Posts by : Dave Lavinsky

Let me go right out and tell you the secret to highly effective marketing: it is to focus on and improve your “conversion rates” in each area of your marketing.

In this article, I’ll discuss 4 key conversion points, how a 20% increase to each will give you exponential results, and specific tactics to achieve such results.

What 20% Improvements Do To Overall Results

Let me start with an example.

Let’s say your competitor runs an advertisement that reaches 10,000 target customers and gets these results.

• 1 percent response rate (response rate means that prospective customer visited competitor’s website, went into their store, called them, etc.)
• 35 percent conversion rate (conversion rate means the responding customer then purchases)
• $500 price per widget (widget being the item sold by your competitor)
• 1.5 widgets per buyer (average buyer purchases 1.5 widgets in initial order)
• 30 percent profit margin
• 10 percent repurchase rate (10% of customers buy from your competitor again)

Assuming the ad reached 10,000 target customers, your competitor’s gross profit from the ad would have been $8,662.50 (minus the cost of the ad).

Now let’s assume that your company did a 20 percent better job on each of these factors. Your results would be as follows:

• 1.2 percent response rate
• 42 percent conversion rate
• $500 price per widget
• 1.8 widgets per buyer
• 36 percent profit margin
• 12 percent repurchase rate

Now let’s look at the results.

If your ad reached the same 10,000 target customers, your gross profit would be $19,596.

That’s 2.3 times greater than your competitor’s.

Now, what would happen if you generated 2.3 times greater profits than your competitors every time you ran an ad?

The answer is that you would absolutely dominate them.

Now, the key marketing secret that I’m sharing with you here is that you don’t have to revolutionize your marketing system. Rather, small, 20% improvements in each part of your system lead to revolutionary results.

So, here are some ways in which you can improve each part of your marketing system.

Response Rate

The more you know about your customers’ wants and needs, the more easily you can design advertisements that appeal to them.

And the more you know about them, the better you could craft a unique selling proposition (USP) to attract them.

For example, if you are a local hardware company and you know your typical buyer is a busy male with a wife, kids, and dog, you could easily craft ads with a higher response rate.

You could also boost response rates by developing better offers that attract customers, such as an offer for a 90-day money-back guarantee.

Conversion Rate

Remember, conversion rates are the percentage of prospective customers that you converted into actual customers.

A few ways you could increase conversion rates include having a better process in place for training your staff and sales team, providing better employee incentives (e.g., commissions or bonuses for closing sales), or by developing and testing sales scripts that boost results.

Number of Widgets Per Buyer

To increase the number of units purchased per transaction (including purchasing more widgets or related items), you can rely on similar tactics to increasing conversion rates such as better hiring, training, sales scripts and so on.

McDonalds doubled its profits when it started asking “would you like fries with that?” and increased them again when it starting asking “would you like to supersize that?”

Profit Margins

Better systematizing your business and implementing the right processes and procedures will allow you to generate higher profits per sale than your competitors.

For instance, documenting standard operating procedures so tasks are done the same way by all employees generally decreases costs and thus increases profit.s

Repurchase Rate

Finally, to increase repurchase rates, do a better job of communicating with your clients and showing them how special they are. For example, send them emails, call them, or send them letters in the mail to educate them and remind them that you have products and services that can help them.

Summary

In most cases, to dramatically increase sales and profits, there’s no need to dramatically revamp your marketing efforts.

Rather, just getting 20% better in each core area will do the trick!

The Secret to Highly Effective Marketing Infographic

Below is an infographic of this article for quick reference.

Recommended Slideshare

While I strongly recommend the 20% improvement approach to increasing your marketing effectiveness, if you’re looking for inspiration to create a world-class marketing campaign, we put together the slide presentation below showing “The Greatest Marketing Campaigns of All Time.”

When seeking equity funding for your business, the two primary options are angel investors and venture capitalists.

This article will teach you the difference between these two types of investors and help you determine which one is right for you.

The Difference Between Angel Investors and Venture Capitalists

Angel investors are individuals who invest their own money in companies.

A venture capitalist, who typically works as part of a venture capital firm, invests the money of others hoping to get a handsome return.

The primary difference between angel investors and venture capitalists is that venture capitalists invest solely for return on investment (ROI). That is venture capitalists make investment decisions based on the ROI they expect or hope to receive from their investment.

While angel investors care about ROI too, they often have other motivations such as:

• Knowing or liking the entrepreneur and wanting to see them succeed
• Ego: feeling good about investing in specific firms and having others know they invested
• Perks: as an equity holder, they are sometimes entitled to perks (e.g., if investing in a restaurant, they can go there and receive free meals and special attention)

Venture Capital Criteria

There are several criteria venture capitalists (VCs) use when judging whether to invest in a company or not. These criteria will help you understand whether VCs or angel investors are most appropriate for you.

Traction

More and more VCs will only fund companies if they have revenues or, at least, beta customers or a prototype built. If you have not achieved any of these milestones, then angel investors are more appropriate.

Funding Requirements

Another key criterion is how much money you need to raise. If you need to raise less than $1 million, generally you should seek angel investors. Most venture capital firms don’t invest less than $1 million or $2 million dollars.

Sector

Most VCs have very specific sectors in which they focus. For instance, some VCs focus exclusively on the Healthcare sector. Others only invest in software. Nearly all focus on the technology sector since such ventures have the highest chance of growing quickly and getting to a large exit (sale of company or IPO).

Conversely, most retail or services business grow more slowly, and although they may be great investment opportunities, they are more suitable for angel investors.

Geography

Most venture capitalists only invest (or strongly prefer to invest) within a certain geographic range.

Most VC firms invest within 150 miles of their location. For angel investors, 70% of angel investments are made within 50 miles of the angel’s home or business location.

So, if you are located far away from VC firms, then angel investors are probably a better option.

A Common Scenario: Raising Angel Funding THEN Venture Capital Funding.

A very common scenario is for a company to start by raising angel funding and then VC funding later.

It generally works as follows. You raise your initial funding from the angel investors, which is usually a smaller amount, such as $50,000 to $500,000.

You use that funding to progress your business, to create a prototype, to get beta customers and/or to ideally generate revenues. Once you’ve achieved such milestones, you seek venture capital. In fact, you might raise multiple rounds of venture capital. You might start with a $3 million round of venture capital to get to the next level of success, and then you might raise a $10 million, or a $20 million, or even a $50 million round of venture capital later.

One of the most famous examples of pursuing this funding path is Google.

Google initially raised funding from friends and family, and from credit cards. It then received angel funding from Andy Bechtolsheim.

The funding from Bechtolsheim allowed Google to achieve milestones and grow. Google subsequently raised an initial amount of venture capital, then larger amounts of venture capital, and eventually Google went public.

Conclusion

While there are differences in funding deal terms (e.g., how much equity they take, whether they take a board seat, etc.) between angel investors and venture capitalists, the bigger and more important difference is which type is more relevant to fund your business in its current state.

Without funding your business can’t grow to its fullest, so make sure to go after the investor type that is best suited for you.

Venture Capital vs Angel Investors Infographic

Below is an infographic of this article for quick reference.

Recommended Slideshare

To further help you decide between venture capital and angel investors, we put together the slide presentation below to show you “The Key Differences Between Venture Capital & Angel Investment.”

The overarching question that you must answer when writing a business plan for investors is this: what’s “in it” for the investor?

To accomplish this, you need to put yourself in the investor’s shoes to think about what they care about.

What should be “in it” for them is the opportunity to invest in a business that has huge upside potential and low downside potential. With regards to low downside potential, I’m referring to a low risk of failure.

The specific 6 questions to answer in your business plan to accomplish these goals are below.

Size of the Business Opportunity  

The first question is how big the business opportunity is, and is it growing?  To answer this, you need to provide information on the size of the market in which you’re competing and trends affecting the market.

Financial Implications of Investing  

The next question that you must answer for an investor has to do with the financial implications.

Specifically:

• How much money are you asking the investor for?
• What are you going to do with that money?
• What are the projected financial results? For example, what do you expect revenues will be in year one, in year three, in year five?  What are expected net income in year one, year three, year five? Etc.

Exit Strategy?

Your exit strategy is critical when writing a business plan for investors since the exit strategy dictates how the investor will ultimately receive payback for their investment and get their money out.

Consider this example. You start a company and you grow it to $5 billion in sales. If you keep that company private, then an equity investor may not have the ability to get their money out.

So the exit plan details how the investor will cash out or make money.  Usually, the exit plan is going public or more likely is selling your company.  There’s a much greater likelihood that a company is sold than that it will go public.  So if the prospect is you eventually selling your company, you need to answer questions in your business plan such as:

• Who are the likely buyers of your company?
• Why would they buy you? More specifically, why would they buy you versus possibly building a competing business or strengthening or growing their own business?

Management Team

The next critical question to answer when writing your business plan for investors is who is on your management team and who will you add to your management team later?

This is key because most investors, or, at least, the smartest investors, are betting on the management team as much as they’re betting on the market opportunity.  You see, even if you have the greatest business idea in the world, if the management team can’t execute on it, then the business will fail.

One of the great examples of this is the story of PayPal. PayPal was formed by great entrepreneurs including Peter Thiel, Elon Musk, and Max Levchin. Clearly PayPal had a great management team. However, the original PayPal concept which was to allow one PDA (Personal Digital Assistant like a Palm Pilot) to pay another PDA failed. It just didn’t catch on.

But the management team was smart enough to recognize that they could use their technology to allow one person to pay another person or a company online and they basically launched a new service which is PayPal as we know it today. PayPal became a huge success that was sold to eBay for over $1 billion.

So that’s why you need to answer in your business plan this key question: what is it about your management team that makes you qualified to execute on the business opportunity. Importantly, if you’re currently missing people on your team, document the qualifications of people you plan to hire to fill such positions.

Risk Factors  

Every business has risk factors, and the earlier on in your business, the more risk factors. For example, if you currently have an idea for a new product, risk factors include:

• Whether or not you will be able to design the product
• Whether you could cost effectively manufacture the product
• Whether consumers/businesses want/will buy the product
• Whether you can cost effectively market the product
• Whether you could build a quality management team that can execute on the opportunity

The more risk factors that you’ve already overcome, the better. And importantly, be sure to document each of these accomplishments in your business plan.

Barriers to Entry

A final question to answer for investors is what are the barriers to entry. Specifically, once you start growing your company, what is there to prevent others individuals and companies from stealing your customers?

The more you can show barriers to entry, how once a customer comes to you they’re probably going to stay for a long time, the better job you’re going to do in convincing investors to fund you.

Writing Business Plans for Investors Infographic 

Below is an infographic of this article for quick reference.

Recommended Slideshare 

Writing a great business plan is key to getting investors to fund you. So you understand other helpful tactics and strategies, we put together the slide presentation below to show you “Sure Fire Ways to Impress Investors.”

Launching a new business is an exciting time. You’re eager to move things forward and begin building your dream.

However, in developing the perfect startup business plan, there are four keys you must follow.

Below you’ll learn those 4 keys and the 10 elements you must include in a winning startup business plan.

BONUS Alert: at the bottom of this article, you will find a free business plan template you can download and complete.

1. Market Viability

The first key to successfully launching a new business is to make sure you have a viable market. A viable market means that the market size is big enough to support your company, and ideally is growing in size. Conversely, if your market is too small, then you can’t succeed.

Let’s use an example. Let’s say that I want to offer pet cleaning services in my town and research shows there are only 18 people in my town who own pets. In this case, even if I get 100% of the market to use my services, and the average person spends $100 a month, this business could never generate more than $1,800 a month in revenue, and doesn’t have much growth opportunity. As such, this is not a viable market (unless I’m satisfied with a business generating $1800/month in sales).

Because this is so important to the success of your business, be sure to thoroughly conduct market research to prove your market’s viability.

2. Action Plan

The second key to successfully launching a new business is to document your action plan. To do this, write down the precise accomplishments you hope to achieve:

• Monthly for the next six months
• Quarterly for the following two quarters, and then
• Annually for the following two years

For example, you may write that in the current month, you will create your website.  Next month you conduct market research to determine underlying customer needs. The month after that you will hire your first employee. The following month you will start advertising your business. Then the following quarter you will make 100 phone calls per day to gain your first three customers.

By specifying precisely what you need to accomplish during each time period, you gain a better understanding of how your business should progress and the time and/or funding requirements of each activity. Equally, if not, more importantly, it forces you to set precise goals. The goals keep you focused and help you avoid being distracted by other opportunities and mundane tasks.

Most entrepreneurs severely underestimate the amount of time and number of steps required to launch a business.  By creating a detailed action plan month-by-month, particularly for the first six months, that lays out your plan, you will gain a better understanding of what’s required of you, and ultimately be much more successful.

3. Customer Traction

The next key to successfully launching a new business is to gain customer traction quickly.

“Customer traction” is when customers test and/or buy your product or service.  The earlier the traction you can get, the more successful you will be in launching your business.

Importantly, this involves getting your product or service into the hands of prospective customers as quickly as possible.  A lot of times we refer to this initial product as the MVP or Minimum Viable Product.  Your MVP is not the perfect, completed product that you ultimately envision, but it is a product that has enough functionality that customers can use it.

Importantly, by getting your MVP in the hands of customers, you can learn what they like about it, what they don’t like, and if they might eventually buy it.  This customer feedback is critical to launching a successful business.

You will get feedback with regards to price ranges customers might pay. You’ll learn the features they want and don’t want. This feedback tells you if you have a viable opportunity, that is if customers buy your product or service from you.

Note that in certain cases, it’s hard to gain customer traction in the earliest stages of a business. For example, when launching a restaurant, it’s hard to gain full customer traction or feedback until you’ve built out your restaurant, staffed it, and so on.

But still, there are creative ways to gain customer traction and feedback. For instance, perhaps you could set up a booth at a local festival, offer food and speak to customers. Figure out a way that gets your offering to customers quickly, as the feedback is often priceless.

4. Business Plan

To reiterate, there are three keys to successfully launching a new business.

1. Make sure you have a viable market
2. Document your action plan
3. Gain customer traction as quickly as possible

Once you’ve completed these steps, be sure to include them in your business plan. By detailing your market size and viability, your action plan, and the feedback and traction you’ve gain from customers, and combining this with other key information such as your marketing plan and financial model, you are on pace to create a business plan that investors and lenders will find irresistible.

Your startup business plan needs to include 10 sections as follows:

1. Executive Summary: This section sums up your entire plan and gives the reader a quick overview of what your company does and why it will be successful.

2. Company Analysis: provides an overview of your company’s status. Are you newly conceived? Have you been around for years? Are you incorporated? Where?

3. Industry Analysis: details your precise industry, its size, and trends that are shaping it.

4. Customer Analysis: discusses the key customer segment(s) you serve. Answer questions such as: What are their demographics (e.g., age, income, or industry and function if B2B)? What are their psychographics (e.g., what websites do they frequent)?

5. Competitive Analysis: shows your direct (similar offering to similar customers) and indirect competitors (similar offering to different customers OR different, but related offering to similar customers) and their strengths and weaknesses.

6. Marketing Plan: details your products/services you offer, your pricing strategy, your channel strategy (e.g., sell via a website, via partners, via wholesalers, etc.), and your promotions strategy.

7. Operations Plan: shows your short-term and long-term growth strategy and processes.

8. Management Team: includes your biography and biographies of other team members.

9. Financial Plan: provides an overview of your Income Statement, Balance Sheet and Cash Flow Statement, and discusses financing requirements.

10. Appendix: includes any supporting information such as your full financial projections (Income Statement, Balance Sheet and Cash Flow Statement) and other key information such as patents, lease agreements, etc.

Startup Business Plan Infographic

Below is an infographic of this article for quick reference.

Recommended Slideshare

In thinking about your startup business plan and successful launch, we put together the slide presentation below to give you inspiration from 2015’s Most Succesful Start-ups:

Finding investors who want to fund your company’s growth is great.

But if the terms they offer you aren’t good, then you have to pass. For instance, if they want to take 90% of the equity of your company, or control 100% of your Board Seats, then you lose too much control.

In this article, you’ll learn to two simple strategies for getting more favorable terms when negotiating with investors.

Strategy #1: Create a Bidding War

The best strategy for getting favorable terms is to get multiple investors interested in your business.

You’ve probably heard the phrase, “he who has the gold makes the rules.” This is particularly true in investing. The investor has the gold and thus makes the rules in terms of what type of deal terms they’ll give you.

The best way to get the terms you want is to get multiple investors interested in funding your company. Then, you can essentially create a bidding war. For instance, if one investor says they’re willing to give you $3 million for 40% of your company, you can ask the other investors if they’re willing to beat that deal (e.g., give you $3 million for only 30% of your company). Once they do, you can go back to the original investor, and so on.

The more interested investors you have, the easier it is to create a bidding war and to better negotiate because you have other options. When you have no other funding options, it’s very difficult to negotiate.

Strategy #2: Have a “Ringer” in Your Corner

The second key strategy for getting favorable deal terms is to make sure you have a “ringer,” that is someone on your side who has successfully negotiated investment terms in the past.

This person could be a lawyer, an investment banker, or other advisor who deeply understands each of the deal terms. For instance, if they don’t fully understand “equity dilution” or “stock options,” they can’t help you get the best terms.

Ultimately It’s the Raising of Funding That’s Key

To reiterate, you will receive the most favorable funding terms by 1) getting as many interested investors as possible, and 2) having someone on your side with a track record of successfully negotiating investment deal terms.

Ultimately, though, keep in mind that raising funding, and not deal terms, is your primary goal. Since, for many businesses, if you don’t raise funding, you’ll never launch or grow.

Always consider this question: would you rather own 50% of a company that’s worth $10 million or 100% of a company that’s worth nothing?

So, keep this ultimate goal in mind. But clearly, try for the optimum solution which is to raise the funding you need with the most favorable deal terms.

Negotiating with Investors Infographic

Below is an infographic of this article for quick reference.

Recommended Slideshare

To further help you negotiate with investors, we put together the slide presentation below to show you “The 10 Most Common Mistakes Entrepreneurs Make When Raising Venture Capital” so you can avoid them!

If you’ve never raised venture capital before, it’s a confusing process. Don’t worry, in this article, I’ll hand you the keys to finding the perfect venture capital firm.

You’ll learn the key factors that distinguish venture capital (VC) firms from one another, and important terms like “dumb money” and “smart money.”

Find VC Firms That Focus On Companies Like Yours

The key to finding the right venture capital firm is to find one that focuses on funding companies just like yours. This is because venture capital firms typically focus in a number of ways as detailed below.

1. Geography

One way in which venture capital firms focus is via geography.

Most venture capital firms prefer to invest in firms located within 150 miles of their office. This geographic proximity allows them to more easily meet with the companies with which they invest and offer advice.

There are plenty of exceptions to the geography “rule,” but particularly for initial rounds of venture capital, odds favor finding a local VC firm.

2. Sector

Most venture capital firms only fund companies in certain sectors. Some focus on software companies. Other VC firms focus on healthcare and/or medical device companies. Some focus on nanotechnology. And still other focus on multiple (but rarely all) sectors.

It is important to target venture capital firms who are actively seeking companies in your sector. If not, the chances of them funding you are slim.

3. Stage of Development

The final way in which venture capital firms focus is on the stage of development. For instance, some VC firms will only fund companies that have revenues. Others might insist your company, at least, have a prototype. And still other VC firms only fund companies that have over $10 million, or even $100 million in revenues.

Paring Down Your List

To find the perfect venture capital firm, find a venture capital directory (there are many of these online) and then search by geography, sector and stage as specified above. This will give you a great initial list of firms that might be the perfect fit for you.

Next, you need to visit each VC firm’s website to pare down your list as follows:

A. Portfolio Companies

Virtually all VC firms list their portfolio companies (the companies they have funded). Look at these companies to make sure they don’t include any of your direct competitors. Clearly, if they have a vested interest in a direct competitor, you must remove them from your list because they won’t fund you.

Next, look at their portfolio companies to see if any could be good partners. For example, if your product or service could help one or more of their portfolio companies, this will make them more interested in your firm.

B. Team Members

Next, review the individual team members of the venture capital firms that remain.

Particularly look at the partners of the firms and what boards they currently sit on or have sat on. This will give you a sense of the types of businesses and areas in which they have great expertise.

If they sit or have sat on a board in your industry, they will most likely quickly understand your value proposition and be in a good position to fund you and provide value (advice, industry connections, etc.).

Always Look for “Smart Money”

This “value” is important since there are two types of money: smart money and dumb money. Dumb money is anyone that can provide you money. Clearly if someone will give you a $5 million check, it’s a good thing.

However, smart money is always better. Smart money is the $5 million check plus intelligence and help. If an investor can provide advice, introduce you to customers and partners and potential team members, that’s value that could help your company ultimately be successful.

Summary

In summary, to find the perfect venture capital firm, start by finding firms that fit your geography, sector and stage. Next, pare the list down by looking at who they’ve funded and their team members.

Then, reach out to these team members (email is best) with a compelling message as to why they should speak with you and learn more about your business.

Finding Venture Capital Infographic

Below is an infographic of this article for quick reference.

Recommended Slideshare

To further help you find venture capital, we put together the slide presentation below to show you “The 10 Most Common Mistakes Entrepreneurs Make When Raising Venture Capital” so you can avoid them!

Finding angel investors is a common need for entrepreneurs. With an angel investor, your company can be poised for great growth.

Without one, unfortunately, your great idea might remain in your head, for it doesn’t have the funding to flourish.

The 2 Types of Angel Investors

In discussing how to find angel investors, we need to start by identifying the two types of angel investors.

One type of angel investor I call public angel investors. The second is what I refer to as private angel investors.  Each has their advantages and disadvantages, as you’ll learn below.

Public Angel Investors

Public angel investors are angel investment groups or individual angel investors that you can find online and/or specify themselves as angel investors.  For instance, you can do an online search on angel investor groups in your area and will most likely find local angel groups.  Such groups work together on finding companies to fund and vetting them. They also pool their money together to enable them to invest in multiple businesses in order to have a portfolio of angel investments, which is generally the best investment strategy. Because you can find these angel groups online, I refer to them “public” angels.

The second type of “public” angel is someone who publicly identifies himself or herself as an angel investor. By going to a site like LinkedIn and searching the keyword “angel investor,” you will find such individuals and then contact them.

The advantage of “public” angel investors is that they are easy to find. The disadvantage is that because they are easy to find, everyone finds them. That is, they are constantly being approached with investment opportunities and can only fund a tiny portion of those that they see.

Private Angel Investors

Understanding “private” angel investors is really exciting because there are many, many more private angels than public ones. Private angel investors are people who have either made just one or a small amount of angel investments or who have the financial ability to make an angel investment but have not.

Most “private” angel investors are what I call “latent” angel investors. They are  “latent” because they have the means and interest in making an angel investment but they just don’t have any angel investments that they know about.  They’re just not getting approached with businesses to fund.

These angels are my favorite because they are not receiving tons of business plans.  Conversely, a public angel or a venture capital receives tons of investment opportunities, and as a result, they must be much more stringent in their funding criteria. And ultimately, the chance of them funding your business is much less because they have so much else to choose from. But with “private” angels, who have much less to choose from, there is a high likelihood that they’re going to choose you.

Finding Private or “Latent” Angel Investors

So how do you find these private or latent angel investors?

The way to do so is via networking.  You network by asking who do you know and who do others know.

Ask your lawyer, “Who do you know that might be interested in funding my business?”  Ask your uncle. Ask your accountant. Ask your current friends. Ask your friends from high school or college. Ask other members of your religious congregation. Ask everyone, “Who do you know that could fund this business?”

And importantly, ask other business owners. We all go into retail establishments often and many times you’re speaking with the owner of the business.  Ask the owner, “Hey, is this something that you’d fund?” Or ask, “which other business owners do you know that you can introduce me to?”  Most business owners know other business owners since often their members of local Chambers of Commerce together.

The name of the game here is networking.  Networking allows you to find other business owners, executives and/or other people with money.

How to Get Started

The easiest way to get started with raising funding from angel investors is to target “public” angels. As discussed above, you can go on any search engine or LinkedIn to quickly and easily find these investors.

Reach out to them via emails and try to attain a meeting. Remember that the odds of any of these investors funding you are low since they review so many other investment opportunities. But, if you speak with enough, one may fund you. And many may refer you to others and/or provide valuable feedback.

While you’re reaching out to the “public” angels, start your networking process to find “private” angels. While these angels are much harder to find, remember that when you do find them, they have a much higher likelihood of funding you.

How to Find Angel Investors Infographic

Below is an infographic of this article for quick reference.

Recommended Slideshare

To further help you learn about and find angel investors, we put together the slide presentation below to show you the key differences between angel investors and venture capitalists.