Early market moves, outside expertise can help.
September 30, 2015
by Sima Griffith – Guest Commentary Twin Cities Business
Fourteen years after founding Eyebobs, which manufactures and sells high-quality, fashionable reading glasses, Julie Allinson received a major investment earlier this year from Norwest Equity Partners (NEP). This investment news was significant for several reasons, the most notable that less than 1 percent of businesses seeking funding receive venture capital or private equity capital. For an entrepreneur like Allinson, attaining access to NEP’s investment funds, connections and business-development expertise is a giant step toward the success she has painstakingly pursued.
As an investment banker specializing in raising capital and selling businesses, I keep a close eye on those who own businesses with promising market opportunities. They serve as valuable role models for other, often younger entrepreneurs concerned about financing and the many challenges of growing their businesses. And financings such as Eyebobs’ serve as pricing models for what entrepreneurs in similar businesses might receive when they sell all or a portion of their companies.
During my 25-year career, I have watched hundreds of CEOs build their businesses, and I have seen numerous iterations of success and failure. The winning companies almost always have a proprietary product or service that they are selling to a large and growing market, and they are developed and nurtured by talented entrepreneurs who follow three common strategies:
They move quickly to take their product or service to market to gain an early-mover advantage,while incorporating valuable feedback from their beta customers into their next-generation product. A good example comes from the men in northwestern Minnesota who were among the first to build snowmobiles. Their company, Hetteen Hoist & Derrick, became Polaris, which is now a powersports corporation that generated $4.5 billion in total sales in 2014.
They let outside experts complement their team. Smart entrepreneurs raise smart money from partners with industry expertise and avoid becoming overly worried about “diluting” their ownership with outside capital. They not only hire outside advisors to complement their management team, they know that providers of capital are often also providers of sound guidance. When they get good advisors, they listen to them. They know their own weaknesses and are willing to base some of their actions on the feedback the advisors provide. An example is Josh Hochschuler, the founder of Minneapolis-based Talenti Gelato, who wisely sought out and listened to Steve Gill, the CEO of Millennium Import, who not only brought capital, but also sales, marketing and production expertise to Talenti, which then became a multimillion-dollar company that was recently purchased by Unilever.
They invest in technology, people and systems. The best entrepreneurs face challenges with intelligence, perseverance and ingenuity. I’ve served as a judge for EY’s Entrepreneur of the Year awards for the Upper Midwest. The award recipients overcame diverse challenges, including regulators withholding approval of their products and a lack of funding. One of the award-winning companies started its own software university to train its next generation of developers. Others depended on family members and second mortgages on their homes to fund their businesses.
Does following these three strategies guarantee success? Of course not—but few companies can succeed without them. Most entrepreneurs also need to innovate, navigate challenges and be prepared to alter their market strategies. TCB
Sima Griffith is co-founder and managing principal of Aethlon Capital, a Minneapolis-based investment bank representing business owners in the sale or financing of their companies.