Old Dogs, New Tricks: The Hard Sell to Investors and Lenders
You’ve undoubtedly heard the old saying “It’s hard to teach an old dog new tricks.” Well, that belief is what established companies struggle against when they go before investors and lenders to raise funds to “reinvent” themselves or to fund new products, innovation, and ideas. They are working to convince potential new stakeholders that a business that has been around for a long time can do something new and succeed. They are also fighting against the concern/fear that in pursuing the “new” that the old will either get in the way or will be sacrificed and not be around to pay the bills. Old meets new is a struggle and a conflict that is not a comfortable area for potential new investors to put their money on the odds of succeeding. So what do established businesses with new ideas and opportunities do to raise funds?
Established Revenues and Operations: What Have You Done With It?
Established businesses entering the hunt for funds that new businesses don’t have possess the advantage of experience at generating revenues. Those revenues come from customers and historical financial information. That is a plus, but it also begs the question, “So what have you done with those revenues?” It also raises other questions like: “Why do you want to change? Can you change? What are your capabilities to pursue this change?” And the big question: “If you are changing, what does your past success have to do with your future?”
The Dichotomy of Future Success
Many established businesses recognize that in order to continue to succeed and thrive they must change. This often means more than looking for new markets for existing products; it means innovating how they do business and the technology of the business and products they offer. As they seek to innovate, these businesses often get caught between the success of the past and the transition to future innovation. They struggle to let go of the business they were in a strategic and timely manner while growing into an innovative and sustainable business of the future. The revenues of the past become irrelevant as indicators of future success and they are caught between the past and future success.
All too often the wall established businesses run into is not built with bricks and mortar; instead it is built with resistance to the process of raising funds. The success they have had in building a business with customers and revenues should be enough—in their opinion—to open the door to funding of new products and operations. Yet it isn’t. The ideas for new products and new markets and new technology should excite investors and it does, but it too isn’t enough. They should be ahead of start-up companies in competing for funding, yet they aren’t. When an “old” business has new ideas, innovations, products, and technologies … it still, all too often, doesn’t get the money flowing. Why? What is this dichotomy where the new business is told it needs revenues to get investors and an established business that has revenues is told that those revenues aren’t relevant?
Old Dogs, New Tricks
When it comes to getting investors—whether from the traditional lenders like banks or from private equity sources—established businesses have to be able to sell that the “old dog” can learn new tricks, that the business team isn’t going to be too mired in the past to pull off the new and isn’t going to be too into the new that it leaves behind what was successful in the past. All too often businesses in transition make too bold a leap and shed the old before the new takes hold, leaving behind money on the table and failing to ramp up successfully—or at all —with the new.
When you go to raise funds as the “old dog” you can demonstrate your experience and your business savvy, but it also has to include your ability to recognize the risks and the pitfalls of the new, the uncertainty and the transition between old and new. How is the business going to transition? What will it mean with regard to operations, cash flows, and revenues? How sensitive is the timing? What does the “new” team look like and the “new” business? How many of the “old” customers are coming along to the “new” business? What does the competition look like for the “old” and the “new”? Can you show the integrated surviving organization and what it looks like post transition?
Can’t Get to Funding By Force or Alone
I remember a song from my childhood that went something like: “‘Can’t get to heaven by brick or stone, gotta get to heaven by grace alone.” When it comes to funding, you can’t get to funding by force or alone; you “gotta get to funding” with your team and an ability to navigate the process with a story you have well-honed. You have to understand what the funders are looking for, what they need to know, and what they need to be confident that you know and understand. Past successes are only a good indicator of the future if they are relevant to what you will be doing in the future. If you are changing your business model, product offerings, and going where you haven’t gone before, then revenues and cash flows from existing products and past years’ performance will only matter if you are going to continue to have those revenues and cash flows at the same levels of effort and focus.
You can’t force a relationship with investors by cornering them at a networking event. You can’t stalk them. You can’t inundate them with e-mails, voicemails, and other methods of contact. Don’t prepare a one-hour, in-depth, 100-slide PowerPoint technical presentation of your company’s life history and technology to get them to invest (unless they have asked for it, and even then don’t do it!) If you want them to invest in your business and your products and technology, then get them as excited about it as you are with to-the-point, relevant, and insightful information about why the market needs your products and why your business can make money. That is the bottom line for every investor, after all.
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