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It takes money to make money

As the saying goes.  Today I went with a client to an SBA lender meeting and some take-aways that I wanted to share from that meeting are:

  • Be willing to invest 15-20% of your own money into the business.  This means, if you are asking for $10k, then prepared to get $8,000.  No lender will feel comfortable investing in something that the founder doesn’t have “skin in the game.”  That means, if the founder doesn’t have whatever of their own money have to put into their project, then it implies that the founder isn’t convinced in the business’s success.
  • Have good credit.  This is mostly a gauge for lenders to determine how responsible the entrepreneur is.  For start-ups, there is no track record to base a lending decision on.  So the next closest track record is that of the founder.  Those with bad credit should consider having a co-signer.
  • Have collateral.  This is so that the creditors have something to get if things go south.

That said, sometimes, it does not take hundreds of thousands of dollars to launch.  This great infographic made by Anna Vital at FundersandFounders.com shows the starting capital a few well-known companies started with.

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Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did no. So throw off the bowlines, sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover. – Mark Twain

Dream big

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David vs. Goliath the story of Netflix vs. Blockbuster

Over the weekend, I was doing some industry analysis for a client. She had a great idea, and a novel one at that. Well, it turns out that there was one other company in the same niche. A direct competitor…that has the early mover advantage. This reminded me of David vs. Goliath the story of Netflix vs. Blockbuster.

So what do you do when you’re the new kid on the block?  Like anything else, with lots of hard work and a great deal of luck.  Let’s look at the case of Netflix vs. Blockbuster for guidance.

In 2004, Blockbuster was the proverbial Goliath with about 9,000 stores globally and revenues of over $6 billion.  Netflix was David and had started just 7 years prior.  Fortunately, it had several things going for them:

1.  Hard work

  • Competitive Advantage – Netflix’s algorithm takes user ratings on movies they rented and then makes recommendations for other films that they might like, including movies that the viewer may have never heard of.  This rating-based recommendation is very commonplace now (seen everywhere from Pandora to Amazon), but in 1997, Netflix’s algorithm was a competitive advantage.  Viewers get recommendations they really enjoy, customer retention & satisfaction increase, and money comes in.
  • Constantly Improve – One of Netflix’s criticisms is that DVD delivery is often slow.  Creating a logistics and inventory management system that receives orders and quickly sends out products, in addition to receiving returns and repackaging for reshipment, was key to customer retention & satisfaction.  Netflix is still staying current by moving from DVDs to streaming VOD.

2.  Lots of luck

  • Competition was Flat-footed – Blockbuster kept the same mentality of a 1985 video rental shop.  They held on dearly to their late-fee revenue source, and its high fees and strict enforcement soured customers’ views of the business.  The late-80s/early-90s business model put them behind.  All they did was immitation.  In 2005, they finally did away with late fees.  In 2009, they introduced Blockbuster Express, a DVD rental kiosk designed to compete with Redbox.  By now, customers are streaming videos and renting DVDs at kiosks, while Blockbuster is trying to offload their many stores.
    • Additionally, Blockbuster did not consider the rapidly expanding prevalence of broadband internet in US homes. By 2009, 68.7% of US households had broadband internet. Also, in 2008, the Broadband Data Improvement Act, a bill to improve the quality of federal and state data regarding the availability and quality of broadband services was passed, ushering a digital highway for movie streaming.
  • Competition Thoughtlessly Expanded – Blockbuster rapidly expanded, adding its 1,200th store by June 1990 and 9,000 stores worldwide by 2004.  They wanted to be the biggest.  And fast.  They filled their stores with not just movies but video games, candies, and other goods.  Unfortunately, all these stores require operating expenses.  Operating expenses that were greater than the gross profit (i.e., Revenues minus Cost of sales).  Also, among many stumbles (which is much too long for this post but I put some references below so you can read to your heart’s content) is they failed to anticipate how media consumption will change.  From analog to digital.

Fast forward to today, Netflix has a share price of over $400, revenues of $4.37 billion USD, and over 2,000 full-time employees.  Blockbuster is bankrupt. David had defeated Goliath.

However, like most engaging stories, the end is never the end.  Dish Network purchased Blockbuster and its remaining 1,700 stores on April 6, 2011 for $233 million and took over Blockbuster’s $87 million in debt and liabilities.  Dish now continues to license the brand name to franchise location, and keeps its “Blockbuster on Demand” video streaming service and the “Blockbuster@Home” television package for Dish subscribers.  Maybe this strategy to resuscitate a nearly-dead brand  sounds foolish.  However, so did mailing out DVDs.

For more info:

http://www.referenceforbusiness.com/history2/93/Blockbuster-Inc.html

http://www.ibtimes.com/sad-end-blockbuster-video-onetime-5-billion-company-being-liquidated-competition-online-giants

http://www.fastcompany.com/1690654/blockbuster-bankruptcy-decade-decline

http://www.getfilings.com/o0000930661-02-000951.html

Click to access BBI_10_K.pdf


Contact us for help with Industry and Market research so you can make the right decisions for your company.

Dare greatly

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“Great” means different things to different people. To some can be it opening their own Laundromat. To others it means to completely change an industry. Whatever you do, be the hero of your own story. And make it a great one.

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Technically it’s page 2 but you get the idea

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The year is winding down and New Year’s Resolutions are coming. So…

Clients

Over the past few years I’ve had the great pleasure of helping many clients create and expand their business.  Here are a few projects I have been fortunate to work on.

9 bar

9 Bar Roasting is a coffee kiosk in one of the busiest intersections in Los Angeles — Hollywood Blvd. and Highland Ave.  I wrote a business plan for 9 Bar Roasting so they could move into an existing business.

 

adrADR Solar Solutions is a solar panel installation company based in Woodland Hills, CA.  Among their many projects they are credited with the largest residential installation in the world — at the 6,000 sq. ft. house of esteemed green architect Mr. Carl Harberger.  I wrote a business plan to help ADR expand their current operations to a retail space in Calabasas.

 

dgaplusDGAPlus is a specialty firm providing innovative strategies and solutions that meet the many requirements of enterprise utility companies and agency partners.  I created a business proposal for DGAPlus to present to partnership targets to incorporate their patented systems. 

 

 

her houseH.E.R. House is a private women’s only lifestyle club in Newport Beach, CA.  I made a business plan so that H.E.R. House could find the startup capital and equity investors needed to launch this rather large operation.  Coming soon.

 

maitri Maitri Yoga Store is a yoga clothing  and accessories specialty store based in Culver City, CA.  I wrote a business plan for Maitri so it could attract startup capital from lenders and investors.  Open Feburary 2015!

 

 

 

 

hakeemSkyview Consulting Group is an advisory firm based in Beverly Hill, CA, specializing bringing foreign companies into the US.  I wrote several business proposals for Skyview to help them with a roll-up strategy for multiple business sectors in the Antelope Valley, Santa Clarita and surrounding areas.

It doesn’t matter where you start. What matters is where you are going

Could you go from homeless to CEO of your own company?

CREDIT: Ye Rin Mok

In 1989, Gabriel Bristol was a homeless 19 year old on the streets of Lansing, Michigan. Mr. Bristol wasn’t just a kid that ran away from home. His education in the school of hard knocks began at age 5 when he taken away from his birth mother. His earliest memory of her was when she was being booked at the police station for prostitution and heroin charges.

Picked on in school for being gay.  Raised in the foster care system.

Now he is the CEO of Intelicare Direct, a call center with over 300 employees. Of course it didn’t happen overnight.  He worked.  He failed.  He suffered.  He succeeded.  Read the rest of his inspirational story here.

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