There is no magic bullet that will insure that a company will thrive in a tough economy, says venture capitalist Chris Sugden. Small businesses, in particular, must be focused on growth even when the economy is slumping.
Sugden will discuss “Growth Strategies for a Tough Economy” at the next meeting of the Venture Association of New Jersey on Tuesday, February 17, at 11:30 a.m., at the Marriott Hanover in Whippany. Cost: $55. For more information call Clara Stricchiola at 973-631-5680.
A general partner in Edison Venture Fund, on Lenox Drive, Sugden leads the firm’s financial technology and services investment team. Since joining Edison in 2002 he has led 13 new investments and currently sits on the board of eight of the firm’s portfolio companies. He also identifies and evaluates new investment opportunities in New York and New Jersey.
Prior to joining the firm he served as CFO for the electronic billing division of Princeton eCom. Earlier in his career he was a founding executive for two magazine start-ups and Internet businesses. He also spent four years with PriceWaterhouseCoopers in the entrepreneurial services group. A certified public accountant, Sugden graduated from Michigan State University in 1992 with a bachelor’s in accounting.
Edison looks to invest in companies that currently have between $5 and $20 million in revenue and are looking for 30 percent growth. It particularly focuses on companies located between Massachusetts and Virginia. The firm makes initial investments in a company of between $5 and $8 million, with $6 to $10 million in total investment. Along with financial technology and business services, the firm also specializes in companies in the pharmaceutical business solutions, communications, and application software areas.
Focus on your market. Instead of a magic bullet, Sugden suggests focusing on practical advice that CEOs and business owners can easily put into practice. His first piece of practical advice for anyone attempting to grow a business now is “don’t focus on the doom and gloom news headlines. Focus on your market and your problems.”
Yes, the news may be bad, and there is a good chance that there will be more layoffs and corporate failures before things turn around, he admits, but not every business segment is in trouble. “You don’t grow your business 30 percent by focusing just on survival,” he says. “Focus on the here and now. What do your customers and current prospects want from you right now.”
Spend less than you take in. Yes, it sounds like a platitude your grandparents might preach, but in the end it works, Sugden says. “Make sure your expenses are below your income; plan on a 10 to 15 percent buffer between the two.” That way if the company growth is less than forecast, the business is still not likely to have short-term financial problems.
“It is much better to need to quickly hire new staff to catch up to customer demands than it is to need to lay off employees or cut spending,” he says. Keeping an eye on spending also makes it easier to raise money if necessary. “You don’t want to run out of money and be forced to raise it in a defensive posture,” he adds.
Look to your customer base. Investors look for companies that have recurring revenue streams, rather than one-time sales. “A technology company that sells a one-time licensing agreement must constantly be looking for new customers,” Sugden says. “Instead, it is better to build your business around a subscription fee or annual licensing plan. These types of plans create predictability for a company.”
Sugden suggests companies look to their existing customer base to drive half of their growth rate. “Selling new products or enhancements to existing customers is always easier than developing new customers,” he adds.
Don’t forget the Internet. “The web is a powerful tool for business owners today,” says Sugden. “I’m always hearing businesses owners say, ‘but our customers don’t search on the Internet for our product.’ It’s just not true. They are. You’d be surprised at the things people are searching the Internet for.”
He suggests companies invest in search engine optimization and search engine marketing. “Using natural methods of search engine optimization can be a very valuable tool,” he says. “It’s more than just putting up a home page. People use the Internet to research the problems they need to solve. You should make sure that your website offers meaningful solutions.”
Creating a site that helps your potential customers solve their problems is a “great way to market your products,” he says. In addition, “if you can afford it,” using Internet marketing such as Google Adwords is another excellent way to increase your internet visibility.
Look for new talent. Now is a great time for smaller companies to “snatch up talent that was way beyond their financial means a year ago,” says Sugden. “The bright side to the unemployment situation is that there is so much great talent out there available in sales and marketing, in research, and in every other area.”
One or two people can make a big difference, adds Sugden. “When you are talking about companies that employ from 10 to about 100 people, a couple of people can really change things.”
In most small companies the CEO and management team are all responsible for sales. “If you want growth, that’s not going to get you there,” Sugden says. “You need to expand and develop a sales force. Now is a great time to pick up those people.”
The bottom line for smaller business today is simple, says Sugden. “If you are not focused on growth, in any economy, you are in trouble. “For small companies growth is survival.”