my business does not have enough 'gravitas'
- Thread starter bazaarboy
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Caporegime
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- 13 May 2003
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Curse your ninja edit. I should have waited another minute before moaning.
doing nothing is always under-estimated as a business plan, very true lol
problem is, the industry is changing and adaptability is everything - and as I read the market I need to expand
yep, but just that - ie thought about it - have no clue how to get myself considered, don't know what the typical conditions are and of course that doesn't make the subsequent process of expanding any less complicated
How many figures we talking on the offers all in?
What about shares in the buying company?
From what I've read so far I think you should look to sell if the price is right. You're a doctor with no interest of giving that up. I don't think you have the time or resource to take it to the level you would like. Sell and start something new.
What about shares in the buying company?
From what I've read so far I think you should look to sell if the price is right. You're a doctor with no interest of giving that up. I don't think you have the time or resource to take it to the level you would like. Sell and start something new.
conventional advertising and promotion is not something I need, the clients are out there and the demand for the system I offer is overwhelming - the main issue for me is finding the right team to help with negotiation, sales, support and training - all the things I've been doing solo
Soldato
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When you have a small business with one person that is highly profitable and operating with very low costs, liabilities and risks and you want to develop to one with quite a few more staff etc, you are talking about a massive step change. This is going to require substantial investment, irrespective of whether you have confirmed orders.
How you build the business model at these stages will define the future of the business. It is very easy to fall into the altruistic expansion over profit trap and end up with a much larger business, all the associated overheads, liabilities and risks that go with it, but no way to realise sensible profits unless you start cutting mass and costs. This leaves the business very vulnerable in its first few years of trading. You can also find yourself growing for the sake of growing at a very fast rate to either meet the demand of new work or risk loosing it and it can be harder to manage these rapid expansion cost and processes.
People often under estimate how much costs can increase when you start finding and bringing in new high quality staff and mitigating your operating risks (not just about the potential for litigation).
You have contradicted yourself here. Bazaar wants to grow a business which requires substantial investment, yet you are suggesting Profitability shouldn’t be important when any investor worth partnering with will be looking at their ROI.
I don’t disagree that it is nice to see this mind-set in business, it is always welcome in the world. However, it does not always lend itself to securing the long term sustainability of the business.
bazaarboy said:
You are making assumptions that your time spent operating at a loss will secure you the long term future with the clients, buy you some market share and that the clients will still be there and require your system in this timeframe. You are also assuming that you will be able to increase fees to enable your business to operate in profit after this period which may not be the case.
Have you done any calculations into the cost of expansion yet?
If you were operating at a loss, your fee increase will need to be proportional to the level of profit you need to make (even if to break even), i.e. if you are operating at a 10% loss by the end of Yr2 you will have accrued the losses of Yr1 + Yr2 so you will need to increase your fees quite substantially just to bring you back into profit in Yr3.
Yr1 losses will include all the start-up and expansion costs so you may need to increase your fees in Yr3 by 20-30% in this example to ensure you have broken even and potentially made some profit by the end of Yr3. If you leave it any longer to start making profit as a small business then you may find it even harder to attract investment.
Essentially you are saying that you have a profitable business which you want to turn into a loss making business for a few years to get back to the profit you are already making before doing all of this.
What you need to be proposing is sustained profitable growth with carefully managed expansion.
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I'm not talking about clients or conventional advertising, I'm not sure what gave you that idea. I'm talking about putting together your team, meeting with VCs, friends of VCs, etc.
You talk about not having the budget to hire the people you need - you will however, be able to get the people you need on-board, if they believe in your idea for an equity stake. Various terms can be agreed whereby they only get their stake if they meet certain criteria, and they don't get anything if they leave the company before a certain date etc.
sorry perhaps I misunderstood your post,
in terms of VC, again this is not absolutely necessary - I can probably raise the capital myself - what's much more important is getting the right people, primarily those who know the industry and can oversee a sale, and IT support
everything you said is probably right, but I should point out a couple of things:
my current position is profitable but not sustainable, the market is changing, I won't be able to put in 80-90 hours a week indefinitely, and there's no way I can acquire more clients with the current set up
if I go down the road of expanding and managing my own business i think i need to garner a minimum number of new contracts. contracts of this nature never last less than 3-5 years
perhaps I should aim to hit the market at full RRP and not use the loss-lead method? difficult to say, the aim is to strike a balance between acquiring new business and having enough cash inflow to stay afloat
No contradiction at all, I merely stated that an investor would want ROI, granted, But, any investor worth a damn would realise that sustainability of a product is far more valuable than short term profitability.
As Bazaar points out, the profit margin currently is huge, people are clambering hand over fist for this (ie, there's probably nothing else going to market like it), but the product should be right before focusing on profit. That's how any good business works, otherwise, you end up with a company like Acer, rather than Apple.
He could have a team of 5 people and charge the earth for a product / service. If it falls over corporately, it won't survive and therefore won't be profitable or sustainable. Remember, these days companies tendering will want to see evidence of results and references from other companies who have employed the product/service before parting with cash. If that isn't available, they'll look elsewhere.
If the product/service is truely market unique, then as I said before, profitability will naturally follow a good product, but it shouldn't be the focus of the product.
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Use dark matter to create an artificial black hole......oh, you said gravi-tas.....my bad
Soldato
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If you are bidding for 3-5 year contracts you should really be in the position to set out your costs on spec at the start of these contracts. If they are framework agreements with break clauses based on an initial install with annual licence fee and hourly/daily maintenance and servicing rate then you may have more scope to increase you fee later on, in the same way the client may just ditch you and your product. What you won’t be able to do is just hit the existing clients with an ad-hoc sizeable fee increase when you need to.
Having a decent element of fixed pricing in the contract improves your forecasting capability, reassures investors and gives the clients confidence in their cost management. Of course, costs for any changes to the contract spec and product development would be extra and priced as you need to
. You will still need to set out likely parameters and give framework inflationary rises such as base rate + 4% but capped at 10% per annum for example.You should always seek to be making profit from the start, if you can’t you need to reflect on this and ask some questions: is it because your product and services are not worth any more money, is there a lot of competition and are they both cheaper and better, is the client treating this as a demonstration project testing your product?
Being small and new to the market does not mean that you should under-price your services. Under-pricing can also be as detrimental to winning a contract as over pricing as the client will question your businesses sustainability.
If you are bidding for 3-5 year contracts you should really be in the position to set out your costs on spec at the start of these contracts. If they are framework agreements with break clauses based on an initial install with annual licence fee and hourly/daily maintenance and servicing rate then you may have more scope to increase you fee later on, in the same way the client may just ditch you and your product. What you won’t be able to do is just hit the existing clients with an ad-hoc sizeable fee increase when you need to.
Having a decent element of fixed pricing in the contract improves your forecasting capability, reassures investors and gives the clients confidence in their cost management. Of course, costs for any changes to the contract spec and product development would be extra and priced as you need to
You should always seek to be making profit from the start, if you can’t you need to reflect on this and ask some questions: is it because your product and services are not worth any more money, is there a lot of competition and are they both cheaper and better, is the client treating this as a demonstration project testing your product?
Being small and new to the market does not mean that you should under-price your services. Under-pricing can also be as detrimental to winning a contract as over pricing as the client will question your businesses sustainability.
the market currently, as I interpret it, has low confidence, but a strong demand for this sort of product. Essentially no-one wants to pay full price and the current big players are struggling, some very big companies at risk of defaulting, and in turn this makes the market even more nervous.
a low(er) cost contract makes more sense to the majority of clients
the product however is highly scalable - think of it like the AppStore, you can start of with the basic system, but add as many Apps as you want, when you want. I don't mind letting the basic platform go for a low price, heck even for free. They'll come back for the Apps, and in time they'll want more and more - and that's when the revenue starts to flow
Soldato
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This is as much about mind-set as outcomes as it will define your long term business objectives. It is relatively easy to have huge profit margins when trading on your own.
Apps are good
I am sure you will agree that a contracting / self-employed model for staffing would be the best way forward. This may cost the business slightly more short term but reduces employer liabilities and costs with everything from pensions to HR support. It also facilitates dynamic scalability.
The OP + 1 or 2 other business partners / investors as directors of the company, small office £10K-£30k per annum, then the rest done through contracting staff @ £30K-£60k per annum each. Notable other start-up costs, although these could vary hugely, may be IT and communication infrastructure and software licencing @ £10k - £15K, employers liability insurance, professional indemnity insurance (guessing £10m-£15m cover for undertaking sizeable contracts) @ £1K-£2K plus a couple of K again for misc. accountancy and admin fees.
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