Forums: Discussions for entrepreneurs and small business.

CraigL,
I appreciate your comments.  We have a prepared prospectus for equity investment and we will go ahead with it if we cannot find another way.  The downside is we have used almost all of our money to get this far and would have very little to buy equity.  Therefore, we would have to give almost all the equity to investors and become employees.  Giving up controlling interest, while not desirable, is likely.  However, we would need to retain enough interest to share in the success.

We are looking for commercial lending.  However, for a startup company they show no interest at all except with almost 50% down.

This preparation and loan hunting has taken almost six months.  That is why we are trying to find an investor loan.  Our thinking, perhaps it is naive, is that on a loan with interest plus a reasonable premium, we may not have to give up as much equity.  In your experience, is this idea for funding a realistic expectation.  We would rather have honest feedback now than waste limited time and resources pursuing an approach for no results.

Also, we have been looking at investor websites and some seem promising.  Our difficulty is determining if they are legitimate or if they are scams.  Do you have any tips on that issue?

Thank you,
Darrel

We`ve had a number of discussions here on the boards, about the value of an influx of capital versus the loss of equity. The general consensus seems to be that whatever you can do to hold your equity, that`s the ideal.

The other issues often coming into play are those involving bootstrapping. You said in your test marketing you had a strong positive result. So it`s going to come down to your expenses per house versus your revenue per house. Is there any way you can do a limited period of only working on a few clients to rebuild your initial capital?

As for investor Web sites, maybe do a search on SuN for "investor" and browse some of the financial topics. The search capabilities here aren`t very good, but a few people have asked about the legitimacy of some of these sites. They seem to be, for the most part, valid and useful. I don`t know, though, since I`ve had no need to use one.

CraigL,
I would love to start this business in a bootstrapping fashion.  That way there would be no debt costs and no equity sharing.  However, I have not yet figured out how to get the pricing advantages from the service providers without having a volume of clients.  The client volume comes from the marketing.  Without the pricing advantages my management fee is an incremental cost to the client.  In other words it is a much harder sale and appears to be a way to go broke gradually. 

By the way, this morning I had an unplanned conversation with a man who is on the board of a local bank.  He was enroute to a board retreat.  I made use of the elevator pitch you helped me develop.  He became fairly enthusiastic and asked me to email him a business plan for he and a fellow board member to consider during the retreat.  Even if it comes to nothing, the encounter really made my day.  It was the most positive reaction I have encountered, and it`s because of your help.  Thanks a lot.

Darrel

Most Excellent! I`m so glad I helped. :-D Having a plan is always good, particularly for those serendipity event.

As for the bootstrapping, I`m seeing that you`re sort of the middle-man in this? You`ve mentioned a couple of times having "service providers." So that means you go out and gather a "group" of other businesses, joining them in a central contract for a client?

If that`s the case, then it would seem to me that your problem is going to mostly be marketing. Yes, I understand that $200K would be a great marketing budget. On the other hand, maybe there`s a way to do a multi-phase or "stepped" plan?

Could you, for example, do a simpler direct mail campaign for a few thousand dollars to get some number of clients?

Another question would be how many clients would you need to start, where you`d get this "volume discount?" That begins to enter into the question of your profit margin. I wonder if a business catering to affluent homeowners should run as a volume business to generate a profit. Maybe it`s that I`m not clear on what particularly this business is all about.

Meanwhile, who knows what`ll happen with this banker. But I do know that when people focus their attention on a particular thing, that thing often begins to materialize in their life. :-) Kind of like that "Secret" book.

I have seen several references in this forum the the "Secret" book.  However, when I Googled it there were several by different authors.  Who is the author of the one so many of you have referred to?

The nutshell mechanics of the business follow:
1.  The client selects services from a menu and initiates an annual service agreement.  The menu includes 40+ items including lawn care, to HVAC preventive maintenance, maid service, auto detailing, etc.
2.  We through blanket agreements with screened contractors schedule and facilitate the services, ie we  escort  the contractors, QC  the work, pay the bills.

The benefits to the client are: No time spent finding contractors, haggling with contractors, being available when contractors require interior access, writing checks and being unsure of quality.

The benefits to contractors are:  Reduced time investment in scheduling, reduced time processing invoices and payments and better predictability of manpower requirements.

In summary, we manage the routine maintenance and preventive maintenance according to personalized service contracts.

Okay, so you`re a form of management service company. It`s a great idea, I think, and wouldn`t only apply to affluent people. There also are folks with a summer home who need that sort of oversight for winter caretaking.

I guess what I`m thinking is that if you`re having problems marketing, where you believe you need $200K, that`s a pretty large number. On the other hand, there also seem to be many paths open to marketing yourself.

I also understand that you`ve invested your startup capital in marketing up to this point. Although you`re in a different product, you`re still an entrepreneur, and you`re pretty much in the same boat as everyone here. :-)

I`m thinking that while you`re looking for that boost in capital, you could still be doing other types of general marketing. Instead of going national immediately, could you go back to that test market county and do a strong direct mail offering? Maybe get a professional copywriter, which would cost much less than $200K? The lower dollars might then be affordable in some way?

As for "The Secret," I was mostly just kidding around. It`s an interesting bit of New Age writing about something that hasn`t ever been a secret. It was a documentary rehashing what was done in a far better way by Napoleon Hill, in the book "Think and Grow Rich." That was written in the 1930s, and speaks about intent, energy, and passion.

Basically, it comes down to attracting into your life what it is you`re passionate about, interested in, and "vibrating in alignment" with.

CraigL,
    The money will be used for marketing and first year operations. 
    The startup will be carefully limited to the original county because uncontrolled growth could destroy the service quality. 
    I have actually identified three markets: primary residences, lake weekend homes (we have a tremendously popular lake surrounded by upscale residential communities), and businesses operating in homes converted to offices (attorneys, engineering companies, dentists all do a lot of this in this area). 
    I keep getting mixed signals regarding the startup amount.  Many say it is not enough to attract investors, but I don`t know what I would responsibly do with more.  I have been through the pain of an underfunded startup several years ago.  That experience is one I don`t know that I have the guts to repeat and I don`t think I would be a good man if I put my wife through that again.  I am willing to take risks, but it doesn`t seem responsible to make the same mistake repeatedly.  I will start the company with less money, but some initial infusion is necessary to keep the panic out of the operation and out of the sales presentations.
    In this business, the volumes to get discounts are pretty low.  For instance, a lawn company will start giving discounts on the fifth lawn under contract.  The discounts will escalate  as volume increases, to a point.  Sharing the discount with clients will begin to offset the management fee, and may result in clients seeing decreasing home maintenance costs.  But the key to success is service quality.
    Direct mail will almost certainly be a component of the marketing, as will my continued guest appearances on local radio shows, my continued newspaper articles, print ads in selected local publications, networking and so on.  My projections consider that this service is not for everyone and I`m guessing at only a 1-2% closure rate until the reputation for excellence is well known.  This means I have to get used to hearing "No" and get in front of many potential clients.
    By the way, as a result of your coaching for the elevator pitch, I am rewriting large portions of the business plan.  I just finished reducing the executive summary from a thousand words to 650 and it does communicate better.  I don`t know at what point I began to love words better than communication.  Thank you.

Darrel

The Executive summary should be no more than about 200 words. :-) So there`s some work there. Don`t forget to use headings, headings, headings, headings. Also remember bullet points. (Not the Executive summary, the whole thing.)

I understand a lot of what you`re dealing with. It`s particularly hard when you`re building a brokering business, rather than selling a single product line. There are so many dependencies involved. So I get it.

On the other hand, I also understand how investors aren`t interested in the amount of work involved. They`re only interested in how long it`ll take to get back their investment, what profit percentage they`ll gain, and what`s the risk factor.

The world-famous irony we all face is that when you don`t at all need money, EVERYone wants to give you money! But when you seriously need money, nobody wants to give you money! :-)

The more you can have a real, going concern, the easier it`ll be to get help and investors. A business plan helps create a "virtually real" going concern. A small but profitable startup is also a going concern. I think that`s what I`m looking for, is some way that no matter how small, you can actually demonstrate that you have a running, profitable operation. Y`know?

I think that`s where I`m looking for the "line." What are the least number of clients you would require to have a working operation? 10? 20? 100?

CraigL,
Perhaps I have an approach that demonstrates the ability to create a running, profitable operation and will change the loan category from startup to expanding to a synergistic market.  Nutshell description follows for evaluation:

Fifteen months ago I started a bootstrap sole proprietorship home inspection and home repair service.  It serves the same market and is now profitable in a small way and growing.  This status meets the startup projections.  The downside of this business is that there is no good exit strategy and it will require another 12-18 months to be fully successful. 

What if:  The approach is to sell the home inspection business to the new company for $1.  The required skill sets, network requirements and marketing synergy for the two businesses are complementary.  In your opinion would this approach demonstrate the abilities and attributes you  seek  and  would the sale establish "skin in the game"?

Darrel

Darrel, I think at this point we`ve moved beyond my expertise which is primarily examining logic, definitions, and carrying forward what likely would occur given a set of propositions.

If I understand what you`re saying, you intend to "merge" your caretaking oversight business with an existing home inspection and home repair service? Then you would use the credibility of this previous line of business to help sell a lender or investor on the new "consolidated" business?

I don`t know that your credibility rests on your capability to manage a consolidated business. I`m not a financial person, but logically, it seems to me that your fundamental problem is the size of your loan request in relation to your existing proof of business.

In other words, you`re asking for a very large sum, from what we`ve seen so far, in relation to what you`re actually doing and what you intend to do.

Let me phrase this down to it`s most simplistic and general basics, NOT in any way to impugn you or your business, but only to demonstrate what I`m seeing as the "core logic" of your proposition:
Phrased this way, assuming I`m in the ballpark, we can see a specific problem emerging from the logic. Why should I invest nearly a quarter million in a management company? Is it a financial services company? No...it`s basically a "janitorial" service. Again...no disrespect at all! This is ONLY for the purpose of reductionist reasoning.

It`s like saying, "How come I should pay you $100K per year to bus people around in a plane?"

With ultra-reduction, we can sift out some of the words and phrases that might be leading to false problems and focus totally on the bottom-line premise of your argument. See? Does the above help in this way?