. Not everyone can afford to work for nothing, but many retirees say they work more for social interaction, mental stimulation and a feeling of self-worth. They volunteer their services to a cause they believe in, or work for an organization that may not pay as well, but offers them more self-fulfillment. You have a dream. Some people just keep on doing what they've been doing all their lives. But others have a long-held dream they can now pursue. A marketing executive goes to work in his hometown as a real estate agent, or a college athlete retires from business to coach a school sports team. Many others take time off to rediscover what truly holds their interest. They may supplement their income by reviving a forgotten talent, or they learn a new skill, meet new people and try something they never would have considered when starting their career. When you work in retirement, you don't have to feel pressured to work for the highest bidder. You can truly work for yourself. Reason No. 2: You can make good use of your retirement years Another reason to consider retiring early is that your retirement years can be much more active and fulfilling than you might be assuming. Retirement doesn't have to just mean reading all of the newspaper each morning instead of skimming headlines and going out to the movies more often. A top goal for many people is getting healthier. You can work on improving your health much more effectively if you retire early. For starters, the stress of work will be gone. You'll no longer have to wake up early to go to work, so your body may get the longer sleep sessions that it needs. You'll have time to prepare nutritious meals and to go for long walks or regular visits to the gym. If you can lose any excess weight you're carrying, you'll likely benefit in many ways, such as being at less risk of developing diabetes or high blood pressure. The healthier you are, the longer you'll likely live, too -- making your retirement even longer! You can also still work and make money in retirement. You can leave 40- or 60-hour work weeks behind and just work part-time -- at a job that's more enjoyable and less stressful, generating extra income that can help your nest egg last longer. Alternatively, if you like your current job, you might be able to stay there, working fewer hours. It's actually good for many people to work some in retirement. Jobs offer structure and socializing, which many people find they miss in retirement. If you're financially secure, you can volunteer as many hours as you'd like for causes or organizations you believe in. Or if you have an entrepreneurial bent, you might try starting a new business. It can be something ambitious or something smaller scale, such as tutoring or doing freelance editing. If you work just 10 hours per week -- perhaps two five-hour shifts -- and earn $12 per hour, you're looking at about $500 per month in additional income, which might cover some big budget items, such as food and/or utilities. Reason No. 3: Retiring early might actually be financially possible Finally, another reason you might retire early (or earlier than planned) is simply because you can. You might not have enough socked away to retire right now, but if you get more aggressive about saving and you invest your money effectively, you can probably make your retirement happen sooner. Take some time to devise a plan, estimating how much income you'll need in retirement and how you'll get it. You can amass a large sum of money if you start early, thanks to the magic of compound growth. Investing $8,000 each year for 30 years will grow to nearly $980,000 at 8% annually. Even if you're already 50, you have a dozen years left until you're 62. Socking away $12,000 that grows at 8% per year for 12 years will get you $246,000. Social Security will be an important contributor to your retirement income. You probably know that you can start collecting benefits as early as age 62 and as late as age 70, and that by delaying, you can make your checks bigger. Well, that's true. For every year beyond your full retirement age that you delay, your benefits will grow by about 8%. Delay from age 67 to 70, and your benefits will be about 24% bigger. That can sure seem like a reason to work as long as you can. But hold on -- remember that while the delayed checks will be bigger, you'll receive fewer of them. The Social Security program is designed to be a wash for those who live average life spans. If you start collecting at 62, the earliest age that you can, instead of waiting until 70, you'll get 96 more checks! Retiring earlier may be more possible than you thought -- and more enjoyable, too. Take some time to think through your situation and see how early you can start working less and enjoying your life more. The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Courtesy of WWW.RONALDMITCHELLETTEANDASSOCIATES BLOG 16: CROWD FUNDING 102
How is CROWD FUNDING REGULATED? My last Blog (15) spoke about the many CROWD FUNDING OPTIONS from which to choose the right one for you. Naturally, your own project will have a lot to determine your choice. If you have an EXCHANGE project that may include annual and monthly memberships entitling the member to specific privileges, then launching an EXCHANGE campaign whereby for certain levels of monetary contributions the contributor receives one month, 3 months or a year of free membership as their reward; then this choice is relevant; or if your project involves a product then receiving the product(s) in exchange for a contribution would be the consideration. There is a good case for using the EXCHANGE model for most projects but the final decision rest with the amount of money you wish to raise and/or whether you wish to give-up some EQUITY, which is one kind of platform or whether you wish to stay in total control and not give-up any EQUITY but need considerable amounts of money, then you may choose a DEBT platform whereby you owe the money back to the lender, period without giving up any stock or control. There is even a combination whereby the initial thrust would be raising money as DEBT from a DEBT structured campaign but the DEBT has an optional incentive for the lender(s) to convert their note to EQUITY at a given agreed upon time, probably after the COMPANY proves itself to be a good investment for the lender (this option is my choice as it offers the best of both worlds). And yes, at that point if a lender does decide to convert his debt to equity, the company will be issuing stock and the founder of the company will have some dilution of stock but will or should still be in-control. I have essentially described the above attributes in my previous Blog 101 but thought it best to briefly discuss the options again; so let us proceed to what this article is all about and that is REGULATIONS involving this new form of FUND RAISING. However, I would be remiss if I did not add that as the INTERNET has changed the way we shop, read and receive news so has the INTERNET changed the way entrepreneurs raise money. In the so-called old-days the typical STAGE ONE fund raising campaign consisted of raising SEED money from family and friends and that has not basically changed much, even in the world of INTERNET technology and the emergence of Crowd Funding, the company will need money to fund the requirements necessary to launch a successful crowd funding campaign; such as, hiring a business consultant to prepare a business plan and financial projections, which is one of four essential requirements, the others being a videographer to prepare a video, a computer savvy helper to prepare a Power Point presentation, although the business consultant (we do here at M & A) is probably well-equipped to do this plus hiring a PORTAL OPERATOR to structure the whole project for launching the campaign and performing due-diligence and compliance application assistance. BUT WAIT! You still need money to hire an attorney and not just any attorney but an attorney who is well versed in Federal and State Securities Laws and applicable compliance issues, without which your project is doomed before you start. So let’s begin with Industry regulations, which were established by the FCA covering two types of crowd funding, one is EQUITY/INVESTMENT based funding (non-realized securities), which includes mini-bonds, debentures, and straight stock equity all of which cannot be easily sold-off and the other is DEBT based using the market place as a lender, who will receive interest for the amount loaned. Ultimately, the FCA had to decide between the EQUITY and DEBT based platforms, which platform they were going to regulate based on the type of product being offered or the risk profile of the business being considered as an investment by a would-be investor, which makes the criteria clearer and more definitive and the FCA chose to focus on the RISK FACTOR as opposed the PRODUCT itself to REGULATE. This approach then defines the platform selected for fund raising as it becomes clearer that if an equity (stock) based startup wants to raise money from crowd funding they will most likely chose and EQUITY or DEBT platform and if the startup should be more of a “cause celebre,” like a charity or community cause then the entity would choose the DONATION platform, yet the other remaining option would be an entity that would want to EXCHANGE something for something, which is the REWARD based platform. Note: DONATION or REWARD based platforms are not included under the current regulations, only the STOCK/EQUITY/DEBT platforms ARE UNDER the rules and mandates of the FCA. And that includes complete disclosures referencing risk/reward language and no misleading marketing information; in addition to assurance that there are adequate capital reserves to sustain the company until it meets its financial (P & L) projections. There is also a 14-day cooling-off period on behalf of the INVESTOR/LENDER plus full access to all financial data in addition to new rules regarding the investors themselves, among which are: 1. Full disclosure for EQUITY based INVESTOR 2. Identification of corporate finance and/or venture capital contacts 3. Certifying investors qualifications to make the investment as a HIGH NET WORTH individual or receive a written confirmation that the investor will not invest more than 10% of their net investible assets. Thus the onus is actually on the INVESTOR to establish their qualifications to meet the investment requirements set-forth by the FCA rather than the focus on the platform itself. Investors must tick a box to confirm they fall into one of the above categories. They must also pass an online appropriateness test to prove they are aware of the risks. Remember, just because the platform is FCA regulated, does not mean the investor’s money is safe, just like any high-risk investment and the company doing the money search cannot guarantee the prudence or returned funds of the investment; however, the FCA does provide strict guidelines to vet platforms before giving their seal of approval, including making sure your money is not inter-mingled from the main finances of the company in case it goes bust, and allowing you a 'cooling off' period in case you change your mind after making a donation/investment. Though I am not sure who is reading this article, a COMPANY/CANDIDATE for applying to a PORTAL OPERATOR to raise money from their PLATFORM or a potential EQUITY INVESTOR or LENDER, the information recited above can be summarized by noting that the emergence of CROWD FUNDING as a source for raising money is something to take very seriously and consider and equally, as well, it is a source for a potential EQUITY INVESTOR to take advantage of an investment opportunity being offered. Note: My next article/Blog (17) will continue from CROWD FUNDING 102 with CROWD FUNDING 103. RONALD MITCHELLETTE & ASSOCIATES, LLC Founder President 2730 West Lake St., Ste.905 Minneapolis, MN. 55416 Direct: 612 715 9217 Office: 612 925 8333 Fax: 612 925 8320 email: rmitchellette@aol.com www.mitchelletteandassociates.com (Website) www.linkedin.com/in/ronmitchellette www.facebook.com/ronmitchelletteauthor www.barnesandnoble.com (Search Box Enter "Entrepreneurial Decision Making") BLOG 15: CROWD FUNDING 101
I have been raising money for clients, including myself, for over 40 years, either as an entrepreneur starting my own business, working for lenders as a New Business Development Officer, buying and eventually selling a bank and retiring, only to restart again as a Business Consultant with 40 years of experience, 20 years ago, and still working. My firm MITCHELLETTE & ASSOCIATES, LLC (www.mitchelletteandassociates.com) has been coaching its clients on real life solutions to both simple and complex business issues from startup capital to survival and growth financing and ultimately exit strategies. We also specialize in finding investment opportunities for our investors, all of which means that we use all forms of CAPITAL FORMATION, not the least of which is the new kid on the block-CROWD FUNDING, the Internet version of the infamous B & M “Dog & Pony” show. Most of our Clients are either looking for a merger partner or an acquisition candidate and ironically many visit with us as STARTUPS looking for capital to launch their dream, which usually requires SEED money to finance PROOF OF CONCEPT of their invention or business idea, which is usually a difficult process to convince a potential investor to invest their money in an unproven concept forcing the Startup to seek funds from family and friends until the creation of State sponsored Crowd Funding programs, like the one just launched in January of this year in the State of Minnesota. This State sponsored program (MNvest.com) is a "God Send" for the beginning entrepreneurs as it offers many different forms for raising capital from Equity and Debt to Social platforms delivered through PORTALS, which can be best described as the launching pad for a Startup. These local State Sponsored Crowd Funding PORTALS are indigenous to the State in which they were created for the purpose of raising money within the state to finance Start-ups and/or grow and keep existing businesses within the State so these businesses are not tempted to leave the State. These Portals are owned and operated by State approved/certified owners, who will tutor the Startup in the requirements to launch a successful campaign as there are some basic requirements needed; such as, a Professionally Prepared Business Plan (my firm specializes in preparing such plans), Video, Power Point presentation and the offering itself, which could be any one of the following Including legal compliance documentation required to meet local, state and federal securities regulations (SEC). 1. Equity Crowd Funding. This is just like it says. The Company decides to sell part of it’s stock to investor(s) in exchange for their financial contribution. This approach is fraught with problems not the least of which is: • Company Valuation? • Percent of ownership? • Local, State & Federal securities law, including qualified investor tests? Note: People invest in an opportunity in exchange for equity. Money is exchanged for a share in the business, project or venture. As with other types of shares if it is successful the value goes up. If not, the value goes down and you could lose your money completely. Example Other Related Sites include: www.banktothefuture.com, www.crowdbnk.com, www.crowdcube.com, www.gambitious.com, www.microgenius.org.uk, www.crowdmission.com and www.seedrs.com. 2. Debt Crowd Funding: This method is the one I prefer to recommend to my clients since it is essentially an Interest Bearing note or loan from the public, which has to be paid back in a given length of time and in many cases (I prefer) with a conversion option to the company’s stock, again in a specific length of time. This approach gives the Note Holder (optional investor) their Interest Income and, though not RISK FREE, it does tend to minimize the Risk, since the company is obligated to pay the principal and interest back on the date decided upon or the Note Holder can convert their loan to equity, which is the choice of the Note Holder, especially if the Note Holder likes the progress of the company to whom they lent the money. This method of raising money has other names; such as, peer-to-peer lending or lend-to-save; nevertheless, whatever name you call this approach it allows for the lending of money while bypassing traditional banks, who most probably will not lend money under the traditional banking mind-set as usually the company searching for money is a Start-UP with no collateral or history to qualify for a loan without a qualified guarantor. 3. Exchange Funding: This kind of Crown Funding is basically the company exchanging their product or service that in and of itself has value for a financial contribution like a former would-be client of mine who was offering his exclusive artistically designed Pen and Pencil set in a beautiful gift box valued at $350.00 retail, to contributors for their various levels of contributions, like a $1000 contribution earns the contributor a $100 credit on the SET and for a $2000 contribution the contributor would receive a free gift SET 4. Social Funding: This is where crowd-sourced money is donated for many different causes that have a social impact and the entity seeking the crowd-sourced money is usually a 501c3 Charity with a specific cause that a contributor endorses and is rewarded by doing social good. Since most capital searches involve various risks; the entity looking for capital usually has to provide extra incentives for FIRST-IN investors; such as, extra stock for more ownership or other privileges associated with the investment. So, up until recently and still continuing are the common approaches to raising mone as referenced above but this approach is becoming somewhat antiquated as EMAIL BLAST, SOCIAL MEDIA SITES, BLOGS, UTUBE and now CROWD FUNDING is becoming the medium of choice, especially for Start-ups. Bottom line, raising money on the Internet through a Crowd Funding Campaign is only as good as the Network of the company trying to raise the money. If the company does not have an extensive email list to whom the campaign is aimed, the chances of success are limited; thus I would pre-qualify any Portal owner/operator as too whether they have compiled a list of qualified investors to add to the Company’s list. First, for Minnesota entrepreneurs go to www.MNvest.com or to your states domain site and search for State Funded programs, which may include their own Crowd Funding program, like that of Minnesota. Then do all your research, which ultimately will give you the information you need to make the best decision you can on selecting a Portal owner/operator for your campaign. OK, this brief Crowd Funding tutor is intended to help educate the reader as a general explanation of the programs available and will be followed in my next Blog, which will address CROWD FUNDING REGULATIONS. RONALD MITCHELLETTE & ASSOCIATES, LLC Founder President 2730 West Lake St., Ste.905 Minneapolis, MN. 55416 Direct: 612 715 9217 Office: 612 925 8333 Fax: 612 925 8320 email:rmitchellette@aol.com www.mitchelletteandassociates.com (Website) www.linkedin.com/in/ronmitchellette www.facebook.com/ronmitchelletteauthor www.barnesandnoble.com (Search Box Enter "Entrepreneurial Decision Making") |
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