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February 2011
2011 Imperative: Keep You Eyes On The Capital
By Sam Frowine

     Business owner, meet capital. Capital, meet owner. 

     Capital is one of the core elements of your business model. You know that. Capital is a foundation of every successful enterprise. Like every foundation, it needs to be reliable and strong.

     The winds have blown so long and hard and the ground has shifted enough that it’s time to make sure there’s no structural damage to that foundation.

     Enterprise leaders who are still standing can feel pretty good about our ability to fight the good fight. We’ve managed to stay on top of our obligations. We still have customers or clients knocking on our door—or at least answering the door when we knock.

     Maybe we’ve launched an innovation or two that captured the market’s attention. Our cash management strategy is still allowing liquidity and buying time. And we’ve trimmed a few pounds off the company’s waistline.

     In modern-day capital circles, we’re called survivors. We may not quite be on Easy Street, but we’ve still got our shingle out on Main Street.

     But if you’re like me, you’re also sensing something in the air, some telltale sign that we need to pay attention. Like parents, founding owners have a sixth sense about vulnerability or exposure. Our gut knows when something is going on and right now, I have an uneasy feeling.

     Here’s what it is: Our capital sources are unusually uncertain and testy.

When Capital becomes testy, we’d better be stirring, too.

     In recent months, I’ve made it a point to seek out and listen to capitalists. I’ve been trying to understand what’s on the mind of Capital and what that’s going to mean for private enterprise owners in 2011. My quick takeaways:

•Capital is skittish.

•Capital wants limited exposure and back doors.

•Capital wants it fast.

•Capital is pent up.

     Nothing revolutionary here. Capital has always liked to minimize risk and maximize return. Capital has always been opportunistic and pragmatic. But today, Capital is feeling as thwarted by economic uncertainty as you and I.

     What’s intensified in this season is the frustration on both sides. Capitalists are testy because they can’t find healthy deals that satisfy their low risk-tolerance and their high expectations. Entrepreneurs are testy when they miss opportunities because they can’t get their hands on the capital they need to manage their risks, to create opportunities, to innovate.

     The most significant imperative of 2011 for enterprise leaders is this: Keep your eyes on Capital—its health, its availability and its fluidity.

     Owners who don’t pay attention to the stability of their relationship with their capital partners may be shocked to realize, sooner rather than later, that their capital partners have folded their tents and gone home.

 

Think Like a Capitalist

You know the Golden Rule of Business: The one who has the gold makes the rules.

Owners who play successfully by this Golden Rule learn to think like a capitalist. When we understand the capitalist’s world view, the playing field becomes more level.

     •Fundamentals lower the risk. Capitalists want to know that we have a healthy respect for the lifeblood resources of the business. Lifeblood fundamentals lower the risk.

     •Think big pay-off. What Capital wants today is next to impossible. It’s afraid of missing the next Facebook but it doesn’t feel bold enough to speculate on the unproven. Offer both caution and the potential for exponential growth.

     •Fluidity beats innovation. Although Capital is risk averse, it still wants to know you aren’t static and have an eye for the future. When courting Capital, we must speak the language of fluidity and flexibility, while retaining the innovation and creativity that allows continuous adaptation.

     •Make it quick. Capital is more short-sighted than ever. Investors are no longer investing for 10 years; it’s closer to three years, with a way out. Bankers who once looked at three years are now thinking six months and proof of the pudding.

     •Visionaries are out, survivalists are in. Too much vision comes across as a mirage. Capital wants proven performance. Execution trumps vision.

     •No start-ups, no turnarounds. There are always exceptions. But don’t hold your breath for angels to arrive.

     •Capitalists pick their own charities. If they’re investing, they want a return. When they’re ready to give their money away, they’ll pick their own charity. And it’s not likely to be my business or yours.

 

Some Words of Encouragement…

     For years, I’ve talked to business owners about the need to become the capitalist to their own business by putting in place a capital strategy that drives liquidity out of their penny stock and onto their private balance sheet.

     Owners who built their strength as capitalists to their own business during the boom years have more options today. In fact, I see bankers and investors knocking on their doors. The owners who didn’t build their balance sheet outside their enterprise, well, they’ve either already left the dance floor or they’re wearing themselves out trying to keep up with the music.

     Talking about a capital strategy may sound futile for business owners struggling with the tyranny of landing business or making payroll. But a business that intends to survive should be paying attention to its capital strategy now. It’s not over till it’s over and anything an owner does to address capital issues could buy the time needed to stay in the game. And we all know the secret is to stay in the game.

     Content provided by Sam Frowine, founder and owner of The Performance Group, which works with business owners to build the value of their business asset, and Performance Capital Group, a boutique investment bank. For a complimentary copy of Enterprise Capital 2011 about implementing a successful capital strategy, contact him at 704-597-5156 or sam@theperformancegroupusa.com.

Founder, owner and President of The Performance Group, Ltd.
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