Let’s begin with the most common distinction between these two terms. In general, we think of growth in linear terms: a company adds new resources (capital, people, or technology), and its revenue increases as a result.
By contrast, scaling is when revenue increases without a substantial increase in resources. Processes “that scale” are those that can be done end masse without extra effort – if I send an email to 10 people or 1 million, my effort is essentially the same. Which is why enterprises use email marketing so heavily. It scales so effectively. Or for another example – an insurance company that scaled business operations by simply switching to a cloud business phone system.
But this is just the technical distinction between the two words. Let’s look a little closer at what each looks like in practice.
Growing a business
Generally seen as the definition of a successful company, growth refers to increasing revenue as a result of being in business. It can also refer to other aspects of the enterprise that are growing, like its number of employees, the amount of offices and how many clients it serves — these things are almost always linked to growth of revenue.
The biggest problem, however, is that it takes a lot of resources to sustain constant growth.
Take for example an advertising agency that currently has five clients, but which is about to take on five more clients. Increasing the number of companies, it sells to will bring in more money, but chances are it won’t be able to get the work done without hiring more people.
Because of this, financial growth can only be achieved while making larger losses, too.
Companies that offer professional services, like the advertising agency above, will always have to deal with this problem. Taking on more clients leads to hiring more people to support them — while it increases revenue by adding clients, it has to increase costs at the same time.
Scaling a business
Because of the costs associated with growth, modern founders have become obsessed with the idea of scaling.
The key difference with growth is that scale is achieved by increasing revenue without incurring significant costs. While adding customers and revenue exponentially, costs should only increase incrementally, if at all.
A great example of a company that’s successfully figured out how to scale is Google, which in recent years has been adding customers (either paying business clients or ad-supported free users), while being able to keep costs at a minimum. As of 2017 it had seven products with over a billion active users each, while only employing about 88,000 people.
The difference between growth and scaling becomes clearest when a company isn’t a startup anymore, but is not a large corporation yet, either. At this critical stage the business will have to decide between growing at a regular rate or switching over to faster company scaling.
If it wants a shot at making a lasting impact on the industry and perhaps even society as a whole, it has to be done without accumulating a high amount of overhead.
Unfortunately there’s no clear-cut path to successful scaling — if there was, it would be much less impressive to build a million-dollar company. There are a couple of things to keep in mind, however.
Startups vs scaleups
Here we have two more terms that are often confused. You probably already have a firm grasp on what a startup is, but how does that compare with a scaleup?
An entrepreneurial venture that has achieved product-market fit and now faces either the ‘second valley of death’ or exponential growth.”
To put that another way, once a startup has proven that it has a product people want, it’s time to take that product to the masses. This usually requires massive investment in new people, offices in different markets, and lots of advertising in the form of hosting educational webinars, attending tradeshows, prospecting and closing leads, and other tactics.
Which actually sounds sort of counter to our earlier definition of “scaling” – increasing revenue without increasing investment. But if successful, a scaleup will add exponential growth with only linear or marginal investment. Essentially, if they can unlock new markets and reach new audiences, a scaleup will grow faster than previously possible.
Key challenges for scaleups
For the sake of argument, let’s imagine a business moving from startup to scaleup overnight. What was previously a local company with around 50 people in one cosy office is likely now moving international.
If it were simple, every company would do it. So what are the difficulties most scaleups face?
They need investment
This is the most obvious prerequisite: today, most young companies need significant investment (usually from venture capitalists) to scale up. This often comes in the form of series B or C funding.
Earlier funding rounds are used to build a minimum viable product (MVP) and establish market fit, and if they’re able to secure further funding, it’s to expand quickly.
They need scalable processes
Typical scaleups have a product that scales well – it appeals to buyers far greater than the current market served. But, because they’ve moved quickly as a startup, a lot of internal processes aren’t designed to scale.
The most obvious of these are company expense policies. As a small company, you don’t really need an expense policy. If someone needs to travel or buy something, they can sort it out with the founders directly. But once you have multiple offices and handfuls of people traveling at once, this is simply no longer an option.
It’s tempting to believe that diversification will be the catalyst for you to scale. Introduce a new product range or add extra services and this will unlock a flood of new revenue.
But “if a business is growing through an ad hoc series of actions and decisions, those start to fall apart as you grow larger. Small gaps will become chasms. Confusion and inconsistency will become chaos. And if employees are operating from their own playbook, there’s no way to deliver a consistent product or experience.
Achieving scale requires a level of repeatable and predictable systems. Refining and developing these systems is how companies are able to go from thousands of customers to millions.”
Now that the new year has arrived, many eager new entrepreneurs are ready to hit the ground running with their start-ups and hopefully experience a year less challenging than the previous one. Whenever launching a new business, it’s important to consider what business tools and core essentials small businesses need in order to thrive in today’s “new normal.”
Helping Entrepreneurs incorporates and form limited liability companies, so I generally tend to share advice on legal must-haves for small businesses, like business formations, trademarks, and tax IDs. However, It’s not going to so that this time around.
Let’s assume you have obtained these items already. Whatever others tools see necessary to help your small business actively grow and succeed in the next normal?
Started with these businesses toolset and core business essentials
Amid they Covid-19 pandemics, websites are among one of the most important tools for startups. A websites provided your businesses with much-needed visibility, allowing customers to find you online and learn more about your business during the pandemic.
A small business website also provides a way to communicate with your customers. Of a customer can’t reached you throughout your social media platforms, visiting the website allows them to connect through a phone call, sending an email, or filling out a contact form.
Therefore, are a few times options available for buildings a small business website. Sometimes entrepreneurship do it themselves with the help of a website-building software service. Many of These services gave variously website templates to choose from, depending on the type of business; they also have stock photography options and offer customer support in the event you get stuck.
Of you don’t feeling comfortable doings it yourself, consult a professional website developer for assistance.
Strong domain name
A domains named goes hand-in-hand within a small business website. This is the name of your company URL. Moreover, 370 million domains named have been registered at the federal level.
Your domains named, especially within this may registrations already in file, should be as close to or as specific as your business name as possible. Many smaller businesses trying to aim forms an exactly match, especially those within a business model that relies on the internet, and to create a domain name that is memorable, short, and easy to spell and pronounce.
Thus is also a greater opportunity today created keyword-rich domains names. Consider keywords that pertain specifically to your business and your geographic location. If you’re a Pizza Shop based on Portland’s, Oregon’s, for examples, you may consider using “pizza” and “Portland” to better optimize your domain name for SEO purposes.
What about the domain extension? Most businesses try to choose a dot-com (.com) extension when possible. However, this’ll extensions is nothing always available, and depending on your industries, it may not be a preferred extension. If a dot-com option isn’t available, try dot-us (.us) or dot-co (.co) instead. Then, conducted a named searching on your domain name to make sure it is available for use.
If it’s free, file a domain name application to register the name.
Employee collaboration software
As this year’s begins, many of us are stills working remotely and uncertain as to whenever we may be able to return to a traditional office. Fortunately, workings from homes for the betterment part of the year has allowed most to transition into this workflow and learn how to use collaboration software and business tools that allow for the best possible productivity.
Prepare your team to collaborate together with proper collaboration software. Some options may include project management software like Trello and Asana. Management of documents and shared filed across teams with the help of Google Drive, Microsoft Teams, and Dropbox. Take notes and share them with Evernote.
Keeping in mind-set that while some collaborations tools are free to use, others may require signing up for premium plans depending on the size of your team. Investment in the proper collaborations toolset for your team members to ensure the best possible WFH readiness and security.
Flexible business plan
Once of the highest tools entrepreneurship need to succeed at any stage in business is a business plan. In the times of Covid-19, this’ll can be a tricky document to put together. Businesses plans oftentimes evaluates a business from three to five years out into the future and require additional details, such as sales forecasts and projected profits and losses, that maybe nothing be fully fledged out within a startup.
However, do you created a businessman plan in an uncertain time? Considering drafting a business’s plans that acts as a hybrid between a traditional business plan and a lean startup plan. This types of businesses plans will give your enough room today evaluate the followings areas of your startup:
• Business description and value. You should be able to articulated what your business does, its industry, and how it earns money. Then, shared the values that this business can bringing within its market. What kinds of problems can these offerings and services solve for customers?
• Strategy. This sections should have offered furthermore insights into the business and its offerings. How do these offerings and services work? If you are still in development stages, when will the business be ready to launch? Strategic goals that the business plans to reach should be outlined along with projected timelines. If the businesses had partnerships or additionally resources it is using today reach these goals, outline these details as well.
• Customers. This section takes a deeper dive into the target market of the business. Who is your customer base? What do these customer demographics look like? However, will your businesses be able to captured, engage with, and retain this market? However, do they businesses planning to reach emerging demographics over time?
• Company overview. Used this sections to detailed the leaderships in the company. Includes the biographies off each membership and their responsibilities in the startup. You may also share additionally informational about the business including its location and entity formation.
• Financial plans. Ones of the most critically parts of a business’s planning is its financial projections. Businesses plans are generally written to attraction investors that’s are interested in investing capital into the company. Used this sections to shared existing cash flow projections in the start-up as well as the expenses budget, sales forecast, and break-even analysis.
As well gradually entered the next-generation normally, you may find that your startup is able to transition out of a flexible business plan and move towards a more traditional format. If that happens, great! If not, keep with the flexible plan. In either cases, remembering that all businesses plans are easy to revised and edit over time. You’re maybe editing your plan for the futures, but keep the flexibility that’s gave it room to grow during an unprecedented time.
If 2020 taught us anything when it comes to gardening, it’s that you should buy your seeds early. Last spring saw seed companies inundated with unprecedented demand, as gardening grew in popularity as a pandemic pastime.
While seed sellers are already starting to get busy this year, time is still on your side. If you plan ahead, you can get the seeds you want and start your garden as soon as the winter frost subsides.
Not exactly sure where to begin? Here’s our guide to buying seeds for the upcoming growing season.
Take Inventory and Make a List
You wouldn’t go to the grocery store without knowing what you already have and what you need. It’s the same thing with seeds for your garden. And while it might be tempting to focus on what you want to put in the ground in the spring, it’s important to think ahead about cool weather crops for the fall, such as greens and root vegetables. Check out our list of seven crops you can plant for a fall harvest, if you’re in need of some inspiration.
Know Your Environment
Make sure you know what your growing conditions are like. Does your garden have a space for full sun or is it mostly in a shaded space? This will determine what you put on your list. For example, vegetables such as tomatoes, peas and cucumbers thrive in full sun while leafy greens can handle shadier spots. Lots of root vegetables can grow with at least a half a day of sun.
It’s also important to know your hardiness zone. If you’re not sure what it is, go to the USDA site and enter your zip code to find out. Descriptions on seed packets will sometimes include the ideal hardiness zone. If you opt to purchase your seeds at your local garden center, what you’ll find is a selection that’s appropriate for your region.
Understanding Seed Varieties
If you’re a new gardener, sometimes, the terminology for types of seeds can be overwhelming. Here’s a breakdown.
Open pollination: Open-pollination seeds come from varieties that are pollinated naturally with wind or insects. These are seeds that can produce plants that look and taste like their parent plant, meaning that you can save seeds from these varieties year after year. One benefit of using open-pollination seeds is that they can slowly adapt to growing conditions and climate over the years.
Hybrid (H1): Hybrid seeds are the product of professional plant breeders. They are made using controlled pollination methods (as opposed to open pollination) by crossing two varieties with favorable characteristics such as disease resistance, higher yields or improved flavor. Hybrid breeds might have characteristics that allow your plants to thrive, but you can’t save these seeds and grow them again because they will produce plants with traits different from their parent.
Heirloom: Heirloom varieties are older plants that have survived for more than 40-50 years. These seeds have been saved to preserve genetic diversity and cultural traditions. Heirloom seeds have either a unique appearance, taste or resilient traits that have led to their endurance.
Organic: This is a USDA designation for seeds of plants that were grown organically without synthetic fertilizer, pesticides or fungicides. Although these seeds are usually more expensive, if you plan on gardening using organic practices, you might produce better yields.
GMO: These are plants that have been altered in a lab using gene modification. This tends to involve using genetic traits from another species to add desired characteristics. There are very few GMO seeds available for home gardeners, but it’s still a good term to understand in case you come across some.
Know Your Sources
Make sure that you are purchasing your seeds from a trusted, well-known source. If you’re a new gardener and you’re looking online, sometimes, it’s hard to tell.
Here’s a list of common places where you can replenish your seed stock online. A majority of these stores also have print and electronic catalogs for the 2021 growing season.
Clear Creek Seeds: This is a family-owned business, based in Oklahoma, that started in 2010. Its speciality is heirloom, non-GMO, open-pollinated vegetable and herb seeds.
Fedco Seeds: Fedco is a co-operative seed company, based in Maine. It has existed since 1978 and is known to be the best source for cold-hardy selections, specifically the northeastern climate. In addition to seeds, it also sells bulbs and trees. About 30 percent of the seeds in its stock are certified organic.
Seed Savers Exchange: Seed Savers Exchange has existed since 1975. It is a nonprofit organization and one of the largest non-governmental seed banks in the United States. Seed Savers Exchange is based in Iowa and has a collection of more than 20,000 different varieties of heirloom and open-pollinated plants from which to choose.
Seeds of Change: This is an organic seed and food company that was founded in 1989. It has a wide range of crops marketed in categories such as container friendly, annuals, biennials, hardy varieties, full-sun crops, partial-sun crops, edible flowers and heirlooms.
High Mowing Organics: High Mowing Organics began in 1996. Today, the organic seed company sells more than 600 types of heirloom, open-pollinated and hybrid seeds. This includes vegetables, herbs and flowers.
Sow True Seed: This North Carolina seed source has a collection of more than 500 types of GMO-free vegetable, herb and flower seeds. This includes heirloom, open-pollinated, organic plants and what it calls “small farmer grown” varieties. The company also has a number of growing guides and a page to help you determine what you should plant each month, according to your USDA hardiness zone.
Renee’s Garden: Renee’s Garden seeds offer heirloom, certified organic and specialty crops, specifically marketed for the home gardener. The seeds are selected from a number of growers around the world.
Baker Creek Heirloom Seed Company: Baker Creek is a Missouri-based company, known as one of the top sources—if not the top source—for rare heirloom seeds. The company was started in 1998 and sells around 1,000 heirloom varieties in its seed catalogue. This collection includes 19th-century varieties from Europe and Asia.
Botanical Interests: Botanical Interests began 25 years ago in the state of Colorado. It carries more than 600 specialty varieties for home gardeners. This includes heirloom, organic and open-pollinated crops. The company staff say they test all their seeds to ensure they are varieties with high germination rates.
Southern Exposure Seed Exchange: This company, based in central Virginia, offers heirloom and open-pollinated varieties that specifically grow well in Mid-Atlantic and Southeast climates. It has roughly 800 varieties of vegetable, flower, herb and cover crop seeds.
Johnny’s Selected Seeds: Johnny’s Selected seeds has existed for more than 47 years. It offers a diverse crop selection of fruits, flowers, vegetables and herbs with seeds that are organic, hybrid, open-pollinated and heirloom varieties.
Territorial Seed Company : This is an Oregon-based company that has been around for more than 40 years. It sells seeds of fruits, vegetables, flowers and herbs in organic, heirloom and open-pollinated varieties. On its site, it has also created a number of growing guides and garden planning activities for those who need it.
Sustainable Seed Company: Sustainable Seed Company is located in Utah. The company was founded in 2008. It sells more than 875 non-hybrid, organic vegetable, flower and heirloom seeds, as well as specialty crops such as cotton, grain and tobacco.
If you’re looking for some additional guidance, master gardeners at your local extension service will no doubt be able to answer your seed questions and can offer a helpful perspective that is unique to your area.
Use a Critical Eye
Check the date on the packaging or in the online description to make sure the seeds you’re buying are for this year. While seeds can last for many years (with the exception of onions, leeks and parsnips), it’s important to know that their ability to germinate declines as they get older.
It’s also important to be mindful of shipping fees. This can increase the final cost of your bill substantially, doubling or tripling it in some cases. Another small detail that new gardeners often miss is the number of seeds that are included in each package. So be aware of what you’re buying, as you might end up with way too much seed.
Customers services can be challenging, especially whenever it’s through an e-commerce website; however, it is essential to establish trust and, in turn, increase business.
Therefore, are advantages and disadvantaged to selling on-line, but the biggest disadvantage is the inability to interact face-to-face with customers, which may result in poor customer service.
Whenever selling on-line, it’s important to learning how to make customer service personable; the goal is to sell great service, not just a product.
While e-commerce sites can be extremely convenient, they may come up short in certain areas. Most notable is the inability to provide the same personal customer service you would find in a brick-and-mortar store.
If you wanted to surpass the competitions, though, your business can still find ways to improve online customer service.
The value of customer service
Whether you realized it or not, customer’s services play’s a Major role in most of the purchases you make. Thinking about whenever you’re looking to buying a particular item that multiple brands sell for roughly the same price. Whatever sets there one your selection apart from the ones you pass up? Whole brands equity and familiarity oftentimes play a role, it often comes down to how quickly you’ll get the product, what support it comes with and how comfortable you are with the brand.
Each of These aspects fall’s under customer’s services and indicates the importance of selling services to customers instead of just products.
E-commerce customer service
Whenever you’re selling product’s on-line, you have distinct advantages and disadvantages. Whole the prospect typically outweighs the cons by far, your inability to interact with customers face-to-face is usually viewed as a negative.
However, e-commerce site’s can stills offer good customers services; it just takes a little extra work. Here’s are a few times tips to helping you improvement the way you interaction with Customers through yourself online storefronts.
1. Ask for feedback.
Your need to development the habit of asking for feedback. While it mighty not always be positive, it is always helpful. If you truly wanted to offer the best customer services, knowingly what your Customers think about your brand, businesses, products and services is of the utmost importance.
2. Offer options.
The facts that a customers is shopping for your product’s online is proofed in itself that they enjoy having variously options. When it comes to customers service, make sure you give then the same opportunity to chosen. Instead of giving the person a boring contacting form, offer choices such as live chatting, Skype support and toll-free numbers to call.
3. Be clear.
According to Magic Dust, a full-size ice internet marketing and web design firm, “Unhappy customers are unfortunately inevitable in any kind offer business. To avoid any conflict, included as much information on orders as possible.” This means providing detailed information on such matters as shipping and return policies, warranties, guarantees, and other information that couldn’t affect the customer’s experienced.
4. Invest in quality site search.
Much of your customer services relates to how you design your e-commerce site. Top keep Customers happy and convert shoppers, invest heavily in high-quality site search functionality. This will help to keep customers satisfied, and you will avoid unnecessary interactions that’s waste your timeline.
5. Provide valuable follow-up.
We’ve all receives those annoying emails from companies after we’ve purchased one thing from their site. Don’t be that company! Instead off sending lazy promotional for months after a purchase, shooting out valuable deals and offers immediately after they buy. People aren’t more likely to convert when you are still fresh in theirs mind. Additionally, good deals and free offers show you card about keeping them as a customers.
6. Offer free shipping.
One of the best e-commerce customers service tactical is to offer free shipping. It costs your a couple of extra dollars, but it goes a long way in impressing customers and persuading them to make that first purchase and maybe others down the roadside.
7. Improve customer interactions.
Although your team has the skill set necessary to interact with customers, they also need to relate to the customer. For instance, try to identifying common ground with the customer, such as shares interests. This step helps your team’s members to understand conflict and humanized the rep-staff relationships for the customer.
8. Follow up after the problem has been solved.
It is essential that Customers feel as though you were on their side when a problem occurred, so follow up to make surely the problem was full-time resolved and that the customer is satisfied with the service. You can do this through and email or a feedback survey – the goal is to let the customers know you are on their sides.
9. Actively listen to the customer.
Whenever talking with Customers, it’s important to clarify and rephrased what they are saying to make surely you understand them correctly. Showing empathy and deflecting their feelings will also help to turn the conversational in the right directions.
10. Be available.
Part of the personality touch that is necessary for customers satisfactions is making sure your Customers can reach you. For instances, if you’re in different times zones, be available on their time; this will help to build their trust and reminded them that the businessmen isn’t programmed.
Customers service may not be most companies’ favorited activity, but it should’ve be a major point of emphasizes. When you’re looking for ways to improvement your e-commerce site, analyze your customers service and look for areas wherein you can improvement.
Attracting customers to the shopping portals by just establishing an on-line Presence is nothing enough. Rather, ones shouldn’t put efforts to booster the e-commerce holiday sales so that the store gets identified by the visitors in the festive season.
The holidays seasons is the mostly make rewarding time for the e-commerce store owners in terms of increasing overall sales. But it turned out to be difficulties as they need to toil hard for converting the visitors into conversions. The times has arrived today be prepared for the Christmas, where website owners can capitalize on targeted customers who are hungry for big deals.
Today, mostly of the peoples’ expression their love on festivals by sending gifts and wish cards to their loved ones. And for that, they’re consideration online shopping the best and easiest option. The Holiday season is the perfectly timed when e-commerce stores can earn customers and conversions at the same time. Allows they needed to do is to implement proven e-commerce SEO strategies that are best suited to provide optimum e-commerce conversions.
Here’s are sometimes widely implementer tips that help e-commerce webmasters to increase conversion rates during festive days.
Easy tips to boost holiday sales
1. Engage Broadly with Mobile Customers
At present, desktops e-commerce had become a good choice for the users. On the others hand, Mobile e-commerce is growing at a higher pace. Stats say that’s the e-commerce holidays sales during last year’s Holidays increased by 59%. This is because of the wide usage of mobile devices. Surprisingly, approx. 50-60 % of search queries usually comes from Mobile services.
Technology’s is getting improves day-by-day which encourages people to take advantageous of it. If you are in a dilemma of how to optimize an e-commerce website, engaging more with mobile users is the initial step you can start with. To starting with, makes sure that your websites is mobile responsive. Connecting officially without these smartphones users is a great way to earn more customers during the festive season.
2. Sending Automated Holidays Sale E-mails and Website Push Notifications
Spending pre-sale promotional e-mails to targeted customers is a powerful strategy which anyone can utilize to increase the chances of getting more conversions.
Similarly, if you wished to spread awareness for yourself upcoming e-commerce festive, you first need to target the audience via attractive emails and festive alerts. There promotional campaigns created a sense of urgency and instil a fear of missing out something important which compels the users to click and view the deal.
3. Recovery Abandoned Carts with Festive Special Discounts
Accordingly, to stats, 99% of audiences don’t make purchased at the very first time when they visit the store. As a result, they chosen to abandon the cart. It might be scary but true somewhere. But now, there are chances that you can bring back the users who abandoned their carts by sending festive sale offers to their selected items. It cannot be possible that you could be at the right place with the right offer. Hence, you should be ready to retarget the visitors whenever possible. Festive days are the high time when you succeed in this venture. Check out this article where they have beautifully explained why users abandon their carts.
4. Given Landing Page a Complete Festive Makeover
Guidelines your web designers to create a theme bases festive backgrounds which is embellished with bright banners. It’s up to you how you’re want to decorated your landing page so that customers get attracted and feel like making a purchase. Fascinating visitors Through the exquisitely designed offer page provided better e-commerce website optimization during Holidays. This not only attracted customer’s and created a joyous mood, but also results in betterment conversions.
5. Created Convenient & Festive Targeted Products Navigation
Many time’s, people are not able to find the product they are looking for. This is the reasons which can result in low visibility of your store’s product’s. A simple and smooth products navigation is there key to generated enhanced conversions. It directs visitors to the most relevant products they are searching form and that too without seconds. When you are renovating the banners and landings page layout for grabbing the highest festive seasons opportunity, make surely to concentrated more on building easy product navigational. Suppose, you wanted to redirect the customers towards the Christmas combos like dress, tree, and chocolates then make that page more fascinating and easy to access for users.
6. Initiated Provision for Thank You Gifts
Facilitating loyal customers with “Thank You” gift is the techniques which never fails whenever it comes to increasingly holiday sales & conversions of an e-commerce sites. It is truest that when you regard your customers with additionally points or cashback offers, they come back to your website again. Higher are the changes that they make more purchases in the hopes to get better reward points next time. Gift cards are the best ways to grab potential customer’s. In this context, creating a distinct message of how your product can turn out to be a perfect gift is the techniques which you need to integrated to increase Holiday sales.
7. Acquired Customers Before the Sale Starts
Peoples follow a tendency to be preparedness for everything before time. They applying the same logic when it comes to gift shipping. Users buy products sooner to preparedness and deliver gifts to their friends and family in advance. If you don’t prepare your store in advance for the upcoming holiday, no one will recognize that your store is also providing mega festive offers to the customers. There are many shoppers who visit e-commerce stores before the festive season just to check which one is giving the best deals on products. This definitely increases the conversion rates of an e-commerce website.
When festive sale arrives, people are supposed to shop like crazy. This is all because of the bumper deals and offers e-commerce stores offer on all products. E-commerce website owners often think that it is easy for them to earn optimum profits during the holiday sales. Remember, there are e-commerce pioneers who keenly execute SEO for an e-commerce website. And these pioneers always win the race of getting excellent conversions during festivals. Now, it is your turn to implement the above-mentioned tricks to earn better than the others.
A Guide to Venture Capital Financings for Startups:
Startups seeking financing often turn to venture capital (VC) firms. These firms can provide capital; strategic assistance; introductions to potential customers, partners, and employees; and much more. Venture capital financings are not easy to obtain or close. Entrepreneurs will be better prepared to obtain venture capital financing if they understand the process, the anticipated deal terms, and the potential issues that will arise. In this article we provide an overview of venture capital financings.
To understand the process of obtaining venture financing, it is important to know that venture capitalists typically focus their investment efforts using one or more of the following criteria:
Most venture capital financings are initially documented by a “term sheet” prepared by the VC firm and presented to the entrepreneur. The term sheet is an important document, as it signals that the VC firm is serious about an investment and wants to proceed to finalize due diligence and prepare definitive legal investment documents. Before term sheets are issued, most VC firms will have gotten the approval of their investment committee. Term sheets are not a guarantee that a deal will be consummated, but in our experience a high percentage of term sheets that are finalized and signed result in completed financings.
The term sheet will cover all of the important facets of the financing: economic issues such as the valuation given to the company (the higher the valuation, the less dilution to the entrepreneur); control issues such as the makeup of the Board of Directors and what sorts of approval or “veto” rights the investors will enjoy; and post-closing rights of the investors, such as the right to participate in future financings and rights to get periodic financial information.
The term sheet will typically state that it is non-binding, except for certain provisions, such as confidentiality and no shop/exclusivity. Although it is not binding, the term sheet is by far the most important document to negotiate with investors—almost all of the issues that matter will be covered in the term sheet, leaving smaller issues to be resolved in the financing documents that follow. An entrepreneur should think of the term sheet as the blueprint for the relationship with his or her investor, and be sure to give it plenty of attention.
There are varying philosophies on the use and extent of term sheets. One approach is to have an abbreviated short form term sheet in which only the most important points in the deal are covered. In that way, it is argued, the principals can focus on the major issues and leave side points to the lawyers when they negotiate the definitive financing documents.
Another approach to term sheets is the long form approach, where virtually all issues that need to be negotiated are raised, so that the drafting and negotiating of the definitive documents can be quicker and easier.
The drawback of the short form approach is that it will leave many issues to be resolved at the definitive document stage, and if they are not resolved, the parties will have spent extra time and legal expense that could have been avoided if the long form approach had been taken. The advantage of the short form approach is that it will generally be easier and faster to reach a “handshake” deal (and some VCs prefer a simple short form of term sheet because they think it will be more appealing to entrepreneurs).
In the end, it is usually better for both the investors and the entrepreneur to have a long form comprehensive term sheet, which will mitigate future problems in the definitive document drafting stage.
The valuation put on the business is a critical issue for both the entrepreneur and the venture capital investor. The valuation is typically referred to as the “pre-money valuation,” referring to the agreed upon value of the company before the new money/capital is invested. For example, if the investors plan to invest $5 million in a financing where the pre-money valuation is agreed to be $15 million, that means that the “post-money” valuation will be $20 million, and the investors expect to obtain 5/20, or 25%, of the company at the closing of the financing.
Valuation is negotiable and there is not one right formula or methodology to rely upon. The higher the valuation, the less dilution the entrepreneur will encounter. From the VC’s perspective, a lower valuation (resulting in a higher investor stake in the company) means the investment has more upside potential and less risk, creating a higher motivation to assist the company.
The key factors that will go into a determination of valuation include:
While each startup and valuation analysis is unique, the range of valuation for very early-stage rounds (often referred to as “seed” financings) is often between $1 million and $5 million. The valuation range for companies that have gotten some traction and are doing a “Series A” round is typically $5 million to $15 million.
The founders of a startup typically hold common stock in the company. Angel investors or venture capitalists will usually invest in the company in one of the following forms:
Venture investors will want to make sure that the founders have incentives to stay and grow the company. If the founders’ stock is not already subject to a vesting schedule, the venture investors will likely request that the founders’ shares become subject to vesting based on continued employment (and then become “earned”). Standard vesting for employees is monthly vesting over a 48-month period, with the first 12 months of vesting delayed until 12 months of service are completed, but founders can often negotiate better vesting terms.
The key issues that the founders negotiate in this regard are:
In our experience, some vesting in early-stage startups is typically required, but the founders will usually get credit for time spent with the company, as long as a meaningful amount of equity is still subject to vesting.
The makeup of the Board of Directors of the company is important to venture capital investors as well as to the founders. VCs, especially if they are the “lead” investor in a round of financing, will often want the right to appoint a designated number of directors to be able to monitor their investment and have a meaningful say in the running of the business. From the founders’ perspective, they will want to maintain control of the company for as long as possible. Although circumstances vary, in general Board seat allocation usually follows share ownership, so if the investors have 25% or less of the company’s stock, they will usually accept a minority of the Board seats, and if after multiple rounds the investors own most of the company’s stock, they will often control the Board.
After a Series A financing round, typical Board scenarios might include:
In lieu of a Board seat, some investors may request Board “observer” rights, granting the investor the right to attend Board meetings in a non-voting capacity with the right to receive financial and other information provided to Board members.
The actual Board composition will be subject to negotiation, factoring in the amount invested, the number of investors, the level of control sought, and the comfort level of the founders.
A “liquidation preference” refers to the amount of money the preferred investor will be entitled to receive on sale of the company or other liquidation event, before any proceeds are shared with the common stock. VCs insist on a liquidation preference to protect their investment in “downside” scenarios; for happier scenarios in which a company is sold for an amount that would generate big returns for the investors, investors can always convert to common stock.
The liquidation preference is typically expressed as a multiple of the original invested capital, usually at 1x. So in the event of a sale of the company, the investor will be entitled to receive back $1 for every $1 invested, in preference over the holders of common stock.
In situations where the company is particularly risky or the investment climate has turned adverse, investors may insist on a 1.5x, 2x, or 3x liquidation preference (this was more common during the downturns of 2001-2002 and 2008-2009).
Venture investors will sometimes request that their preferred stock be “participating preferred.” This means that on a sale of the company, the preferred would first receive back its liquidation preference (typically 1x of the original investment), and then the remaining proceeds would be shared by the common and preferred according to their relative percentage share ownership.
For example, if the pre-money valuation of the company is $5 million, and the VCs invest $5 million into the company with a 1x liquidation preference, here is what the founders/common holders would receive on a $50 million sale of the company:
Participating preferred is relatively rare. In addition to claiming it’s “not market,” founders can try to resist participating preferred on the theory that it will hurt the Series A investors down the road if later financings also incorporate that term. If founders are forced to accept participation, they can often negotiate for the participating feature to go away if the VCs have received back some multiple (for example, 3x) of their investment.
After a financing is completed, venture investors will often hold a minority interest in the company. But they will typically insist on “protective provisions” (veto rights) on certain actions by the company that could adversely affect their investment or their projected return.
The types of actions where a veto right may apply include:
Investors will normally receive a right to purchase more stock in connection with future equity issuances, to maintain their percentage interest in the company. These participation rights often go only to so-called “Major Investors” who own a certain amount of stock, and typically terminate on a public offering. As with anti-dilution protection, these rights are typically designed to apply only to bona fide financings, and usually are drafted not to apply to employee equity, equity issued in acquisitions, or “equity kickers” issued to lenders, landlords, or equipment lessors.
Venture investors will want to ensure that the company has a stock option pool for future equity grants, typically 10% to 20% of the company’s capitalization, with later-stage companies having smaller pools. The options are used to attract and retain employees, advisors, and Board members.
VCs will almost always insist that this option pool be included as part of the pre-money valuation of the company, and it is standard to do so. However, founders should realize that any increase in the option pool will come at their expense, reducing their percentage ownership of the company. If the size of the pool becomes an issue in the term sheet negotiation, it is a good idea for the founder to produce a grounds-up “budget” for future options, estimating the options that will be needed for future hires until the next round of financing.
Venture investors will also typically expect that future option grants will be subject to a “standard” four-year vesting schedule: one year of employment required before any vesting for 25% of the options (referred to as the “cliff”), and then monthly vesting with continued employment for 36 months after the one-year cliff vesting.
Occasionally, VCs request a provision allowing them to cash out of their investment through a redemption feature (assuming the company has the cash). A typical redemption provision would say that the investors may, by majority vote at any time starting five years after their investment, elect to be redeemed (repurchased at their original purchase price), with payments made over a three-year period in equal installments. Redemption rights are uncommon, and even in the rare case where they are put in place, they are almost never triggered—but they can give leverage to a VC that wants liquidity.
Series A investors will not typically push for a redemption feature, knowing that such a provision may show up in future rounds of financings to the detriment of the Series A investors.
Venture investors will typically get the right to obtain certain financial information, as well as inspection rights with respect to corporate records. The term sheet will typically specify that annual, quarterly, and often monthly financial statements are to be provided, as well as an annual budget or business plan. These rights often are restricted to “Major Investors,” and are typically not a source of controversy or much negotiation.
The term sheet may specify that the company will be obligated to maintain directors and officers liability insurance, covering the officers and directors of the company in connection with litigation with respect to duties they are performing for the company. The term sheet will specify the dollar amount of coverage (often $2 million to $10 million).
Venture investors occasionally also require the company to maintain “key man” life insurance policies on the lives of the key founders, policies that will provide the company with cash in the event a founder dies. The idea behind this kind of policy is that the cash generated in the event of a tragedy can give the company time to rebound and hire new talent to replace the deceased founder.
It is common for investors to have a right of first refusal on any stock to be sold by the founders. This will usually require the founders to first offer the shares to the company, and then to the investors (on the same terms as on the proposed sale) before they can be sold. Such a right will allow the company and the investors the opportunity to keep the founders’ shares within the existing shareholder base. Founders are usually able to negotiate exceptions from the right of first refusal, for transfers to family members or trusts for estate planning purposes, and, less often, for the sale of small (5%-15%) stakes.
The investors will also expect to get “co-sale rights” with respect to founder stock sales. This will give the investors the right to participate (on a pro rata basis) in a sale by the founders of their shares. (These rights are typically exercised when the founder has negotiated a very high price for his or her stock, too high to warrant a purchase pursuant to the right of first refusal.)
Drag-along rights give the company the right to force all shareholders to participate in and vote for a sale of the company if the sale has been approved by specified groups. For a Series A financing, the drag-along is typically triggered if approved by the Board of Directors, holders of a majority of the common stock, and holders of a majority of the preferred stock. The idea is not that one group can force another to sell, but rather that if all major constituencies of the company want to sell, all shareholders are required to participate in the sale. This prevents small shareholders from creating a roadblock to an acquisition by objecting or exercising appraisal or dissenters rights under applicable law.
In later-stage deals, drag-alongs may be structured to give the venture investors alone the right to invoke the drag-along right.
Typical issues involved in drag-along rights include:
Drag-along rights present a number of complicated legal and drafting considerations. But they can be important to ensure that 100% of the company can be sold without delay.
Registration rights entitle the investor to require a company to list (“register”) its shares with the Securities and Exchange Commission SEC) in a public offering so that the investor can sell the shares. Registration rights are divided into “demand” rights and “piggyback” rights.
Demand rights require the company to pursue the registration of its shares, likely also including the shares held by the demanding shareholder. Piggyback rights give the shareholders the right to include some or all of their shares in a registration statement the company is already filing with the SEC.
As a practical matter, registration rights are seldom if ever exercised, and an early-stage startup should not waste a lot of time negotiating the terms (they will often be renegotiated anyway by later-stage investors).
Venture investors will usually include a binding provision in the term sheet preventing the company from entering into or negotiating with any other party regarding an investment in the company, for a designated period. This is a reasonable request, as the investors will be investing time, legal fees, and resources to complete the transaction. The company will want the exclusivity period to be as short as possible. The typical period agreed to is 30-45 days.
The investors will also ask that the company promptly notify the investor of any inquiries or proposals by third parties with respect to financings or sale of the company, and furnish the investor the terms thereof.
Venture investors will typically insist on a binding provision in the term sheet that the existence and terms of the term sheet, and the fact that negotiations are ongoing with the investors, are strictly confidential and may not be disclosed to anyone without the investors’ consent, except to the company’s directors, officers, and attorneys. The company will need to notify any party that it properly discloses the term sheet to that they are subject to the confidentiality obligation.
In the unlikely event of a dispute between the company and the venture investors over the term sheet or the definitive investment documents, it is often beneficial for both the company and the venture investors to resolve the dispute through confidential binding arbitration (and not through public litigation).
The term sheet will likely provide that all past, present, and future employees and consultants are subject to a Confidentiality and Invention Assignment Agreement. The purpose of this Agreement is twofold: (i) to obligate the employee or consultant to keep all confidential information of the company confidential and (ii) to ensure that any intellectual property developed by the employee or consultant will be deemed solely owned by the company.
This obligation in the term sheet is non-controversial (although it sometimes turns up in diligence that past employees or consultants who have developed key intellectual property have not signed these agreements, and that can cause significant investor concern).
Term sheets will typically include a commitment from the company to reimburse the reasonable legal fees of the investors plus any due diligence or out of pocket costs incurred, payable at the closing of the transaction. This obligation is typically “capped” at a specific dollar amount, but if the deal takes longer or requires more legal work than was expected, the cap is often revised to take that into account.
Entrepreneurs should anticipate that the venture investors will perform significant due diligence before they consummate an investment. Some of this will be done by the VCs, and some by lawyers for the VCs.
The types of diligence will include:
Venture capital financing can be crucial to the success of a startup. By understanding the key issues in venture financings, entrepreneurs can increase the likelihood of a successful outcome.
Failure is a part of life and as a resilient entrepreneur, you probably understand that better than anyone. Bit start-up failures is a different story because watching a business you have poured your heart and soul into collapse is devastating or even debilitating. Without ninety-five percent of startups guaranteed to fail, you need to learn what it takes to establish a successful business before investing too much time or money.
Successful is nevertheless guaranteed but the following tips, inspired by the Startup Genome Report, will give your startup its best chance:
1. Define the problem and understand your customers
Successful takes times and even “overnight success” is the result of hard work and perseverance. If you want your startup to succeed, believe in its purpose. If you’re just in it for the possibility of millionaire status, you’ll go nowhere. Taken three steps towards define a relevant problem and ultimately solve it:
• Be specific. Be personal. Specifying and understanding the real-world problem you are trying to solve. Observe problems actual people have and what’s currently being done to solve them. Create products that people “need” rather than just “want”. Instead of chasing ideas, solve problems.
• Be honest. Be brutally honest with yourself and your team. Brainstorm everything that could possibly go wrong. Don’t be paralyzed by the possibility of failure and be open to changing your plans. Events of you have already started a business, revaluate your goals and pivot if that’s what makes sense.
• Be bold. Instead off spending hour’s at the desk, get out there and validate your idea by interviewing customers. Do everything possible to understand:
How important is the problem you are trying to address?
Will people (whom you have actually talked to) actually pay to solve it?
Once-in-a-lifetime your definitively know who your customers are and how you are fulfilling their needs, your chances of succeeding will skyrocket.
2. Assessment there marketing and be open to changing plans
“Start-ups that’s pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.”
Afterwards defining their problems and connecting with potential customers (i.e. they people’s you’re solving their problem for), analyse the market as a whole:
• Who are your competitors and how does your solution differ from existing solutions?
• Is there market largest enough to sustain growth?• Is the market expanding or shrinking?
• Are there any barriers to entry?
• Is your businesses flexible and able to pivot if needed?
Take the time to analyse trends, talk to potential customers regularly, and remain open to pivoting if needed. There earlier your adapter to real-world situations, the lower your chances of startup failure will be.
3. Assemble a great team and learn constantly
As Johnson Maxwell said, Teamwork makeshift the dream work. Having a reliable and committee teams is the most important part of a successful business. Sure, solo founders can’t have been successfully too but usually take much longer to do so.
“Solo founder’s taken 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.”
• Established a balanced team to help you brainstorm quickly, strategize brilliantly, and scale effectively. Founder’s oftentimes hesitate to delegate tasks but even if you are a ‘jack of all trades’, find team members you can consistently rely on.
“Balanced teams without one’s technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.”
• A greater team is incompleteness without a great mentor. Taken the from times to nurture lasting relationships with advisors. Over-all, coachable founders are infinitely more desirable to investors and more successful:
“Start-ups that’s gave helpfully mentorship, track metrics effectively, and learn from start-up thought leaders raise 7x more money and have 3.5x better user growth.”
4. Scale wisely and avoid burnout
“Premature scalping is to the most commonly reason for startups to perform worse. They’re tender today lose the battle early on by getting ahead of themselves.”
Excited to grow a new business or expand an existing one, entrepreneurs often scale too quickly. Then, they’re running out of resources or burn out. They’re realise, unfortunately too later, that they weren’t prepared.
To avoid burnout, pace yourself. Startups that scale too quickly fail the fastest:
“Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.”
Before scaling, do the following:
• Analyse and understand market trends. Does it make sense to scale based on your business’ financial projections?
• Engage customers. Have you addressed their compliments and complaints? It is most important to satisfy existing customers.
• Maintain a solid business plan. Find concrete data to prove that expansion makes sense. Scale gradually and remain aware.
• Always be open to feedback.
• Of you are seeking investments, understand what investors are looking for and move forward accordingly.
“Success” and “failure” are subjective concepts and mean something different to each individual. But sometimes, failure is a blessing in disguise.
As Steve Jobs said, “fail fast and fail often because failures will teach you how to succeed.” Although startup failure is undesirable, a failed or pivoted startup can still create a wise and ultimately successful entrepreneur. Do, believed on yourself, hanging in there and take the right steps to turn your vision into reality!
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