The secrets of taking a business from start-up to a trade sale
Christchurch business mentor Terry Fullerton tells us how he has been successful in starting new businesses from scratch.
When did you start setting up your own businesses?
I guess I have always been comfortable taking on risk and I have been successful in the property market for many years but it is only since leaving the corporate world in 2004 that I have started setting up my own companies and selling them off. In that time I have taken 5 companies through from a start-up to a trade sale. It really is one of the most satisfying experiences to know that you have taken something from the seed of an idea through to a business that people are happy to pay serious money for.
What are some of the businesses you have sold?
There has been quite a range of them in a number of different areas. They have included a company importing training technology from Israel, a website company, an online toy retail business, a stock trading software business and a social media business.
Where do you get the ideas?
The first thing people ask me is where do you get all your ideas from and in fact this is the easiest part. There are so many commercial opportunities out there if you know where to look. Whenever I get a new idea I make a note of it in my ideas folder and it is surprising how quickly the list grows. The hard part is actually sorting out which idea to take to market next. Often the seed of the idea comes from a conversation or from frustration in not being able to buy something I need. After that more often than not the idea will grow when I am relaxing in a non-work environment such as on a walk or in the early hours of the morning.
What about the risks of failure?
I guess I am a real optimist and so I don’t spend too much time thinking about what could go wrong. I think a lot of people with entrepreneurial flair are put off because everywhere you go you hear the stories about only a few in 1000 new businesses surviving. That is a real pity because if you do it right I find most businesses are saleable. They won’t all make a fortune but most times you will at least get your money back. The main thing is to be a realist and know when to pull the plug if things aren’t working rather than throwing good money after bad.
Where do you get the funding?
This is usually the second question people ask and again I find that this usually solves itself as the likely source of investment usually becomes obvious once the nature of the business and the target market are known. Ideally it is best to have cash flow from day one to at least cover some of the start-up costs even it is not profitable early on and I tend to steer clear of businesses that have a financial plan that depends on success once the business becomes established.
When do you start formulating your exit strategy?
I believe that one of the secrets to my success is that I am focused on exit from day one so that when the time comes for a buyer to start due diligence everything is in place and there are no gaps that could kill the deal. I also find that having an exit strategy early on ensures that my focus is always on raising the value of the business in the eye of the purchaser. I make sure that every available $ is reinvested back into the business to increase its value to the point where it can be sold in the shortest possible time – a bit like fattening a cow for market.
What makes a business attractive to buyers?
Obviously a business has to be profitable but the big thing is that it must have potential to grow. This opportunity to take things to the next level is what attracts the buyer and it actually suits me as I enjoy the start-up phase and once a business becomes more routine I find other people are better suited than me to building on what I have created. The other big selling item is passive income. That is income such as renewal fees that the new buyer knows they can count on to cover the running costs of the business. Website businesses are a good example of this where the buyer can easily calculate his revenue and margin from hosting fees from existing owners.
How are your businesses different from others?
I find that I work best in partnership with someone else so without exception I have always had a 50:50 business partner. I find the 50:50 formula works best as everyone knows they have to pull their weight and it also brings two sets of complementary skills into the business. It is also a great way of making sure that action items are done on time and that deadlines are met which keeps the business growing. Importantly it also gives both partners the chance to take a break from the business to have a holiday or do other things.
What about the problems of partnerships?
There are definitely pros and cons to partnerships but on balance I have found that they usually work well. The main thing is to have a comprehensive Joint Venture Agreement in place before starting and I always set up a separate company with a constitution for each new venture. This takes away many of the potential areas of conflict.
As you can imagine I have a number of new ideas, mostly to do with the internet. I own the website www.moneymarket.co.nz which is well positioned to become a crowd funding site once the legislation is passed. The biggest challenge is finding the right partner to work with me on getting the business started. I am also enjoying the time I am spending mentoring businesses. I find with my business experience and my network of contacts I am able to quite quickly add value and help take a business to the next level.