This week I received an email from a client; the owner of a manufacturing plant in Asia. I have known the owners for more than eight years and visited them twice. I have appreciation for their business model, their commitment to the Quadruple Bottom Line and their personal values. The business has created jobs, proven a financial sustainability and has had significant spiritual and social results. Thus far they have been good stewards of their resources.
They have been in business about ten years but have always been underfinanced and have suffered from cash flow and related issues. They have grown slowly and now seem poised to take a leap into the future with about $1 million in sales in 2016. Jamie is asking for our help in finding approximately $100,000 in investments in the company.
As I thought about this, I considered a grid of questions which are important to any investor. Suppose I presented Jamie’s case to an equity investor or a loan company, what questions need to be answered?
What are the goals of the owner and the company?
A potential investor wants to know about the big picture. He or she wants to know about Jamie and Lynne as owners; what are their passions; why are they doing this? They want to hear their take on the Quadruple Bottom Line:
- Profitability and sustainability:
- How committed are they to building the company?
- When will they sell?
- What will the end look like?
- Job creation:
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- How many more jobs will be created?
- What kind of jobs and for what sectors of people?
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- Spiritual results:
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- How do they live out Kingdom values in an incarnational sense?
- Are they helping people to follow Jesus?
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- Stewardship of resources:
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- How are resources being stewarded, both human and real?
- Are the right people in the right positions?
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Investors want to know about the customer. Is the customer base changing and does that require diversification or other pivoting? Investors want to know if the goals are worth the attendant risks.
How will the company reach the goals?
Is there a simple and clear pathway for how to get there? These answers about strategy focus on markets, accountability, key metrics, and financial viability. Jamie will need to articulate company policies, evidence of robust research, decision-making frameworks, and solutions to local economic, political and cultural hurdles – all of this in terms the investor can understand.
Likewise, the financial information needs to be clear, concise and understandable so that investors see the desired economic results. Likewise, on the spiritual side; what the strategy for living out Kingdom values and leading people to a new life in Christ?
In general, it is healthy to expect metrics for all elements of the Quadruple Bottom Line (see IBEC blog, Do you have clear KPIs for your Kingdom business?). The metrics (when known) will lead the reader to ask questions related to “getting there”.
Can all of the above be executed?
Many people have a great vision and can build a good-looking strategy, but they cannot execute. Every owner cannot do everything so the human resources need to be in play to “execute”. For example, entrepreneurs like Jamie are generally strong in vision, leadership, goal orientation, and interpersonal skills, but many need complementary traits of analytical problem solving, planning, organization and self-management, essential for execution.
Has the business reached the stage in its development to require a new leadership style? Conventional wisdom suggests that leadership has to change as a start-up begins to scale. As one example, once one takes on equity investors that in itself requires new items such as caring for the investors, shareholder’s agreements and time to listen to advice.
Companies in the building stage need different kinds of resources for executing the strategy – and different kinds of managers. Maybe new talent needs to be built from within or subcontractors replaced with those more familiar to the company. Some business starters get bored and frustrated with building the structure – something required in the execution stage. Serious thought has to be given to “letting go”; something often difficult for founders.
Oftentimes the culture changes at this stage – an investor might want to understand company culture as well as the surrounding cultural context. Is there anything that might mitigate sustainability or achieving any other goal?
Actually, I have wondered if I should invest in Jamie’s company. I am sure there are plenty of other questions to consider, but these have me off and running in my efforts to update myself on Jamie and Lynne’s company. I believe in them and value what they have accomplished since they first applied for a business license in their Asian country, but I have to be a wise steward also – and so do all of us.
Larry Sharp, Director of Training, IBEC Ventures
larry.sharp@ibecventures.com