Wednesday, August 29, 2007

Finding an Owner That Wants to Sell

Landing Media Placement for Your Product
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From The Wall Street Journal Online

Question: I have been searching for a business to buy for the past couple of years. I have clear criteria defining my desired business segment, and I have built a network through investment bankers, primary lending institutions, mezzanine lenders and brokers. But I'm disappointed with the results. What is the best way to promote myself to companies that want to sell?

-- D.K., Greensboro, N.C.

Answer: You're taking many of the right steps, but perhaps you're not mingling with the most clued-in sources: potential sellers themselves.

Many business-acquisition opportunities aren't widely known about, even by investment bankers, because sellers fear roiling employees and customers by taping a for-sale sign in the window. Instead, they wait patiently for the right buyer to knock. There are many businesses today "owned by 70-plus-year-olds that don't know what they're going to do with it," says Ray Lampner, head of mergers and acquisitions for an Akron, Ohio, accounting firm.

Ken Thompson, an Akron entrepreneur who has bought nearly 20 businesses, uses a strategy he dubs "call-mail-call." Start by calling a few business owners in the industry and ask if they know someone who may be interested in selling. Don't request an immediate answer, but say you'll follow up. Two weeks later, send a letter with your business card reminding them about your desire to find prospective sellers and that you'll call again soon. Finally, call back to inquire if they've come up with any possibilities.

This strategy works, Mr. Thompson says, because it shows you're a serious buyer and allays the owner's fear that "you're the secretary's boyfriend calling to figure out whether she's going to be laid off." Moreover, even if business owners you contact aren't looking to sell, they likely know another who is.

Other resources are trade-group newsletters with classified ads, and accountants, who often know interested sellers before they're officially hunting for buyers.

Another option is asking venture capitalists in the industry, who may be looking to divest businesses from their portfolios.


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Wednesday, July 25, 2007

Landing Media Placement for Your Product

CanadianMedsWorld.com

So you’re in the movie theatre or watching a sitcom on TV, and you’re thinking, “How’d this two-bit joke get into the script? They must have known somebody. Why couldn’t the audience be cheering for me?”

No, you’re not begrudging Will Smith, Julia Roberts or Jim Belushi their slice of fame. You’re wondering how Daniel Craig wound up wearing an Omega watch instead of the brand your company manufactures. You’re wondering how much dough Wonder Bread had to cough up to be the sponsor of the car Will Ferrell drives in Talladega Nights.

As long-time consumers, we're a savvy bunch. The term "product placement" is old news to us. And we know it wasn't a screenwriter or director who insisted those products appear in their films--Omega and Wonder Bread paid big bucks to get their brands into the movies.

But anyone who watches a fair amount of TV or goes to the movies has also probably noticed it’s not just the Miller Lites and American Airlines of the world that are getting their 15 minutes of fame. Every once in awhile, an average Joe-type of product will be given prominent placement. And if you’re a serious and ambitious entrepreneur, you couldn't help but think, “They’re not a major conglomerate. How'd they do that?”

Or more important: “How can I do that?”

Product placement is almost no different than being an unknown actor trying to make it into the movies or TV. And that’s both good news and bad. Because if you aren’t a company with an unlimited marketing budget, getting your product seen on TV or in the movies isn’t easy. But on the other hand, if you’re willing to pay your dues--and if you have some pluck and a little luck--your product, too, can be a star.

The encouraging thing to remember is that Hollywood wants your business, and getting your foot in the door doesn’t always mean paying a huge fee to get it there, says Joey Carson, CEO of Bunim/Murray Productions, which produces numerous reality TV series including MTV’s The Real World and Road Rules and FOX’s The Simple Life.

“It’s such an important part of what goes on in television,” says Carson. “Nowadays, you’re either going to have a person in your company who works solely on business development or, at the very least, a big part of a person's job will be focusing on product placement and trade-outs.”

For those not familiar with the term, trade-outs is a form of product placement in which an entrepreneur pays nothing to get their product in a show or movie--except for what it costs to provide the product or service for free. That’s how it worked out for sisters Tag and Catherine Goulet, who own FabJob, a publishing house specializing in career guidance books.

A Bewitching Product
It was June, 2004, when the set decorating coordinator for the movie, Bewitched, called FabJob. He told Tag that Nicole Kidman, who was playing the witchy Samantha Stephens, would be looking for a new career in the movie, so she'd be looking at career-oriented books at a bookstore and he wanted some of theirs.

The set decorating coordinator had found the FabJob website and was impressed by their operation, but the film's director, Nora Ephron, looked at the website while Tag was on that first phone call and wasn't as impressed. Tag understood. The site featured plain e-book images, rather than their actual printed books. In two days, she quickly put together with sample print books and even had her art designer create a fake book, titled FabJob Guide to Becoming a Witch or Warlock.

Almost two months went by without a word before Tag got an e-mail from a new set decorator, saying they not only wanted to use the books--three copies of each--but that they also needed large cardboard book displays. And they needed it all in a week.

Fortunately, Tag was able to jump through the appropriate hoops and provide Bewitched with the necessary props they wanted for close to $1,000. And although the FabJob books aren't featured very prominently in the film--appearing so quickly that Tag admits, “It’s unlikely people would notice them if they weren’t looking for them.”--there’s no question that the time and effort put into the product placement was worth it.

“The benefit to us hasn't been the fact that people can see our books in a movie,” says Tag, who notes that they received quite a bit of local media coverage, including a feature story in the Calgary Herald. “The benefit is that we can say our books have been featured in a movie starring Will Ferrell and Nicole Kidman, which is great for credibility.”

Jumping Through More Hoops
Tom Berton agrees. “The fact that you’ve been on the show is actually more important than the actual media and show. The publicity you get from that gives your business credibility," Berton says, "and from that point on, you can be relentless with it.”

Berton owns Shearwater Sailing, a tour boat business. In December 2005, his business received several minutes of exposure on The Apprentice when, as a reward, Donald Trump sent two contestants on a boat ride around Manhattan on the Shearwater, a 1920s-era yacht owned by Berton.

He isn't quite sure how The Apprentice learned about his business. He'd sent out packets of information to The Apprentice series, but those who called him seemed to know nothing about that. Regardless, Berton wasn’t about to let the opportunity slip away from him once the series came to him.

“I signed the most Draconian contract I’ve ever signed in my life,” says Berton, explaining that he was sworn to secrecy to not tell anyone about his company's involvement with The Apprentice until the episode aired.

“They can own your business if you ruin their ratings by gossiping to tabloids,” says Berton, explaining that the series understandably considered the scene of the contestants on the boat as proprietary information. “If word leaked out from anyone related to Shearwater, it was understood they'd have immeasurable damage and that we would be fully liable for it,” says Berton. “Basically, I was pledging my assets of the company to them.”

But he’s not complaining. And he's using the experience to his advantage. He prominently mentions his boat’s appearance on The Apprentice on his website, www.shearwatersailing.com. And when he talks about the experience to people, the reply is often, “That was your boat? That was amazing.” Although Shearwater had a certain cache to it, anyway--it is a luxury yacht--having Donald Trump’s name associated with it arguably increased it tenfold.

Landing a Gig
Of course, you don’t have to wait for Hollywood to come to you to get your company name in lights. Producers like Carson encourage entrepreneurs to approach them. “We do a lot of deals with small companies,” says Carson, who thinks there’s something special about working with the underdog entrepreneurs. “I’m just a fan of business in general, and I have a lot of respect for entrepreneurs. You’re taking the risk, and the odds aren’t on your side as a business owner. I’m always happy if there’s any way I can give encouragement to a business by working out a trade-off or product placement deal.”

That said, Carson--or any other producer--isn’t just going to work something out because he likes the entrepreneur, and there is a definite way of going about the art of product placement. For instance, once you learn the name of the production company that produces a show (which you can get by watching the credits if you somehow can’t find it on the internet), don’t call them ask to speak to the producer or someone in business development. You’re just going to put them on the spot and encourage a “no, thanks.”

Instead, send your pitch in writing. And when you do, pitch your product, not a scenario of how you think the series or movie should use your product. “That’s a turn-off,” admits Carson. “The best way to approach it is to present an overview of your company in general, and whatever product line you have, and then just maybe say, ‘We welcome the opportunity of how our product might be a part of your show,’ and leave it at that. On our side, we’ll know if it’s a fit or not.”

While the bigger players—the ones who can afford to spend big bucks to get their products placed in TV shows or movies--generally use an agency that specializes in product placement, like Norm Marshall & Associates, an international company headquartered in Los Angeles, you don't need to do that to land a gig. You can spend just a few thousand dollars and approach someone like Betsy Green, CEO of Media Matchmaker [www.mediamatchmaker.com], a service that hooks up entrepreneurs with producers in the name of getting product placement deals worked out.

When it comes to placement, Green agrees with Carson. “Every producer has a filtering system, and they’ll only use your product if they deem it appropriate," says Green. "You really have to sell your product to the producer, and even then, there are no guarantees. Someone else in the production entity may say the packaging isn’t good enough or the product stinks. Or the star may say they don’t want it.”

In the end, it all comes down to putting on a good show. “It is a creative process,” says Carson. “It’s almost more of a gut-level decision that’s made, because these are creative people at work. But the one main guiding principle is that the product needs to be organic with the show. It can’t detract from the show in any way. One, we don’t want our shows to look like a television commercial, and that leads in to the second rule, which is to protect the show. I think if you do something over-the-top, where a character is holding up a product, practically modeling it as if he’s on The Price is Right, that’s not good for us--or your brand.”

Your Product Placement Primer
Inspired to try to get your product or service some free publicity? Here are a few quick steps you can follow that just may get your product or service a supporting role in a movie or television show:

1. Put on your brainstorming cap. What type of show or movie would you like to see your business in? When attempting to reach your target market, you really need to think about the types of programming they're most likely to watch. If you’re marketing lipstick to teenagers, for instance, approaching teen-oriented sitcoms would be smart. If your product is aimed at stay-at-home moms, you might want to consider everything from soap operas to daytime talk shows.

If you don’t care about reaching the audience as much as building credibility among the general public, then think about the characters on the programs who might conceivably use your business or service. The important thing is to stay away from thinking about your own personal favorite programs and instead think about what’s a good fit for your product. Put yourself in the shoes of the producer or business development person. If you can honestly envision your product being a help to their show, then that show is probably one you should approach.

2. Once you have your list, start looking for contacts. There are a few ways to get the information you need. If it's a TV show you're interested in, try searching the end credits of the show to find out who the show's producer is. A little internet searching should turn up the production company's contact information. Or you can go directly to the search engines to find the show's site where you'll find the name and possibly the contact information for the production company. If it's not there, try searching directly for the website of the productions and start trolling for the appropriate name of someone who might want to see your media kit. One piece of advice: Be sure to approach several production companies--like cold calling, product placement success is a numbers game.

If it's movies you've got your heart set on, read the current editions of such trade magazines as Variety (www.variety.com) or Hollywood Reporter (www.hollywoodreporter.com). Most issues include listings of the production companies currently working on projects, where you can at least get phone numbers and addresses, if not key names. You can also search the trade publications--or the internet--to see what movies are currently in production or will begin soon. Both Variety and Hollywood Reporter offer a lot of invaluable information online for free; in some cases though, particularly with Hollywood Reporter, you may have to subscribe to get the information. Or you could try an old-fashioned but reliable approach and check out the publications at your local library.

3. Send a media kit. Once you've located contact information for the companies you'd like to contact, mail them a media kit that includes a cover letter, photos and descriptions of your product or service and contact information so they can reach you if they're interested. Do not call anyone, unless it’s a receptionist to get the name of someone to send a letter to.

4. Don’t oversell. Producers will either like what they see--or not. You aren’t going to talk them into anything.

5. Be careful about suggesting a scene that the producers might use your product in. For instance, a good way to go about it might be “Since our doughnut shop is based in Chicago and ER is set in the same city, please keep us in mind…” Suggesting that Luka or Abby might want to share breakfast over doughnuts is also probably safe, but even that may be more details than the producers would care to hear. Deciding how to use your product is their business; bringing your product to their attention, in a low-key and professional way, is yours.

Geoff Williams is a freelance writer in Loveland, Ohio.


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Saturday, May 26, 2007

Is Web 2.0 A Bubble?


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Hundreds of Internet companies have emerged since the dot-com crash, looking to capitalize on a resurgent online advertising market. Companies in this new wave -- known as Web 2.0 -- have focused on online collaboration and sharing among users. They hope to attract millions of users and become the next YouTube, which was acquired by Google Inc. earlier this year for $1.65 billion.

Venture capitalists, who fueled the previous Internet bubble, are pumping money into the new crop of Web startups. In the first nine months of 2006, VCs sunk $455 million into Web 2.0 companies, according to research firm VentureOne. (VentureOne is a unit of Dow Jones & Co., publisher of this Web site.) That's three times as much money as such startups received in the same period last year.

There were no blockbuster Internet IPOs and just one Web deal (Google's purchase of YouTube) valued at more than $1 billion in the past year. But the flood of money and flurry of activity prompts the question: Is Web 2.0 another bubble or are the startups getting funded today more sound than ones created in the run-up to the last bust?

The Wall Street Journal Online invited two technology venture capitalists, who were active in the dot-com days and have invested in the current crop of startups, to debate the topic. Todd Dagres spent nearly a decade at Battery Ventures before starting Spark Capital last year. David Hornik, a partner at August Capital and a former Silicon Valley attorney, writes the popular VentureBlog. Their conversation, carried out over email, is below.

Mr. Dagres begins: Web 2.0 is a bubble for 3 reasons: 1) There is far too much money chasing Web 2.0 deals. Too much money means too many companies getting funded at higher valuations. 2) There are virtually no barriers to entry in Web 2.0 and therefore the ability to develop a unique solution and sustain a competitive advantage is virtually nil. Therefore, it's difficult for Web 2.0 companies to build long term value. 3) There is very little liquidity in the market for Web 2.0 companies. The Dow was recently at a high and still no liquidity. Without liquidity, Web 2.0 companies must rely on acquisitions to achieve liquidity and this will put a lid on the potential exit options and ultimate valuations of these companies. In short, they will be playing a musical chairs game in which there are far too many players and too few chairs.

There are some similarities between the current "bubble" and the last one that burst in 2000: Lots of incomplete and under-experienced teams, business models based more on eyeballs than cash flow, and a rash of incremental and "me too" deals.

Mr. Hornik responds: I do not believe that the existence of too much venture capital money chasing too few interesting ideas constitutes a bubble. The Web 1.0 bubble inflated because the public markets were willing to bet on unproven ideas. Public markets are ill suited to evaluating such risks. On the other hand, the venture capital community exists precisely to take on that risk. While many Web 2.0 companies will fail, they will not likely fail in significantly greater proportions than has been the case with other venture investments historically. So it is hard to imagine how this so-called bubble will over-inflate. Venture capitalists will rationally stop investing in ideas that don't bear fruit. Those that do bear fruit will gain traction and either be acquired or go public. Those are the traits of a rational market in my mind.

Mr. Dagres: Not really. Private markets are far less efficient than public markets. Private companies don't publish results, trade on exchanges or comply with a number of SEC rules that protect the individual investor. They are inherently illiquid and risky. Of course, where there's more risk, there is often more reward. I see irrational pricing occurring right now in the venture market with private companies receiving venture money at valuations of over $200 million (Spot Runner, LinkedIn) and $500 million (Facebook). I have seen private Web 2.0 companies with negative cash flow and little revenue valued above public companies with stronger operating results. There's a reason why the average American doesn't have access to venture capital and it's not because it's more rational.

Mr. Hornik: I was not suggesting that private markets are necessarily more efficient or more rational than public markets. Merely that private market investors are trained to assess the risks involved with speculative and illiquid investments. While I am not on the boards of Spot Runner, LinkedIn or Facebook, my understanding is that each is cash flow positive and making real money. They are each excellent examples of real businesses that are being built in this Web 2.0 era. Whether $200 million or $500 million is the appropriate price tag for those investments isn't important. What is important is that each of those businesses appears to be on track to be strong, stand-alone entities that will likely get public or be acquired. Those sound like good investments to me.

It isn't surprising that we aren't seeing a whole lot of Web 2.0 companies going public yet. The public markets have appropriately adjusted to the irrationality of the Web 1.0 ascendancy and are looking for companies that have operating histories with quarters of profitability, large top-line revenue, and predictability going forward. That takes time. But I have no doubt in my mind that there are interesting businesses being built that will meet those criteria in the coming years.

Mr. Dagres: I agree that there will be interesting companies coming out of the Web 2.0 wave. Every wave has its winners and losers. The notion of a bubble, however, is that a particular market gets overdone, i.e. over-hyped, over-invested, and ultimately experiences a high mortality rate. I think the Web 2.0 space will have a higher mortality rate than other segments of the overall media and technology industries. There are far too many MySpace and YouTube genetically challenged clones. All but a few will fail. The winners are generally the ones that get in early and out before the bubble bursts. There are rare examples of bubble companies making it through the bust and going on to become successful and valuable companies. By the way, the combined cash flow of Spot Runner, LinkedIn and Facebook is less than that of one Costco store.

Mr. Hornik: I would reckon that the margins of Facebook, LinkedIn and Spot Runner are a whole lot better than that of a Costco store.

Even assuming that the vast majority of the Web 2.0 companies fail, the amount of capital that is going into all of them combined is a pittance compared to the Web 1.0 bubble. In fact, it is even a relatively small portion of the overall capital being invested by the VC community on an annualized basis. How many Web 2.0 companies do you think you can build for the same amount of capital it takes to build a single medical device company? And unlike a medical device company, the power of the Web 2.0 model is that investors get very quick feedback about how well the company is doing. So the likelihood that investors pour tens of millions of dollars into Web 2.0 companies that will never be self-sustaining is very low. VCs may lose their capital invested early in Web startups, but the amount of capital sunk into failed businesses will never snowball the way it did in the late 90s.

Mr. Dagres: I'll take cash flow over gross margin -- I can eat cash flow. I think there will be billions lost on Web 2.0 companies when all is said and done. The real money hasn't even gone in yet. The hedge fund, corporate and family offices are coming in as we speak. The good news is you can generally only lose 1.0 times your money. I agree that medical device and drug companies consume much more capital than a Web 2.0 company but they can build advantages based on patents and substantial R&D, which limits the competitive threat. R&D in a Web 2.0 company = rummage & duplicate.

That said, the life sciences venture environment has its own issues.

Mr. Hornik: I think that you aren't giving Web 2.0 entrepreneurs enough credit. Sure, there are some "me too" sites out there. There always are. But the amount of rapid innovation in online services has been staggering -- from Skype to Digg to Six Apart to YouTube to Flickr to Facebook... The list goes on. They aren't microprocessor companies with years of patent-protected intellectual property. On the other hand, they are innovating around things that matter to consumers today. And I believe they are being appropriately valued, not just by potential acquirers but by the consumers themselves.

You say that billions are going to be lost. I think that overstates the potential problem. Certainly billions haven't been invested to date. It takes a whole lot of companies to get to billions when investing a few million dollars at a time. On the other hand, if a few billion dollars are lost in the face of exits like Skype and YouTube, and others that I see making hundreds of millions in the future, then the market is doing well and investors and entrepreneurs alike will emerge decidedly net positive. That doesn't sound like a bubble to me. That sounds like a vibrant market for innovation.

Mr. Dagres: Aha! We agree on what may be the most important point -- great entrepreneurs are the key to building valuable companies. If you invest in great people, you have a good chance of making money. In the current market there are gifted entrepreneurs that will benefit and thrive. These people will start disruptive companies that look for what will be hot rather than what is hot. They won't be lumped into the Web 2.0 category; they will define their own categories. This is what will separate the few winners from the many losers. So in closing, I am leery of Web 2.0 but I am always going to invest in great people pursuing big ideas.

Mr. Hornik concludes: I was recently asked by an entrepreneur what I thought would be the next great technology in the coming year. I told him I thought it would be the Internet. We have just started scratching the surface of the enabling power of the Internet. Whether it is called "Web 2.0" or "New Media" or "Enterprise 2.0," Internet services are going to drive the world's economies for the foreseeable future. To me that doesn't spell bubble, that spells opportunity.

StartupJournal.Com


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Tuesday, May 22, 2007

The Problem With Unplanned Growth


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This is a true story, although the names and places have been changed. Everything ended up OK, but there was a lot of unnecessary stress--all of which could have been easily prevented by just a minimum of business planning. This kind of problem happens all the time, and it's so easily preventable, it’s a shame it happens at all. The lesson: Don’t be a victim of unplanned growth.

The story takes place in a midsize university town on the West Coast, during the mid '90s, as the internet boom took off and most everybody in business and education was getting connected. The main players are Leslie and Terry, co-owners of a consulting business offering computer and network services mostly to local businesses.

At the beginning of this story, Leslie and Terry had a small but comfortable office a few blocks off Main Street, near the university, and a comfortable business, averaging about $20,000 in sales per month with a few steady clients and not a lot of seasonal variations in sales. They had one employee who did the bookkeeping and general administration tasks, maintained office hours and made appointments.

Then came the big, wonderful new job--a contract with a large and fast-growing company to install new internet facilities in offices on its corporate campus, 10 miles up the freeway. This was a $200,000 contract that had to be delivered quickly and opened up an important new relationship with a potential business-changing client. There was great celebration. Leslie and Terry and their spouses started with a fancy dinner in the best restaurant in the area.

Both partners readily got going on fulfilling the contract, delivering the network, connecting the systems, making good on their promises. To make sure the new relationship would be a permanent increase in business, they took on five contractor consultants to deal with the needs of installation, training and the general increase in business demands.

Within two months, it seemed clear to both partners that they’d made the leap. Systems were being installed, clients were happy, and they were on the road to doubling their business volume in a very short period of time. The contractors were doing good work, and four of the five were happy to consider becoming permanent employees. Leslie and Terry decided they could celebrate more, so they both went to the local car dealer and leased new Mercedes sedans.

Then things started going bad. Like a television loosing its connection, things got fuzzy, then blank. Though sales and profits were way up, jobs were done and invoicing was underway, Leslie and Terry had no money. The contractors--good people who Leslie and Terry wanted to keep--needed to be paid, but there was no money. They rushed to their local bank, waving their increased sales and profits, but banks need time. The business suffered the classic problems of unplanned growth. Just as the accounting reports looked brightest, the coffers were empty. People were barely done celebrating, and suddenly they were looking at the disaster of unpaid bills and, much worse, unpaid people.

What happened? Unplanned cash flow problems happened. The new, larger client had a slow process when it came to paying bills, so the jump in sales didn’t mean an immediate jump in cash in the bank. Leslie and Terry were more concerned about delivering good service than delivering necessary paperwork, so their own invoicing process was slow. They were owed about $85,000, but they couldn’t go straight to their new client to get the money--she said she’d already authorized payment and sent them to the company’s finance department for answers. The people in the finance department were slow to respond and not particularly concerned about vendors getting paid quickly; their job was to pay slowly, but not so slowly as to get a bad credit rating.

Leslie and Terry had a bad case of “receivables starvation"--money that was owed to them was already showing in sales and profits, but not in the bank. It would have been predictable, and preventable, with a good plan.

In this case, fortunately, the two partners had enough house equity to get a quick loan and pay their contractors. The business was saved and grew, but not without a great deal of stress and strain, and even second mortgages.

The worst moment is worth remembering: One of the partners' spouses was particularly eloquent about the irony of taking on a new mortgage while driving that “[profanity omitted] Mercedes.”

The moral of the story: Always have a good cash flow plan. Never get caught not knowing the impact of a sudden rush of new business. Get to the bank early, as soon as you know about new business, and start processing a credit line on receivables. And never lease a Mercedes until you’re sure you won’t have to take out a new mortgage a few weeks later.

Tim Berry is the "Business Plans" coach at Entrepreneur.com and is president of Palo Alto Software Inc., which produces the industry's leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.


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