SUCCESS STORY - fanocks2003

fanocks-

I'm overdue in responding to this thread.

Kudos for posting it-- and for your accomplishments.

I think you'll find that folks around here will (hopefully) be more appreciative of your input now that we know a bit more about you.

As regards earlier issues, please bear in mind that many of us are exiles from a website that was populated by NNWKIAs (No Net Worth Know It Alls)-- people that dispensed LOADS of crappy advice all day/year long, acting like they had the experience to back it up (they didn't).

So I hope you'll excuse the very high settings on the BS filters of some of the other members around here (myself included). Some of us have a *very* low tolerance for those who dispense advice before they've introduced themselves.

Perhaps this is a sideways apology. Please consider this my delayed, but sincere, welcome to the forums.

-Russ H.

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"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

Just read this, Fanocks, you are a wonderful role model, I also love the tip of acting stupid to see who's trying to screw you over Congratulations on your success, and I wish you continued good luck!

Can you expand more on how you built the business. I like how you talked about the company being worth X, and selling shares to investors for Y, but I'd be pretty interested in the growing of the business, when you started at point A, and went from point A, to making your first dollar from the business, and how you expanded at each step.

Also, what other types of businesses have you done, and what type of success did you have with them? Is this your first big project?

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http://snowbank23.blogspot.com/

Please see the thread "Business CHALLENGE" where I describe the 8 step approach I use to build companies from scratch.

I have done import/exports, online marketing, health products (Herbalife). Now I am involved with finance. Next year the plan is to exit finance and go into beverages (the green tea beverage I have mentioned). I do jump from industry to industry, not because I like to be all over the place, but because I usually find something fun to do and many times these things happens to be in different industries. There is always experts in every field who can help you out in technical details so changing industries is not such a bad choice and it is not as hard as people may have you believe. It's rather fun and invigorating in fact.

The success rate in each field has been varied. I crashed the marketing company as mentioned. Every project does not go right up (to the skies) all the time. But at this point in my life I have learnt how not to get too deep into debt if things do go badly. In the beginning I was like everyone else starting out as entrepreneurs. It was expensive office, it was expensive this and expensive that. I operate very, very differently now from when I was, say, 18. Very different approach. My approach usually involves spending as little as possible to get as much as possible in result. In a startup you don't have the luxury of spending like a corporate giant. Your whole success depends on controlling expenses and getting revenue to come in.

One practical way of making money and not spending money on salaries is to find 1-10 salespeople and have them work on a contingency basis only. No fixed salaries. It is hard finding those people, because many people who want to sell your stuff can't sell so they usually never agree to the contingency demand (that would be financial suicide for them). But you need to find those unique salespeople. Never hire someone on salary in the beginning and you will have increased your odds of succeeding a lot. It is not a guarantee, but you will not go bankrupt in the process at least (if the product/service do not sell).

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money

Ya I did see that post. It's pretty interesting to me reading your posts since you are doing things a way most others don't do. If you have time to share, I'd definitely be interested in hearing step by step the details not in general, but in regards to your last business that you grew. From your original post in this thread, it didn't talk much about the actual business, but more about you setting up a company and selling the shares, but didn't say a whole lot about the process of how you got from point A to B to C, etc... in regards to that business.(example: we got our first customers here, and then I went here to hire this person because he could do this for our business, he was able to generate business from here, increasing the value by this, etc...) If you have time I'd love to hear about it.

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http://snowbank23.blogspot.com/

I would love to share more detailed stuff about the process itself, but right now your question is to broad for me to comprehend. Could you give me more relevant and to-the-point questions to answer? Would appreciate it a lot. Thanks.

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money

Thanks, sure. Basically, in your original post say things like this: "revenues is starting to come in and not only revenues but also investors wanting to purchase shares in the company (I have recently sold 1 million Ordinary shares at 20 SEK a share). Valuation at this date is (in SEK, please translate it to USD) 40 Million SEK"

How did you get revenues to start coming in? What type of revenues? How did investors start approaching you, and why you? In your steps you mention in your other post, you mention you need to prove you concept so others will buy into your idea before you start. How were you able to do this? How did the valuation of the company grow to 40 million SEK?

"I didn't know anything about the debt salvation business when I started researching it, but after a while (read: months) I started to see a certain weakness in the "shining armor". The main weakness I saw was: unreliable business players. So many people are fooled by "wannabe" players who will tell you they will help you out of your debt situation, charge you a fee and then dissapears leaving you poorer than when you engaged with them. I saw a possibility to create a company which really is reliable and which will honestly try helping you out in any way it possibly can. So that is what I and the CEO I have appointed, will try to do right now."

How were you able to notice they were unreliable, and in what ways? What aspects of their business? How were you able to get to customers and convince them you were the person to go with? How did you reach them? How did you do your CEO search? How did you convince him to join your company being your first big venture(I'm assuming from other things you wrote.) What type of deal did you have to give him, or was it mostly an equity deal on increased business he was able to generate?

"a valuation of 40 Million SEK for a business not yet in the red is not a bad number either."

What did you mean by this?

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http://snowbank23.blogspot.com/

I will take each question step by step:

1) How did you get revenues to start coming in?

Answer: By charging for credit counselling. Marketing was made strategicly as for lowering the cost of marketing. In this case through Employers. The Employers supported our cause and people came to us through recommendation.

2) What type of revenues?

Answer: See answer number 1).

3) How did investors start approaching you, and why you?

Answer: I had put out ads looking for investors on a swedish business marketplace online (where people sell companies, discuss with sophisticated and accredited investors etc). Then investors approached me from there.

4) In your steps you mention in your other post, you mention you need to prove you concept so others will buy into your idea before you start. How were you able to do this?

Answer: Proving a concept is all about showing revenue streams. If a business can make money and you can make $X for each service/product you sell and that revenue is higher than expenses. Then you will have proven your concept. It was the same thing with my finance company. Same process.

5) How did the valuation of the company grow to 40 million SEK?

Answer: Ok, let's make it simple. Say you have created 1 million shares and you sell one of those shares for 40 SEK a share. Then you will have a company valued at 40 Million SEK, even though an intangible value. Paper value more or less. It's like Bill Gates shares on the stock market, paper value. The only difference is that his paper value is tradable today. My stock is not, because it is a private holding. I need to find buyers the hard way for my shares. Usually through my own hunting efforts or through a company broker. How this process went with the financial company of mine is mentioned in the first post on this thread. We are not talking about a complex issue here.

We can take Facebook for example. Microsoft purchases 1,6% of Facebook shares for $240 Million. New valuation, $15 Billion ($240 Million / 1,6% = $15 Billion). Even though few others agree to that value (due to the lack of revenue and profit supporting such a valuation measured with multiples), the value is still there. The thing here was that Microsoft valued Facebook higher due to it's strategic value for Microsoft. It had nothing to do with revenues and profits. The same was the case with my financial company. The buy-in from investors had no real anchoring in revenues and profits (strategic investors make you richer on paper you might say, in cash to, if you sell your own shares). The investors who bought my companies shares (newly emitted shares. Money to the company in this case) saw something else than just plain ROI. I am glad they did.

Find the strategic investors and try to have the normal investors as a reserve, but never as a main choice.

5) How were you able to notice they were unreliable, and in what ways?

Answer: For starters, if you get paid and do not deliver or are very late at responding to paying customers. Then you can't help but wonder where their value is. It seems fishy and hence my judgement of them being unreliable. I also noticed later on (with the bad mouthing process against my company) that they are horrible losers too.

If you are late with delivering service/product then you need to let your customers know that as soon as possible. Many of the companies I have looked at didn't answer me back in 1 weeks time. I had to wait 2 weeks in regards to one other swedish company. I am not out to black list companies, but I find it odd that they have such a slow customer service. It is not in their best interest plain and simple.

6) What aspects of their business?

Answer: See answer on number 5).

7) How were you able to get to customers and convince them you were the person to go with?

Answer: With a good market offer. In this case we promised 100% of their money back if we didn't deliver good results in 2 months time. Seemed to work just fine. People enjoy being sure they get their value. Feed that security thinking process and things will get easier. Please see number 1) for further answer to your question.

8) How did you do your CEO search?

Answer: Manpower. Used their CV search and contacted interesting people on my own.

9) How did you convince him to join your company being your first big venture(I'm assuming from other things you wrote.)?

Answer: Well, I have seen all of my previous ventures as big as well. Unfortunately in the wrong way with the marketing company. The import business made good money though.

In this case, with the finance company, I actually got the CEO to purchase some of my shares. So this manager basicly became what is called a "manager-investor". Manager-investor is a manager who has bought his/her way into the business he/she will be running. In this case I was very, very lucky in another aspect too. It was not only the buy-in that was interesting. It was the CEO's passion for the subject I represented. She loved my idea so much that she actually worked for free a certain period.

I don't know if I am a good salesman or if I was lucky. Maybe charm played a factor, who knows. I let faith decide that for me. But I got it of the ground very cheap.

10) What type of deal did you have to give him, or was it mostly an equity deal on increased business he was able to generate?

Answer: See answer to number 9). I might mention the bonus compensation. The CEO recieves x% on profits quarterly. I believe in bonuses for managers as long as it leads to higher profit margins.

11) What did you mean by this?

Answer: I understand what you mean. The word "red" is a misspelling on my part. It should be "black" numbers of course. Sorry for that.

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money

Ya, this was definitely the most interesting part. From your original post that's what it seemed like but I wasn't sure, that you were selling a bunch of pieces of the company without the company actually being "worth" that. How did you sell a company that wasn't making money for 40 million SEK?(or however much you ended up selling for)

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http://snowbank23.blogspot.com/

I mentioned that in my previous post on this thread. Strategic value. There is a difference between investors and investors. All of them do not only look at ROI as their primairy criteria. Ask all of those business angels why they even invest in some of those unproven business concepts they invest in? Strategic value springs up somewhere. That strategic value might be the passion for the startup subject in itself.

In this case my company had some degree of revenue when people invested in it. But it didn't make a profit, yet.

Look at all of those loser companies that is listed on the stock exchanges. Many have revenues, but may still lose money (even though these companies may make multi million dollar revenues annually). Still investors invest in these companies: why?

A concept you need to study to understand how I could sell shares at a 40 Million SEK valuation when my company was still operating without profits, is by studying the valuation process of sales numbers (P/S = Price/Sales). If you have no profits, but do have revenue then the concept of P/S is used. There is SO many ways to value a company. An appraiser has so many tools in his tool box, you would be surprised. People are so stuck in this ROI talk. They miss a myriad of ways of how the world of appraising works. ROI is like a couple of percentages of the whole picture.

Some people (or businesses rather) even purchases companies with money problems, because they want to (could you believe it?). In Sweden you can, to some degree do tax deductions when buying companies that loses money. The idea is that if you buy a company and that company has an accumulated loss then that can be used as a tax deduction strategy in your own business. Strategic investors do these deals from time to time. The value is found in deferring tax burdens to later years when they can pay (hopefully) lesser tax on their gains. This is just one of a couple of legal tax tricks you can use in Sweden.

So maybe the investors who bought my companies shares, invested in order to take advantage of accumulated losses (startups are great places for people looking for accumulated losses. I guess that is no news flash for many people here). Unfortunately, if the tax strategy was their idea for investing, then that was not a big gain for them because profit levels soon became a reality in my business. But that only fuels another good thing: The new found existence of ROI. Isn't that great? Magic all around. Tax advantage one way, ROI on the other. What you know is what makes thing safe or unsafe. Sane or insane.

My company is making a profit today and I guess these strategicly minded investors where smart enough to see the real value before it was really there.

FYI, the value/worth of a company (or anything else for that matter) is what two or more parties agree it is worth. The strategic investors that bought a piece of the financial company (newly emitted shares) valued my company high. A Facebook scenario, more or less. This value is not only green hills for me, because like Facebook (even though Facebook is valued at a whole lot higher valuation), I now am in a bind. I need to value my company at 40 Million SEK every time I sell any shares of this company today or in the near future. If I lack the strength in profits to sell to a normal investor (who invest strictly from a ROI viewpoint) I need to keep profit levels at 4 Million SEK (at a minimum. And this equates to 10% ROI annually). If profit levels are lower than 4 Million SEK I would do better hunting for a strategic investor (someone in the same industry). Someone who would pay more than a multiple 10.

Lesson: When attracting investors. Try looking further than your profit levels. Not every investor are looking for a ROI proposition. Every investor is not molded in the same form. Some of them are looking for tax deductions and only tax deductions. Give it to them. See how much your business has in accumulated losses today (if you do not know that right now). Then find the prospects, use your business broker. Or ask your Accountant or even Lawyer.

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money

fanocks-

couple thoughts/questions come to my mind reading through this...

1. did you have a relationship with your investor prior to him investing?

2. one thing that troubles me. If you sold x # of shares for $500, that does not necessarily equate to all the shares having that value. This is not a cut on you, because you have done things far and above what I have. However, when you speak of net worth, I am always left with this questions. To put it another way, if I start a company and issue 100 million shares. I then sell 1000 shares at $1 a piece, this does not make me $100 millionaire. Really at this point, I am a thousandaire, and my investor is a speculator.

Do you have other value methods that you consider when looking at your companies value?

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http://www.feedyourfamilyfeedtheworld.com

I answer your questions one after another:

1) did you have a relationship with your investor prior to him investing?

Answer: No.

2) Do you have other value methods that you consider when looking at your companies value?

Answer: There are many ways to value a company. I mentioned strategic values like tax deduction opportunities. A more complex one though.

Regarding your view on valuation in regards to selling shares. I don't follow. Dragons Den, the program, the Dragons from time to time purchases shares in companies that are not yet proven (but they invest in stuff they like and believe in). They purchase say 35% of a business for £80,000 and hence the value of that company goes to £80,000/35%= £228.571. Then this value should not be the correct one (if I understand your point of view) and the value would be only £80,000 (for example)? Please elaborate further. Thank you.

What I can agree with you upon is the difference between share classes. Say, Preference shares should be worth more than Ordinary. In this case Preference shares should be sold at a premium (which they usually are). With me? Preference shares should be sold at a premium because they usually have better terms than Ordinary shares.

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money

Ya, this is definitely the first time I've heard of doing it like you're doing. I noticed in the first post you made(and I think throughout the thread) you never really mentioned any goals/intent to have the business making X amount of money, just getting them to a point where you could sell them. I haven't heard of people building companies with the intention of selling them without making them profitable first. I know people sell companies that aren't profitable, but it seems that you build a company with a certain structure, the type of structure that might allow someone else to take it on, but one of your main goals isn't actually making the company profitable, it's just selling it to someone who will pay for it. You mention the tax laws where you are making this something that people will buy even though it loses money, but I don't know if it'd work in the US. Maybe it would, no clue; would depend on if it was going to make money I'm sure, because I don't think here people would buy just to lose money to save on taxes if it was never going to make them money. More importantly, here I don't think people would buy so much on potential, because if a company is losing money that's when the buyers who might be able to turn it around could buy it for super cheap and make it profitable. Again, these are all assumptions as I haven't built a company like that, so just a lot of guesses by me. Just almost seems in a way like you might need to find a "sucker", or at least someone who doesn't know how to value it to pay a huge amount of money for a business that's losing money.(I don't mean that in a negative way towards you, just trying to convey what I'm trying to say since I think I'm just rambling)
Would be interested to hear more, and interested to hear from people in the US who know this subject since most people I've heard of, and even people on the forums here talk about building a company to make X amount of money so you can sell for Y times earnings, but haven't heard of someone building companies to sell while it's still in the red.

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http://snowbank23.blogspot.com/

Why wouldn't I want to sell at a profit? Of course I want to. I am just saying, if you have a company that do make a loss and you want to get out during that time, then the tax solution might one of many solutions. And I need to stress, I am talking about swedish tax conditions. I have no idea about your tax laws (US tax laws) so I will keep my mouth shut on that one.

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"Make as much as you can for as long as you can. Whoever has the most when he dies is the winner." - Lawrence Garfield in the movie Other People's Money