Bridget Liddell was one of the featured overseas speakers at the Angel Association Summit held earlier this month. She is the Chairperson of New Zealand Trade and Enterprise’s US Beachheads Programme, a director of the Kiwi Expat Association, and a director of BioVittoria who are currently undergoing an IPO on the NZX. But her main line of work is as Managing Principal of New York City based Fahrenheit Ventures, where her job is providing leadership to companies seeking to successfully commercialise their products and services in the U.S. Market, specialising in strategic innovation, branding and marketing strategies and in the development and implementation of US market entry strategies for high growth consumer products businesses.
Put simply, Bridget is passionate about helping successful companies, and especially Kiwi companies, enter the US market through creating killer strategies and applying the relevant networks.
At the Angel Summit, Bridget raised a number of important points that I thought were worth following up and sharing with the community. I caught up with her last week, and began by asking her why she thought that many US companies find it difficult to grow except through acquisition, and where the opportunities lay for New Zealand companies building themselves for strategic trade sale to a US major.
It’s difficult for US companies to grow except by acquisition, especially in areas where they have existing underperforming brands.
NZ companies have a great degree of innovation and lateral thinking. We have along history of innovation in Food and Beverage, emerging capability in bioactives and related fields, and a strong presence in textile and clothing. These can be very complementary to a portfolio that a US major might already have.
Preparation for a strategic acquisition requires years of planning, including type of product, type of packaging, distribution strategy, pricing structure, partnership relationships. Start with the end objective and work backwards, leaving nothing to chance. Plan out the people involved, advisers that you use, legal structure, domicile, who you employ etc.
The Beachheads programme is available to help out with strategy formation, and can recommend advisers in the US across a wide range of industries.
It’s important to take into account the voice of the marketplace before leaving New Zealand. Companies are often optimised for the New Zealand market, and that may or may not work in other markets. It’s important to undertake research before you enter the market. Using the Internet for international marketing prior to going overseas and getting information about the market you want to enter is low cost, but high value. Product, packaging, messaging, pricing all need to be considered – are they appropriate for the market? NZ companies need to be open minded and consider that what worked in Australia or New Zealand may not work in the USA or Europe.
As part of Global Entrepreneurship Week, the DomPost published an interview with me headlined “Passion a crucial ingredient for success” on the relationship between angel investors and wannabe entrepreneurs, which is available online.
They haven’t published my take on factors that affect valuation online, so I’ll take the liberty of reproducing them here.
Valuations are very subjective, and it takes someone with significant domain expertise to even hazard a guess. That’s one of the reasons that angels like to syndicate deals – nobody is an expert in every domain.
Factors that effect valuation include:
Team: Track record (both success and failure), commitment, passion, ethics
Financials: Realistic cash flow forecasts, ability to do things on the cheap, and future capital requirements
Product: Uniqueness, simplicity, how much pain it will alleviate
Sexiness: How “hot” is the product and the space?
Market: Size, addressability, familiarity
Sales strategy: Customer acquisition cost/effort, ability to execute
Business model: Rapid scalability, flexibility, operational complexity, robustness of assumptions
Intellectual Property: Patents and other barriers to entry for potential competitors
Competition: Can someone else easily squash your startup?
Hygiene: Governance, tidy accounts, good legal agreements, no outstanding law suits or significant legal risks etc
One thing’s for sure: your company becomes a lot more valuable the day you sign on your first batch of significant customers, and is worth more again the day you become cash-flow positive.
It’s a surprise to many entrepreneurs that cash-in (ie, how much as been previously invested into the company) has little impact on an objective valuation – it’s a highly emotional issue that is often a real roadblock to doing a deal.
If you’re more serious about it, local companies like Valuecruncher provide reasonably priced objective valuations. The Angel Association / NZTE’s Escalator Service also does a great job of helping companies become investment ready, part of which is arriving at a valuation you’re comfortable with.
It’s a truism to say that your idea or company is only worth what someone is willing to pay for it. Don’t fall down the hole of holding out for an impossibly high valuation, as the real value in a high-growth company is its ability to outstrip that initial valuation quickly. Most investors will completely shut off when you give them a number that’s an order of magnitude out from what they think your company is really worth, and you may not get a second chance.
So instead of insisting that your company or idea is worth a lot more than your potential investor thinks it might be worth, ask what your investor can do to ensure that your company will have the resources and expertise it needs to realise its full potential.
Does governance have an image problem? Possibly so. While 73% of the Deloitte/Unlimited Fast 50 companies have boards there is anecdotal evidence that many other high growth organisations are slow to embrace external directors and formalised boards.
Why is that? Perceptions that a board’s primary contribution is centered around compliance has gradually shifted – strategic planning and direction is now recognized as being twice as important as other board functions including governance culture, management accountability and compliance. Two other issues may therefore be impacting the adoption of governance:
Alignment: directors are typically seen as being older, more conservative and culturally misaligned with the new breed of rapid growth ventures.
Access: entrepreneurs have limited opportunities to be exposed to potential directors and informally discuss or experience the value and support that can be provided.
These were some of the ideas behind SpringBoard – a group recently formed to support the next generation of New Zealand directors and to promote age diversity around the board table. Existing directors or trustees under 45 years of age now have a forum for sharing ideas and experiences as well as the ability to professionally grow through attendance at events. SpringBoard actively promotes younger directors for appointment to established and nascent boards in both the commercial and NFP sectors.
If you’re interested in joining this community then connect with us via LinkedIn. If you’re looking to be put in touch with directors from a younger demographic please make contact with SpringBoard here.
As further insights arise in relation to high growth governance we’ll share them with you via this NZ Angels blog.
In his recent blog post about the demise of Ferrit, Rowan Simpson wrote that the “win the lottery” part of [Paul Graham's wealth] equation is not widely acknowledged. While you might think it unwise to be on the opposite side of an argument from such luminaries as Paul and Rowan, I believe that to a large degree, you make your own luck.
Running a successful business is more like playing blackjack than having a punt at the lottery. Of course, if you’re not counting cards, then the two forms of gambling resemble each other more closely. There’s plenty of luck involved, but business strategy is all about how to create an unfair advantage so that when planned or unplanned opportunities arise, you’re in a position to exploit them more effectively than your competition.
The big luck factor for Trademe was that they were under the radar of the bigger international players. Only Rowan and Sam Morgan will know whether this was a calculated risk (ie they were counting cards) or they just got lucky (ie they won the lottery). They’re both pretty smart people though, and I like to assume it was the former rather than the latter.
Smart investors back smart businesses; we’re not willing to blow our resources on a flutter. As Scott Shane writes, “the human capital of the founder[s] and [their] motivations, the industries in which companies are founded, their business ideas and strategies, their legal forms and capital structure—all of this information helps us to identify likely winners and likely losers.” In other words, who’s likely to be counting cards. Scott says that there are probably too many startups out there. What we need as investors, and for the economy, are more startups backed by people who know how to make their own luck.