I absolutely love reading the occasional social and/or business entries at the Sacred Cow Dung. The hilarious blog name combined with the down to earth application of some hard-core business and sociological theories makes me froth at the mouth.
The newest entry is one actually written by Gerry Lemberg (who I don’t know, but his writings seem to go straight along with Christian Mayaud, author of Sacred Cow Dung). I’d like to summarize it a little here, just for posterity and my own ability to find it again. I also think it could be of some use to those of you who are starting up new companies and might need future investment. The full article can be seen here.
- The Reality:
- Any venture will be compelling and fundable if it offers relief to a well defined customer pain which will generate revenue when executed by a highly motivated team of entrepreneurs possessing a sustainable advantage.
- The Rules:
- An idea is worth only 20% of the value of the venture
- People, not ideas, technology, or money, build companies. Thus, they are worth 50% of the value of the venture.
- A successful and fundable business requires a sound structure right at the start. Thus, the structure is worth 30% of the value of the venture. ("structure" is defined as a validated market, sales, operation, product development, financial plan, and team to execute the idea)
- Only products and services that can relieve a significant identified group of customer’s pains can generate revenue. (The biggest risk for investing in any idea or technology is the creation of an elegant solution for which there is no problem.)
- Investors expect to exit with significant returns within six years.
- Their minimum expected return is at least a 30% IRR or five (5) times their investment. Aside from liquidation of a failed investment, there are three ways that an investor can exit from a successful investment:
- A management buyout from a cash rich business.
- A trade sale of the business
- An IPO on a significant stock exchange
- Brand equity will be one of the single largest components of the exit value of the business. Thus an important part of the grand strategy will be planning and creating that brand equity. Creating brand equity requires the business to be customer centric rather than product centric. If you create a brand that is synonymous with customer pain relief and customer service, the value of the business will more easily meet the priority of the investors as well as the customers.
- Strategies that are developed without total awareness of the forces and threats that can impact your business will inevitably fail. (Action is the key, not reaction)
- Foresight, foresight, foresight will win in the end. Plan with contingencies, but plan. (Summary of the Grand Strategy)