ecrda: loan officer training - session 1
TRANSCRIPT
Loan Officer Training: ECRDA
Who we are?
We are passionate about helping entrepreneurs succeed
Ignitor: Assessing early stage businesses
Early stage accelerator + Due diligence programme
Online training: Execution + Smarts
Bootcamp: Coachable + Execution + Smarts
3-month coaching programme: Execution + Business model valiation
Agenda
09:00 Presentation: Predictors of SMME Growth and Survival
Exercise: Applying SMME predictors
10:30 Tea break
11:00 Presentation: The lean approach
Exercise: Identifying key assumptions
12:30 Lunch
13:00 Presentation: Assumption based financial models
Exercise: Identifying key assumptions
15:00 Presentation: Coaching SMMEs to remove risky business assumptions
Exercise: Allocating task to remove risks
Conclusion
16:30 Workshop ends
Predictors of SMME survival and growth
?
?
?
The first sale
What predicts success?
1 Planning doesn’t predict
Source: Lange, Mollov, Pearlmutter, Singh and Bygrave (2007)
“new ventures launched with formal written business plans do not outperform ones
launched without them.”
Business Plan?
Source: Bhide (2000)
21%
79%
Yes!No!
No!
No!
No!No!
No!
Doh!?!
2 Opportunity predicts
Source: Shane (2009)
Industry Number of Inc 500
firms
Firm starts Percent of Starts
Pulp mills 6 33 18.182
Computer and office equipment 99 2359 4.197
Guided missiles, space vehicles, parts 2 60 3.333
Nonferrous rolling and drawing 14 581 2.410
Railroad car rental 3 136 2.206
Measuring and controlling devices 49 2482 1.974
Paper mills 3 125 2.400
Search and navigation devices 6 310 1.935
General industrial machinery 26 2173 1.197
Photographic equipment and supplies 7 646 1.084
Manifold business forms 3 281 1.068
Household appliances 4 390 1.026
Electrical industrial apparatus 11 1080 1.019
Legal services 10 129207 0.008
Eating and drinking places 34 494731 0.007
Carpentry and floor work contractors 4 66383 0.006
Real estate operators 5 90042 0.006
Hotels and motels 2 39177 0.005
Painting and paper contractors 2 43987 0.005
Retail bakeries 1 22165 0.005
Grocery stores 5 112473 0.004
Used merchandise stores 1 24442 0.004
Automotive repair shops 5 124725 0.004
Beauty shops 3 79081 0.004
Residential care 1 27710 0.004
Videotape rental 1 27793 0.004
Industry choice vs. inc 500
Computer and Office Equipment
(1/25)
Eating and Drinking Places
(1/14,550)
Source: Shane (2009)
Computer and office
equipment
582 succeed
Eating and
drinking places
1 succeeds
Source: Shane (2009)
Correlation between number of
startups in an industry and failure rate
0.77
Source: Shane (2009)
3 Team predicts
13.1%
54.2.%
Source: Bruderl, et al. (1992)
+
>
5-year failure rate?
90%
10%
1 founder
2 or more founders
Source: FinScope (2010)
Team size south africa
4 Advice seeking predicts
45%
80%
No advice
Source: Watson (2007)
Advice from
accountants 3+/yr
3-year survival rate
NETWORKING & SURVIVAL
Source: Watson (2007)
Network range = How often an entrepreneur networks
x How widely an entrepreneur networks
I managed the business by common sense and
good advice from people I knew.
- Mo Ibrahim
We were young but we had good advice and
good ideas and lots of enthusiasm
- Bill Gates
Source: Pretorius & Le Roux (2011)
Successive entrepreneurship and no learning
Source: Pretorius & Le Roux (2011)
5 Industry experience
75%
25%
Source: Fresser and Willard (1990)
Inc 100 entrepreneurs with industry experience
Source: Bruderl, et al. (1992)
25.5 %Industry
Experience
No Industry
Experience54.5 %
5-year survival and industry experience
Strong Team
(1) 3 + members
(2) 50% joint experience
(3) 3 year industry experience
(19%)
(73%)
Source: Eisenhardt & Schoovenhoven (1990)
6 Traction
“I'd just go sell it. I don't believe in market research. Somebody once told me the only
thing you need is a customer."
Source: Sarasvathy (2007)
Source: Reynolds (1987)
Source: Bhide (2000)
82%
8%
10%Somewhat Involved
Main Salesperson
Heavily Involved
Founders involvement in selling
7 Education
DROP OUT?
DROP OUT?
scientific business strategy
Source: Fairlie and Robb (2007) in Shane (2009)
High School University grads
(25% greater sales)
Post-grad degree
(75% greater sales)
South Africa’s Greatest Entrepreneurs
Matric (18%)
Graduate Degree (32%)
Post-Graduate (50%)
Source: Makura (2010)
GOOGLE GUYS
KOOS BEKKER
Research: Exceptional evaluators: Case studies
How novel the idea is
Extent the idea is based on new technology
Superiority of product/service
Potential to change the industry
Intuition or gut feel
Source: Baron & Ensley (2006)
106 Novice entrepreneurs evaluated opportunities
Source: Baron & Ensley (2006)
106 Novice entrepreneurs evaluated opportunities
Solving a customers problem
Ability to generate positive cash flow
Speed of revenue generation
Manageable risk
Others in network to develop venture with
What are the key elements of a
good business opportunity?
Research on 5 of Canada's top angel investors
showed they looked for the following 8 elements
A summary of Business Angel Decision Making By Andrew Maxwell, a PhD Thesis.
Is there a large market for this product?
Key Question:
No evidence of market potential presented
Fatal flaw if…
Examples
I cannot see any demand for this product….
The market is already well served….
1 Market potential
Will customers in target market easily adopt [buy] this product?
Key Question:
No clear benefits, or major adoption issues
Fatal flaw if…
Examples
You have not convinced me that anyone will buy this product….
There are only a few major customers for your product, and it will
take you too long to sell any of them….
2 Product Adoption
How easy will it be for other people to copy the product or service?
Key Question:
Anyone could copy the product or service easily
Fatal flaw if…
Examples
No barrier to entry, as soon as you are successful, others will
enter the market and you will find it hard to compete…
Without a clear advantage you will just have to compete on price,
which will reduce your profits to zero….
3 Protectability (Barrier to entry)
Does management have the direct and relevant experience?
Key Question:
No evidence of required experience
Fatal flaw if…
Examples
I am concerned that without any direct experience of the retail
market you will be able to achieve success….
While the product is great, this is a business, and you haven’t
shown me you have what it takes…
4 Entrepreneur experience
Product ready for market, or major work required before it ships?
Key Question:
Needs more research and development
Fatal flaw if…
Examples
The product is still in the research and development phase…
Currently each product is hand made, not clear that have put any
thought into how you could scale up manufacturing….
5 Product Status (Stage of product development)
Is there a realistic marketing plan and route to market?
Key Question:
Limited thought given to distribution issues
Fatal flaw if…
Examples
Why would an existing distributor switch to you as a supplier…
You have not allowed enough margin for a retailer…
6 Route to market
Is the first customer identified? Does the product meet need?
Key Question:
No identified first customers?
Fatal flaw if…
Examples
You have not identified a first customer who would be likely interested
in your product….
You have not considered the switching cost for potential customers to
adopt your product….
7 Customer Engagement
Profitable and sustainable cash flow?
Key Question:
No evidence of profit or cash management
Fatal flaw if…
Examples
You will run out of money before you are able to raise more money
from investors….
There is simply not a path to profitability….
8 Financial model
11 2 3 4
8765
Market
Potential
Product
Adoption
Protectablity Business
Experience
Product
Status
Route to
Market
Customer
Engagement
Financial
Projections
Applying SMME predictors
Opportunity Evaluation
AccommodationforStudents.com
“150,000 pounds for 15% of the company”
“5 pound per property to month”
“Rentals only pay when empty”
“14,000 on the site with 3,000 paying”
“200,000 hits per month”
“Number 1 rental site in the UK”
Have you done anything to increase revenue?
“Done reverse bill SMS (1.50 sms) and hosting sites for landlords”
AccomdationforStudents.com – Additional Information
Financial projections “3000 are not rented out and paying”
Protectability “I don’t see anything I couldn’t do very simply, very
quickly myself”
Financial projections “I can’t see how it is going to generate
income”
Insufficient return “If we not talking the same ballpark”
Insufficient return “you have put me in a position where I have to
ask for a great deal of equity”
AccomdationforStudents.com
Investment offers: 2
Performance: Survived (14 countries, not in top 100,000 sites)
Truly Madly Baby
“25% for 75 000 pounds”
“Left school worked for Natwest bank for 5 years. Changed career a
couple of times. Sold steel for 7 years what I am good. Worked
for husband.”
“Done 10 parties and made 2600 pounds”
“8 ladies average spend 20 to 30 pounds”
“Projection:
Consultants doing 1 party per week @ 250 pounds per party”
“4 working consultants”
“Projections year 1 – 750k with 64k profit; Year 2 6 million pounds”
“Aims to recruit 500 consultants in 2nd year”
Truly Madly Baby– Additional Information
Unrealistic projections “I do not believe the 6 million” “I think you
projections are truly madly”
Not scalable “Lifestyle business it is not scalable” “It is not that
scalable”
Wrong distribution channel “have you thought about direct mail”
Wrong business model “I can see potential I have got some ideas
to a completely different strategy. I think there is a big opportunity
on the web”
Truly Madly Baby
Investment offers: 2 (Peter Jones invested 75,000 pounds)
Performance: Survived (500 consultants; Website; Startup 100 list)
Must be games
“Asking for 70,000 pounds”
“MBA from Stanford Business School”
“Sales projections Y1 – 180,000; 270,000”
“Profit projections Y1 – 110,000; 240,000”
“Trivial pursuit for Bollywood”
“Funded from personal funds and family”
“Full time day job runs business part-time”
Must be games – Additional Information
Product quality “looks cheap” “badly mad”
Product adaption “I don’t see an interest in your game”
Poor pitch “Your pitch was far to long and totally uninspiring”
“Made a bloody hash of your presentation”
Not unique “many games like this on the market”
Competition “The market for board games is heaving”
Protectability “anybody can create a board game”
Lack of commitment “I never invest in someone who isn’t in the
business”
Entrepreneur “I won’t be investing in you”
Must be games
Investment offers: 0
Performance: Failure (No evidence of company existence)
The Generating
Company
“Asking for 200 000 pounds
“We employ 5 people”
“Does commercial opening shows”
“Customer include Audi, Hotel for Butlins”
“Breakeven in 600,000 pounds”
“This year will do 800,000 pounds turnover”
The Generating Company – Additional Information
Not scalability “not going to be able to leverage” “it is not
scalable”
High risk “this is a high risk” “this is similar to theatre production
which can have a number of failure”
The Generating Company
Investment offers: 2 (160,000 for 40% from Peter & Theo)
Performance: Success (2006 & 2007 played to over 1 million
people internationally)
Light Fitting
“39 years old”
“Came up with the idea at university”
“the over 50s control 100 billion pounds”
“I am looking for help to show me how to market the product”
“Suspects it will cost 1.50 to make and sell at 8 pounds”
“Competitors products (no spring) are 1 to 2 pounds“
“I am wanting to produce a pre-production prototype”
“Asking 70,000 pounds”
Light Fitting – Additional Information
Small market size “I don’t know whether there is a big enough
market” “If there is a market I suspect it is very narrow” “I don’t
think it will sell in big quantities”
Product status “you have not built a pre-production model” “I
don’t know if the product works”
Entrepreneur experience “you might be a good product design
but you are not an entrepreneur”
Light Fitting Company
Investment offers: 0
Performance: Failure (Still employed - Linkedin)
Atomic Toys
“Competition is Go-karts and bicycles”
“Sold 2,000 in Ireland”
“It has all the relevant safety standards. It is safer than a bicycle”
“I am an importer and distributor”
“I don’t manufacture”
“Next product is the extreme pongo
stick that jumps 5 feet in the air”
“I have the sole right to import in the UK and Ireland”
“debtors 70,000 euros”
“creditors 160,000 euros”
“don’t know how much they owe the VAT man”
“is not paying the VAT man all the time”
Atomic Toys – Additional Information
Product life span “won’t get another product and won’t be a long term
success” “you have one product” “I think it is a fad”
Poor pitch “I think it was a poor pitch”
Entrepreneur “I don’t think you are professional”
No legal compliance “You haven’t paid the VAT man so for that reason
I am out” “When someone thinks it is okay I have a serious problem”
Atomic Toys
Investment offers: 0 (2 interested, didn’t invest due to non VAT pmt)
Performance: Success (Small business award, multi-million euro
Business, distributes in UK and Europe)
Tea Break