Episode 367: How to get the cash you need to grow your business, with Stephen Woessner.
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Stephen is the CEO of Predictive ROI and the host of the Onward Nation podcast. He is the author of two bestselling books, speaker, trainer, and his digital marketing insights have been featured in SUCCESS, Entrepreneur, The Washington Post, Forbes, Inc. Magazine, and other media.
Good Morning Onward Nation\\u2026welcome to Episode 367\\u2026I\\u2019m Stephen Woessner. Before we dig deep into today\\u2019s solocast and the lesson I prepared for you \\u2014 I want to take a minute to say thank you!
Thank you because as we rapidly close in on our 400th episode \\u2014 amazing \\u2014 400!!! \\u2014 we are experiencing another level of growth.
Downloads worldwide are up, the number of countries we are reaching on a daily basis continues to increase, the number of guests reaching out to us requesting to be on our show is up, and the amazing \\u2014 awesome \\u2014 and incredible feedback we receive from you, Onward Nation \\u2014 is up.
And I want you to know how much you being here and making what we do part of your daily routine means so much to my team and me.
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Okay, just wanted to begin today\\u2019s lesson by expressing some gratitude. So now let\\u2019s jump into what we are going to cover today. And that topic is cash or capital you can apply toward the growth of your business \\u2014 but more specifically \\u2014 if you are considering outside investment as part of your growth strategy \\u2014 what\\u2019s the recipe \\u2014 what steps must you take in order to make your team and business attractive to investors so you go from invisible to investible, as my good friends Judy Robinett and John Livesay shared last week during Episode 362.
Judy and John shared some excellent insights and very specific tactical steps, which I am going to summarize for you here \\u2014 but I am also going to share some additional context about approaching investors because I understand first-hand how intimidating the process can feel like \\u2014 especially when you are on the outside looking in, don\\u2019t know the players, how no idea what your message ought to be, and then fear creates this feeling of being trapped.
And that is exactly what happened to me. In August of 1999, several business partners and I founded a company called FortifiedNutrition.com, back when everyone had a dot com company, taking the companies public, and cashing in once the IPO soared to record levels.
So as the tech and product distribution sides of our business were being built out by my co-founders, I was in charge of attracting investors. And I was terrible at it and it really showed.
My prospecting consisted of aimlessly wandering around the Internet to find venture capital firms who were typically located in the valley, then emailing them our PowerPoint overview of the business (and wow was it horrific!) and then receiving lots of thanks but no thanks emails.
But finally, we made our way in front of a couple of investors and our initial ask was $7 million for 20 percent of our business. Yes, $7 million. We had placed a valuation of our business at $35 million \\u2014 but wait \\u2014 here\\u2019s the best part \\u2014 we had not made one single sale at the point of the ask.
Yep, we felt confident our company was worth $35 million even though we had zero sales. Good grief!
Now, you have probably seen some of those ill-fated pitches on Shark Tank, right? When the business owner has zero sales and then tries to justify a ridiculous valuation to the Sharks.
Yep, that was me, Onward Nation. My team and I in a conference room \\u2014 as I floundered my way through my pitch.
Plus, I had very inconsistent valuation numbers. The valuation I had put together for Ernst & Young\\u2019s review a couple of weeks earlier was only \\u2014 HA \\u2014 only \\u2014 $10 million.
Yeah, I had missed the inconsistency \\u2014 I failed to see the problem of $10 million a couple weeks ago, and now that I am in front of investors, yeah, let\\u2019s go with $35 million.
Thankfully, the investors we were presenting to saw something in us \\u2014 some glimmer of hope \\u2014 that with the right mentorship \\u2014 we could build something valuable. They took us under their wing, mentored us, shortened our learning curve through powerful education, and ultimately invested in us at a $3 million valuation \\u2014 not $35 million \\u2014 and it wasn\\u2019t until we had six months of growing sales under our belt.
So why am I sharing this painful and embarrassing story with you?
Because all of the pain, suffering, and time lost in countless meetings, phone calls, and emails could have been avoided if I would have had a system \\u2014 a process \\u2014 a recipe to follow. Which I have now learned as a result of spending hours with Judy Robinett and John Livesay during our episodes as well as outside of the show.
They are brilliant subject matter experts \\u2014 they really know their stuff \\u2014 but beyond that \\u2014 they are generous with sharing their expertise. So if you have listened to and studied Episodes 329, 360, and 362 \\u2014 I highly encourage you to add them to your list of vital priorities \\u2014 you will be glad that you did.
So let\\u2019s dig into the ingredients to a \\u201cGetting Funded Recipe\\u201d that I wish I had had for attracting investors back in the days of FortifiedNutrition.com.
Ingredient #1: kick fear to the curb
Judy and I talked a lot about fear during Episode 329 and how it can rise up and attempt to keep her trapped. And it isn\\u2019t because she doesn\\u2019t know what she is doing \\u2014 my goodness, no. Judy is one of the most connected \\u2014 deeply networked people I have ever met. She is an in-demand global thought leader, plugged into the investment community, sits on the right boards, knows all the right players, and even attended two business and networking events at The White House this year.
What!?!
Yeah, Judy has a titanium Rolodex.
Yet despite all of that \\u2014 there is fear. So Judy has to force herself to kick fear to the curb, where it belongs, and push past it!
Why is getting past the fear important?
Because if you don\\u2019t, I guarantee you the first excuse you will tell yourself as to why investors have not knocked down your door with briefcases full of money with your name on it is because \\u201cNo one is investing \\u2014 there isn\\u2019t any money available \\u2014 or \\u2014 investors don\\u2019t want to invest in a company like mine.\\u201d
You need to know \\u2014 thoughts like that are simply the Imposter Syndrome trying to rise up and keep you from your destiny.
Because here is the reality \\u2014 Judy shared some estimates she collected from Credit Suisse \\u2014 that by 2019 there will be over $329 trillion in household wealth worldwide.
$329 trillion, Onward Nation.
More specifically, within the venture capital and angel investor communities, there are estimates of $70 billion sitting on the sidelines and that is likely on the light side.
So to Judy\\u2019s point \\u2014 there is not a lack of capital. In fact, it is the complete opposite \\u2014 there is an abundance of capital \\u2014 but \\u2014 and because Judy is on the inside she hears these conversations \\u2014 investors are frustrated because they cannot find good, solid, investable companies to put their cash to work.
That was a game changing paradigm shift for me, Onward Nation, when Judy shared the data points.
So let me say that again\\u2026availability of cash is not the issue. The cash is there. But positioning your company correctly so an investor sees you as investable \\u2014 and \\u2014 getting yourself into the right room with the right investors \\u2014 now that is a whole different story.
But, what investors are craving right now is deal flow \\u2014 a steady stream of investable companies. You solve that problem for them \\u2014 you get funded and you get funded fast.
So how do you do that?
Let\\u2019s move to Ingredient #2: how do you show an investor \\u2014 or group of investors \\u2014 that you are investable?
As you might imagine, it is a process. You begin by answer two key questions that I learned from John Livesay (who by the way Inc. Magazine calls the Pitch Whisperer) and the questions are: 1) Why you? and 2) Why now?
To even get a seat at the table, you have to be able to answer these two questions succinctly. In fact, John helps business owners craft what he calls a \\u201cpitch deck\\u201d, which is essentially 10-minutes worth of content involving 10-12 slides all following a very specific formula.
For example, you have to grab an investor\\u2019s attention in the first 90-seconds, even if you\\u2019re given 10-minutes. If you don\\u2019t grab them with a compelling opening, they won\\u2019t pay attention for the whole 10-minutes because they hear pitch after pitch.
They literally hear 2,500 pitches a year and might only fund 25. So you really need to give deep consideration, Onward Nation to the content on your slides, what you are going to say, how you will answer the \\u201cWhy you? / Why now?\\u201d questions and then be ready for the rapid-fire Q&A that follows.
I laughed \\u2014 but when John shared these insights with me \\u2014 he said, \\u201cStephen, if you got the questions before you took a test, it would be cheating, but following this recipe is called preparation.\\u201d
And he is so completely right.
But there is more to the preparation and transforming your business from invisible to investable. And John was kind enough to break it down for me so I could really see behind this green curtain that he and Judy work behind every day.
John let me know that a business owner needs to think of the investment process as kind of a ladder with different rungs on it.
The bottom rung would be labeled \\u201cInvisible\\u201d. Much like dating, when you see somebody you\\u2019re attracted to, but they don\\u2019t know you exist. Awesome! Well with investors, it\\u2019s the same thing. You have an idea, you don\\u2019t have anybody on your team yet, so you\\u2019re invisible.
Then the next rung up is \\u201cInsignificant\\u201d. What\\u2019s worse, being invisible or being insignificant? They see you but they don\\u2019t really care \\u2014 that happens when you\\u2019re insignificant. Ouch. So you have a couple of people on your team, but you really haven\\u2019t tested out your business model to see if anybody wants to use it or would be willing to pay for it.
Then you get to the \\u201cInteresting\\u201d rung of the ladder. Going back to John\\u2019s dating scenario, let\\u2019s say you say something clever or funny, the person is interested in you but they\\u2019re not going to go out on a date with you yet. So now you have some people on your team, you\\u2019ve got a business that has some scalability to it, but you don\\u2019t have connections and you aren\\u2019t really great at pitching.
But with the right coaching and mentors, and some hard work, you finally move up to the next rung of the ladder, which is where you\\u2019re \\u201cIntriguing\\u201d.
You\\u2019re not quite investable yet, but you\\u2019re getting a whole lot closer. And my guess is, Onward Nation \\u2014 this has happened to you before \\u2014 you pitch someone something and in response, they say to you, \\u201cI\\u2019m intrigued. Tell me more.\\u201d That\\u2019s what you want to hear from an investor because as I learned from Judy and John, your vital priority with the initial 10-minute pitch and the 10-minute Q&A is simply to get the second date \\u2014 or the second presentation.
Then you get to the \\u201cIrresistible\\u201d level. That\\u2019s really where you become investable and that\\u2019s where you and your team receive multiple offers from multiple investors. But, this is also where you want to have experienced mentors in your corner who can help you negotiate the best deal \\u2014 and \\u2014 mentors who have the capability to help you leverage all that is going on during this process for your benefit.
So once you and your team have ascended the ladder and become investable and Irresistible, you now need to get in front of the right investors.
And that is where having influential and well-connected advisors and mentors as part of your team can deliver a major return on investment.
Why?
Because as I learned again from Judy and John, let\\u2019s say an investor decides to fund 25 deals in a 12-month period of time\\u2026it is highly likely\\u2026that 24 of those 25 deals came to them by way of a warm introduction. So, you can do all of the hard work and reach the Irresistible stage \\u2014 but \\u2014 if the right investors never meet you \\u2014 you are still stuck.
You need to build a board of advisors by connecting with people who are capable of opening the right doors for you. Because when you are in the right room, with the right investors, and you have followed the recipe for becoming Irresistible in their eyes, and you deliver a compelling pitch \\u2014 you will create FOMA \\u2014 or the fear of missing out \\u2014 so the investors will compete for your attention.
And that is a game changer, Onward Nation!
So before we close out for today\\u2026I want to share one final and very important lesson that Judy shared with me \\u2014 and it was a question that I never answered while running Fortified Nutrition\\u2026and that was\\u2026what is the exit strategy of the business \\u2014 and while you are in the business \\u2014 how you will grow and capture market share?
This is critically important because investors do want their money back with a significant return so you need to be really clear on your exit strategy \\u2014 and you get there by having a deep understanding of your market and what is happening in your industry. You also need to be able to articulate your customer acquisition cost and how you are going to acquire customers.
And lastly, be sure to avoid the amateurish mistakes. One of the biggest ones is saying things like, \\u201cIf we just get one to two percent of the market in China, we\\u2019ll be a billionaire in six months.\\u201d That\\u2019s a top-down sales forecast and sophisticated investors know you\\u2019re going to have to start from the bottom up with metrics like how many phone calls are you going to have to make, how will your leads convert, and really understanding those customer acquisition cost are critical to your success.
And then let\\u2019s end with some resources you can use and study further. First\\u2026be sure to listen to Episodes 329, 360, and 362 for deeper dives into blueprints and recipes you can apply to put yourself in the best position possible to access the cash you need to grow your business.
In addition, Judy and John teach a detailed webinar that goes even deeper with more examples and action steps. You can find it here. Register for it and drop me a line \\u2014 would love to hear more about what you learned.
So with that\\u2026I want to thank you again for taking the time to be here with me today.
It is an honor to have you here \\u2014 thank you for tuning in \\u2014 I am delighted you chose this episode to be what you listen to, study, and take with you on your morning run, or maybe Onward Nation has become part of your daily commute, or in some other way has become part of your morning routine.
I want you to know how much I appreciate you sharing some of your invaluable 86,400 seconds you have in your day with me and the strategies we learn and share each day from today\\u2019s top business owners.
And please continue to let me know what you think of Onward Nation\\u2026good or bad\\u2026I always want your feedback. You can hit me up on Twitter, find us on Facebook, me on LinkedIn, or you are always welcome to email me directly at stephen@onwardnation.com \\u2014 and yes \\u2014 that is my actual email address \\u2014 no fancy filters or filing system \\u2014 it will come directly to me.
We will be back tomorrow with an incredible encore interview with Mitch Russo \\u2014 don\\u2019t miss it because Mitch shares the recipes behind building constant and steady cash flow into your business. The conversation with Mitch is rock solid awesome \\u2014 you will love it.
Until then, onward with gusto!
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