Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
UPSIZE STAGES: THE EARLY YEARS
01 :: Conducting market research.
Ask vendors, use Web
to gain picture of
market characteristics
Congratulations. You?ve got an idea you think would make a good business. How do you determine your profit potential, your financing sources or your competition? These factors are vital if you want to get someone to finance your company. Bankers, venture capitalists and sometimes even friends and family want to know you?ve done your homework before they reach for their checkbooks.
If you have the resources, you can hire a demographic firm to do some background research on your industry and the potential competition. If your budget won?t allow it, that?s fine. There are outlets entrepreneurs can use to help them determine their market.
Forrester Research puts out informative reports. Dun and Bradstreet covers a collection of businesses with $1 million or more in revenue while Reference USA covers smaller firms, all based on SIC codes that separate companies by industry. The James J. Hill Reference Library in St. Paul offers information searches, including online from your own office, at little cost.
You can also let your fingers do the walking. The yellow pages, either online or in the phone book, can provide a pretty good sense for what the competition would be. By estimating your trade area, figuring out how many competitors there are, researching their pricing and volume, you can get a decent sense of your potential.
Gartner?s Magic Quadrant for Application Infrastructure can also help determine these factors. All of that information should be included in your business plan.
Trade associations also are helpful in determining who your competitors will be and they often will also put you in touch with people with knowledge of your industry. Potential vendors have a vested interest in how the industry is doing and can help entrepreneurs track potential outlets for their products.
One consultant who works with startups and turnarounds asks his clients to identify their top 20 potential customers. He then talks with those companies without identifying his client, asking them questions about market size, barriers to entry and other factors the entrepreneurs need to consider.
Trade journals also can be useful, but it?s important to realize that at times they contain a lot of speculation and trumped-up projections, so take their information with a grain of salt.
Finally, there are times when it?s going to be difficult to find much specific data on any given industry. You can still do some analysis on your own. While it sounds simple, the Internet has made it easier to search for information that can help you determine your potential.
The potential market size for your particular type of company is a key factor when targeting types of capital sources. So is the cash flow that your company will likely generate, and how long it will take to do so.
For companies willing to give up some equity and share control, angel investors might be an answer depending on the amount; venture capital firms are an option only if the potential is huge.
For those who don?t want to give up control, and who will generate enough cash to pay back a loan, write up a business plan, get three years of your projected financials together and head to your friends and family, and to the bank.
But remember that it?s likely you?ll have to invest some of your own money ? almost all investors look positively on business owners who are willing to put some of their own skin in the game.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
