Fastlane to Start-Up Success

Many people fail when starting companies. Many people fail because they do not know the drill. They have no clue whatsoever how to build a company and walk away with multi-millions in the end.

Let me shed the clouds for you. When starting a company, your main aim should be to create something better. Something bigger, something lighter, something faster etc.
Even something cheaper (even though I encourage people to focus on the value instead of the price difference. People want stuff that works, cheap stuff rarely work for long).

The keyword here is: "Something different".

Creating something different is not the hardest part. That's the simple part. Everyone can dream up something weird. It just requires a great imagination. Some people have this skill, some people don't. But most of us do have it.

The hard part comes when we are to prove the commercial side of things. When you have come up with the newest (and obviously best choice) product, then you want to sell it. You want to make a mint on it. But how? What is the path?

The path is this (my way):

1) You buy a DM (Direct Marketing) list. Say 10,000 unique names. You need to buy a specialized name list only. Because you want a targeted crowd. A crowd that is clearly in to your kind of products because they usually buy this kind of product from time to time. If you can offer them a better deal, then you have business. Then you have income.

2) Step number 1) is what I call "proving the commercial concept". You have proven to the world that people are willing to purchase your product for the price you have set.

3) Step number 1) leads to step number 3) which is licensing. As soon as you have proven your product in the market, then you have a smashing hit to license abroad. In foreign countries. On this stage your ultimate aim is to sell a license to existing companies in your field. You want these companies to pay you a minimum guarantee amount (order a certain amount of products) every quarter so as to guarantee an on-going cashflow stream. If these companies purchases more than the minimum guarantee, fine (great even). If not, you still have a guaranteed order amount to expect. You get companies on guaranteed amounts by giving them exclusive rights to their particular market. You secure that particular market for them. That is a great value for the distributor.

4)On step number 4) you are in a position to contact an investment bank like Merrill Lynch, JP Morgan etc and tell them you have this company you want to sell. Then have the investment bankers sell your company to the highest bidder (investment bankers usually contact existing companies who are looking for companies to purchase. The more bidders the higher the price you might get).

Say you have $5 Million in pure profits each year (due to the many licensees you will gather), if you have an investment banker on board selling your company, you will be able to get at least 10 times profits (that is $50 Million pre-tax). Why is that? The investment bankers are prone (due to them making more money on it) to contact strategical buyers. That is, buyers interested in synergies before short-term profits. Strategic buyers pay more for companies due to the possibilities they see, that other investors (who are looking for ROI pure and simple) can't see.

One example of this is the Ebay VS Skype deal, where Ebay paid somewhat 30 Billion SEK for Skype. Making the owners of Skype pretty loaded on money. Skype had 50 Million SEK in turn-over (not pure profit) at the time of sale. According to the newspapers. That is the magic of great investment bankers, a buyer with eyes for synergies and a big, fat buyer account.

So the formula in short, is:

1) Test the product/service in a small DM campaign. If it sells, go to step 2). If not, test a new product/service.
2) License the deal to foreign countries on exclusive distribution terms.
3) Find an investment bank to sell your company to a strategic buyer.
4) Exit.

Start over with something new and live of the money you have gathered. Live on 1/1000th of the after-tax sum and you will have money for 1000 months (or 83 years). Money for the rest of your life even if the next company went belly up.

As Mark Cuban said: "You only need to be right once". And he meant in business.