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New Innovator Guide |
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Venture |
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In this Section Finding and Forming Joint Ventures as a Beneficiary Creating powerful joint ventures is really simple. If you’re looking for people to host your products (you want to be a beneficiary), here are three simple steps: Step One: Finding-- Use the resources listed above to find businesses that meet these three requirements: (1) they have a strong relationship with people who would serve as good prospects for your offer; (2) they periodically contact these people in effort to build good will; and (3) they have a large enough mailing list or database for a joint venture endorsement to be attractive to you. Step Two: Contacting-- Make a list of those potential associates found in step one, and contact the owner of each business by phone, fax, or mail. People get so much junk mail these days—so don’t write some joint venture proposal and then email it off to the people on your list. However, if you build a very large list of contacts, it may take a few weeks to contact each person by mail or fax and ultimately phone. So email each of them an “ice breaker” message—then when you contact them on the phone, you’ll be more welcome. Your ice breaker message can say something like, “Hi Tom, This is Robert Johnson from Bobby’s Widgets (http://www.bobbywidget.com). I’m at your website right now, and want to tell you that your services look great! I think my customers are well-suited prospects for your business and vice-versa. What should I do if I want to send a few of them your way?” Make sure you personalize the messages. As you build your list of contacts, put their contact information into an email database program. This will allow you to personalize your messages and contact each associate on a regular basis, which is important for building a relationship with each person. Do this even if you don’t set up a joint venture at first with a particular person... sometimes the relationship needed to joint venture between two entities grows gradually. It’s important that you make your initial joint venture proposal by mail, fax, or phone. Ultimately, you want to contact the person on the phone. When you contact each person to propose a joint venture, you may use the following as a guide as to what you should say: Our customers are good prospects for each other’s businesses. I would like to form a strategic alliance with you. I know you’ve spent a good deal of time, effort, and money building good will with your customers. This alliance will help you capitalize on this asset—your good will among customers, in a way more effective than any other. I would like you to sample my product so you can decide for yourself. I think my product would benefit your customers—and if you agree after sampling the product—I would like to make your customers a special offer, but I would like you to introduce it to them. This form of “endorsement” marketing is a very effective way to capitalize on the good will you have with your customers because when you endorse someone else’s product to them, they’re more respondent than when you try to sell your own products to them—and I’d be happy to give you most of the profits from the deal. But first, I want you to review my product or testimonials so that you can provide your customers with a valuable and ethical endorsement. Because of this special offer, your prospects will be thankful that you “went out and found” this great offer for them. Of course, I’m not saying you should read off this list. If you’re doing this on the phone, just try to work these points into the conversation. If the person is interested, tell them about your product, how you want them to sample it, and the idea you have in mind. Make a special offer In order to get many publishers to endorse your product, you have to make him feel like he’s doing something good for his customers—so make a special offer that he can pass on to his customers. That might be a 50% discount, 25% discount, special bonus offer, or what have you. This special offer will also help in writing the endorsement letter as the endorser can show his audience how he went out and arranged a special deal for them. Take away risk Make sure the host knows that his customers can buy from both him and you—you won’t be taking away any customers or any business. Let him know that if he wants, he can test the endorsement on a portion of his audience to see if they respond positively—and if they do, he can then roll out the endorsement to his entire audience base. Offer to help write the endorsement. Also tell him that if he wants to make the endorsement by interviewing you, you’d be happy to do an interview. Make it financially appealing Give an example of figures that could result from the endorsement. Tell him responses are usually four to seven times higher when someone endorses a product to their customers rather than offers their own product. Based on how many audience members he has, you could say, “Well, if you have 8000 customers and subscribers, and if 10% of them ordered, that would be 800 times $80, which is $64,000 gross. And after the costs, 60% of the profits would be about $34,000--and if this works out, Tom, I have some other products we could use to repeat the same earnings.” Notice, this is the first time in the conversion you mention a specific commission. Then say, “Does 60% of the profits sound good to you?” Don’t be afraid to give examples like this—it excites people. Then, do what you must to settle the deal. Step Three: Contracting-- Once you’ve reached agreeable terms, get a contract signed. Big contracts scare people, and simple contracts are just as binding. This is not intended to be legal advice; get a lawyer if you must... but a simple contract is very easy to create. Outline the terms of the deal... what you agree to do, and what the other person agrees to do... write down the commission terms and everything you agreed on. Then get the contract signed. That’s all you need to do in order to form profitable joint venture deals. As your customer base and ezine grow, you will find it easier to set up deals by offering cross-endorsements, in which one person endorses your product to his list and you do the same for him. So let’s review the three simple steps...
Finding and Forming Joint Ventures as a Host It’s relatively easy to form joint venture deals as a host because anyone who would deny himself or herself the opportunity for you to endorse their product under reasonable conditions is a fool and will be a total failure in business. There are many benefits to hosting a joint venture. First, as I stated, the response rates are tremendous. Second, as a host, you can test the product’s appeal to your customers—if the product has great appeal, maybe you would like to add the product to your product line. Third, you don’t have the time, money, or resources to create every product that could possibly benefit your customers. By endorsing the product, you still get to profit from sales of that product even though you didn’t have to go through the trouble of creating it. We recommend endorsing a high-profit product. In joint venture endorsement marketing, it’s easier to get 100 people to send you $300 than it is to get 1,000 people to send you $20. You mainly want to look for re-run ads... but here’s the secret: many times products are advertised so much through associate programs and so forth, that you want to make the endorsement before the product’s life cycle burns out. Therefore, you have to watch re-run ads closely to catch it before it comes too big. After you find a product you’d like to endorse, follow these guidelines: Never accept a standard distributor or associate fee when making a real endorsement. Contact the owner of the business whose product you’d like to endorse. Explain to him that you’re a well-respected marketer with thousands of subscribers... and you’re sure your endorsement can generate tens of thousands of dollars. Tell him that you want at least 60% of the initial profits and 10% of the back-end sales made to the customers you refer. Explain to the beneficiary that the real money is in the back-end sales. And since any people that buy his product based on your endorsement have been “back-ended”—he can be sure these are very “back-endable” customers. Therefore, he shouldn’t worry about the profits on the initial sale, but should take the customers at whatever he can get them at—especially when he’s not paying for advertising costs—and focus on the profits he’ll make on the back-end. Tell him that many businesses earn 16 times the amount of money on back-end sales than on front-end sales. Attracting joint ventures... The secret to joint venture endorsement marketing is to always work with companies that maintain good relations with, and frequently contact, their customers. As a business owner involved in joint venture marketing, you should also frequently contact your customers. This will open the door for cross-promotions as well as instant-profit hosting opportunities. It is also smart to publish an ezine to prospects and customers, as it will serve as a platform for joint venture endorsement opportunities. The more attractive you become as a host, the more attractive you are as a beneficiary, as very few direct marketing companies will refuse good cross-endorsement opportunities. Part of making yourself attractive for joint ventures is creating a strong competitive advantage—smart direct marketers always work with related businesses that have a strong competitive advantage (USP). Joint venture endorsement marketing should be approached from a scientific marketing standpoint... you should do careful market research to find all the businesses that are attracting your type of prospects and customers. Joint venture endorsements should be focused on results—not general effect. Furthermore, joint venture endorsements should be tested before being rolled-out onto the full scale Return to Table of Contents for this guide | Return to index of all guides | Back to the top of this page Venture capital is probably one of the least understood areas of financing. Many entrepreneurs think that these investors do the early-stage financing of relatively small, rapidly growing enterprises. Venture capital is better defined as a professionally managed pool of participation through stocks, warrants or convertible securities. If you think you have a venture that might qualify for venture capital financing, here is how you go about locating and contacting venture capital firms. The first step is identifying venture capital firms that might be interested in your company. You can contact the National Venture Capital Association, 1655 N. Fort Meyer Drive, Suite 850, Arlington, VA 22209, (703) 524-2549, which publishes an up-to-date list of its members. The more you can network with the infrastructure and other entrepreneurs to obtain referrals to venture capitalists, the better chance you have of securing financing from these investors. The referral may involve only a telephone call alerting the venture capitalists that your business is deserving of their consideration. Be sure to expose your deal to more than one potential venture capitalist. Avoid mailing your business plan arbitrarily to many different venture capitalists. Safety in numbers is not the case when obtaining venture capital financing. The best way to proceed is to contact five to 10 venture capital firms that, according to your referrals, have a reasonable probability of being interested in your company. During the first contact, describe the venture, its products, the experience of your management team, the amount of capital sought, and the expected performance of the venture two to three years down the road. At this point, you must persuade the investor to find out more about your venture. After this initial call, the venture capitalist will quickly evaluate whether the venture is worth having you submit a business plan or perhaps make a presentation. Experts estimate that 60-80 percent of all ventures presented to venture capitalists are rejected during the first contact. Venture capitalists will agree to review your business plan only if they believe that your idea has significant growth potential in an expanding market, that your management team is well qualified to operate the venture, and that their investment will earn an appropriate return in terms of capital appreciation. Studies suggest that venture capitalists focus on five areas in their investment screening:
The management team is of key importance. Most venture capitalists would rather invest in a first-rate management team and a second-rate product than the reverse. If the venture capitalist discovers no major flaws in the preceding areas, you will be asked to make an oral presentation to the investment group. At this stage, only 10-20 percent of all entrepreneurs who originally contacted the venture capitalist are still being considered. Don't be discouraged about being turned down at this point. Your venture must fit the investment objectives and philosophy of the firm. The firm must decide on the number and portfolio mix of businesses, buy-out opportunities, types of industries and geographic regions. The intuition or gut feeling of the venture capitalist toward your deal also plays a significant role. Return to Table of Contents for this guide | Return to index of all guides | Back to the top of this page So you've got this great idea for a new business or you have just heard of a business for sale and it is exactly what you have been looking for. You've been dreaming of going into business for yourself for a long time and maybe this is the right time, but. . . . where are you going to get the money needed to start or purchase the business? Raising money for a business might not be as difficult as you think. Especially, if your idea is unique or you have the required knowledge or skills to make yourself (and perhaps your backers) a lot of money. It has been said that there is MORE venture money available than there are good business ideas. The first thing to do is to put together your business plan or prospectus for your new venture. Be sure to include all the personal information about you that might relate to the business. The Resume and Personal Financial Information Include a resume of your background, including education, job training, experience and anything else that might be considered as an asset to a business of the type you are considering. Include any personal loans you have had in the past, what they were for (car, house, etc.) and your history in paying the loans. Explain in detail exactly how much money you now need and what it will be used for. If it is for a new business, your business plan should include a projected profit and loss balance sheet for the first year of operation. This would include all salaries, utilities, office expenses and loan payments as well as projected income. Anyone loaning you money will want to see how you intend to pay it back. If you are contemplating purchasing an existing business, your business plan should include a profit-and-loss balance sheet for the past six months, as well as projected future plans showing how the new money will produce additional income. Anytime you are projecting expenses and incomes for a business plan, it will be advantageous if you base your expenses on the highest averages and the income projections on minimal figures. In this way, a slow period or unexpectedly high expenses will not surprise you. You will be better prepared to handle those extreme "ups" and "downs" inherent in any new business. Prospectus Versus Business Plan Now here's where the prospectus varies a little from a normal business plan. You will need to state exactly what you are offering a prospective investor in return for the use of his money? What is the going rate of interest for business loans at the time? What percentage of interest are you willing to pay -- perhaps a point (1%) or two above the going rate? Will you pay by monthly installments, quarterly or yearly? Are you offering a percentage of the gross or net profits? Are you offering a percentage of the business or perhaps a seat on the board of directors? Investors use their money to make more money. They know that there are risks involved with investing in new business ventures or with a person purchasing an existing business who may not have much experience at running a business. In order to attract such investors or convince them to put up the money you need, you will have to be very persuasive by perhaps offering him or her an opportunity for larger-than-normal profits on his or her money. You must also be able to back up your claims with marketing research and other means laid out in your business plan. Although venture investors are normally familiar with "high risk" business ventures, they didn't get their money by being foolish, and you will find that ALL investors will want to minimize any risk to their money. The investor should be able to read your prospectus and find a list of your personal as well as business assets. Include documents to substantiate your financial position, such as copies of your last three year's income tax returns. Be Honest and Up Front Just try to give the potential investor all the information he or she might need in order to be able to make a decision on whether to invest in your business venture or not. Don't ever try to "con" a prospective investor. Most of them are smart enough to pick up a phone and find out anything they want to know about you or your business and you never want to be caught in a lie or a half-truth. Be honest at all times. Simply lay out all the information in an honest, orderly manner so that the investor can make his decision based on the honest facts. If you have a truly good idea and you've done your homework, it is likely to interest a prospective investor. In fact, an interested investor may end up offering more help than you dared to hope for. Where do you look for prospective investors? Well, once you have the prospectus written and know exactly how much money you want and have explained, in your prospectus, how it will be spent and how it will be repaid; it is time to start looking for the right investors. As simple as it may seem, many investors have been found by simply advertising for them in a local or national newspaper. If you are in a larger metropolitan area, perhaps the local paper has a classified section for INVESTORS WANTED or VENTURE CAPITAL AVAILABLE ads. When you place your ad, be sure to state the amount of money you are looking to borrow (ask for a little more than needed so you have room to negotiate). Include the type of business venture you are contemplating and the kind of return on the investor's money you are proposing. With this information right in the ad, you will eliminate calls from the curious and narrow the responses to really interested investors. Another source of investment capital might be your circle of friends and acquaintances. Take a lesson from party plan merchandisers and set up a party and invite everyone you know who might have money to invest in your business. Explain your business plan, the profit potentials for any investor and how much money you need. Give each person in attendance a copy of your prospectus. Ask each to pledge a certain amount to become non-participating, silent, partners in your business. Current tax regulations allow up to 25 partners in Sub Chapter S Corporations. This could open the door to you gathering a group of friends to help capitalize your new business venture; especially if you have something to offer the potential investor. Another source for capital is the sale of stock in your corporation. You are allowed to sell up to $300,000 worth of stock without having to go through the Federal Trade Commission. Discuss this possibility with your attorney and tax accountant. In fact, your attorney and tax accountant (you know, the ones you consulted with as you wrote your prospectus) may be another source of investment capital. Perhaps they already know of possible investors that may be interested in a business venture of the type you propose. Ask them to steer any possible investors your way. Perhaps you could even offer a "finder's fee" if you are directed to the right investor. Be sure to give a copy of your prospectus to your banker, also. Ask or her for advice on improving it and to possibly steer any potential investors to you. Many bankers are aware of investors looking for investments that will make them more on their money than the bank can offer. Don't overlook your bank as a source for a loan. Even though their requirements are far more stringent than other sources of loans, you might still qualify. It won't hurt to make an application. Industrial banks are usually more prone to lend money for business purposes than a regular bank, so investigate these institutions as well. Insurance companies sometimes make long-term loans for business purposes and should be investigated as a loan source. Ask your insurance agent if they know whom you should contact. Professional people such as doctors and dentists are constantly looking for places to invest their surplus money, many times joining investment groups to pool their resources. Give a copy of your prospectus and explain your ideas to your own doctor and dentist. Perhaps you can convince them to invest on their own or you could ask for an appointment for you to explain your plan to the entire investment group, if they belong to one. Another possible source of venture capitol may be a Small Business Investment Company. These type companies exist for the sole purpose of lending money to businesses. Many of these investment companies trade their investment help for a percentage of the company they are helping, in effect becoming your partner. Look in the telephone book under the heading, "Investment Services". They are always on the lookout for businesses that they feel have a strong chance of making money. Many states have organized Business Development Commissions to assist in the development and growth of new business ventures. They not only provide advice to the budding entrepreneur, but some even offer money and other facilities as well. Many such commissions have volunteers available from the business community that will take the new businessperson under their wing and act as their business mentor. Check with your local Chamber of Commerce to see if such a commission exists in your state. Some commissions can even steer you to sources of venture capital. Research your library to determine if there are any foundation grants available for a business of the type you are contemplating. If your business is considered to be related to the objectives of the foundation, it could be the answer to all your money needs. It may be possible to persuade the directors of another company to invest in your business. Look for a company that can, or will, directly benefit from your business. In other words, if your business makes money, the other company will also make money. Another possibility may be to merge with another company that is already established and that has facilities that are compatible or related to your business needs. Still another possibility, along this line, might be to get the people that will supply your production equipment to co-sign for a business start-up loan. Finally, there is the loan broker or money finder. For a fee (usually up-front) they will take your prospectus and circulate it among their known investors and lenders, talking up the benefits of investing in your particular business venture. Keep in mind that not all Money Brokers are successful and none will guarantee that you will get your loan. Just be sure to adequately investigate their success rate and talk to business people that have gotten loans through them before you put up any front money or retainer fees. In short, when looking for business start-up capital, don't overlook any possibility. There are literally hundreds of ideas for finding business venture capital. I have just scratched the surface with these few suggestions. This is the age of creative financing and if you truly have a good business idea, you should be able to find the money you need. Disregard the stories of "tight money,” and just start contacting people that might have money to invest. It is said that there is more money available for new business ventures, now, than ever before. You just have to get to the right person. The problem seems to be that most beginning entrepreneurs don't know what to believe or who to contact for help. Don't believe the stories of "tight money.” Set your goals and go out and start making contacts. Now is the time to act! |
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