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There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring – Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing – A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) – This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

It’s easy to determine the exact cost of financing and obtain an increase.
Professional collateral management can be included depending on the facility type and the lender.
Real-time, online interactive reporting is often available.
It may provide the business with access to more capital.
It’s flexible – financing ebbs and flows with the business’ needs.
It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?

Awhile back, we wrote an Industry White Paper titled “Market Technology: The Missing Link.” In its simplest form, Market Technology outlined a methodology, which advocated that a company’s market program (effectiveness) was, as critical as, the product and services that a company engineered.Possibly, more important – especially for small-to-medium, sized companies that had to get it right out-of-the gate and did not have the margin for error that larger firms have. Market Programs can make or break a firm. This article discusses a process orientation to define/develop effective, Market Programs, which can impact several areas:Vertical Industry/New Market Development
Product Launch Introductions/Roll-Outs
Competitive Attack Campaigns
Target Account and Opportunity Base Development
Distribution Channel & Strategic Alliance Development/StimulationAs we overview this process, it is necessary to insert a critical role in the organization – the Market Programs Designer. No matter what your firm calls this role, it is essential to have a defined “owner” and skilled individual on staff that can translate critical business insights into effective Market Programs. Without this, your organization will be driven by bold ideas that stumble along or go nowhere.This is the primary reason that many CEOs are reluctant to put the power stick in the hands of Marketing and invest. If they have been let down by the lack of results in past efforts, it only makes it more difficult for the Marketing Team to have a voice. This may explain the reason that Marketing defaults to trade show coordination, product support, lead generation and collateral development, as their primary focus in many organizations.Here is a summary of the process steps to feed/fuel effective, Market Programs development:1. Research Phase (Doing the Homework) – this does not have to be a strict, empirical study. For each program, a range of outside sources should be tapped to obtain or reinforce the insights needed to develop a baseline program profile.For example, if the focus is on New Product Introduction, then engaging with Industry Associations/Groups that cater to your target segment (niche) and key customers and prospects (and even some ringers – competitors’ customers that selected them over your firm) can be engaged to gain critical insights. Cover your bases – obtain pure, unsolicited responses on Market characteristics, buying attitudes, evaluation/selection criteria, price points, problem-set, perceived or derived benefits (from use), key applications, packaging considerations, economic factors, competitive influences (tactics, options, alternatives, etc.), timing, cost/return considerations (breakeven scenario), roll-out incentives, etc.This can be garnered in thirty days or less and once you develop a knack, it can become a continuous process. Once the data is collected, have some of your “bright lights” interpret and translate the various inputs into a general Profile. Make sure that this step is not contaminated by individuals that will either incorrectly translate the data or influence it to be what they want it to be. That will only result in ineffective program definition, as we move through the process. Imagine implementing a Program where the timing or other factors were flawed or misjudged – it happens and it results in a bust program.2. Program Profile – the profile is the baseline that will direct you to the make-up and elements that will fuel and shape the Market Program or campaign. The profile is a composite of the results of the research phase and the translations/interpretations that were made.Example: Let’s say that your front-end, research indicated Middle Management (those with the problem to solve), within target accounts were ripe for change (given the capabilities of your new product launch), however Senior Management was uncertain or found it difficult to introduce change into the organization, at this stage. To ignore this input and launch a new product targeted at Middle Management (user community) and not factor-in sentiments of Senior Management and timing of launch – may be detrimental to program success.Certainly, a necessary element of the program may be to conduct an educational webinar for Senior Management or to develop a series of Industry briefs that could bring them up to speed. Each element that was derived from the research phase must be sorted-out this way and then transferred to the Program Profile. When each element is outlined, it is then necessary to evaluate and select the overall, make-up of the campaign.This would involve priorities and trade-offs, based on what would work with the target audience, funding availability, resource loading, desired or needed results (tangible and intangible), market readiness/demand, competitive barriers and other factors. These indicators will lead the Market Programs Designer to make the necessary selections on the vehicles and platforms that make-up the campaign.Example: If the target market (segment) for the new product launch is the Avionics Market (Airborne Platforms) – with emphasis on surveillance and reconnaissance applications and Program Managers and Engineering Management being the key prospects – it would be doubtful that Twitter or Facebook would be selected, as critical elements. LinkedIn might be an element of the program, however depending on your internal trade-offs (like sense of urgency and budget availability) – E-Mail Marketing may be chosen, as a lead.Direct- response programs, Webinars and other direct vehicles may also be selected to support the program. These are the type of considerations that must be brainstormed to derive the Marketing Mix for each program or campaign. We prescribe integrated marketing programs that combine different program elements into one campaign, although this must be well-grounded and justified. Each campaign must also have “metrics for success” that will set the targets to be realized and attained.Examples: to support the product launch campaign, the following target objectives might be set (tangible) – to generate $1.5 Million sales over baseline, due to new product launch, by December 31, 2011 or (intangible) – to achieve best in class reward at upcoming MTI event for new product introduction.3. Implementation – whether you represent a large company, a small-to-medium, sized firm or start-up – conduct a pilot phase to a well-rounded, target audience to iron-out the program, before full product launch.This will allow you to gain valuable insights that can be factored-in to strengthen the overall, make-up of the campaign. Obtain key insights not only from prospects/customers, but also members of the Sales/Support Team and Distribution Partners prior to formal launch. Their insights will make a difference and in many cases – they are the implementation arm that will drive your program to success. This approach will breed ownership. Enroll them early and often and provide them the right combination of motivation, recognition and reward.4. Management and Reporting – to reinforce the point – assign an owner to each Market Program or campaign for the program life. This individual will be accountable for all aspects of the program, serve as, a focal point/interface to both internal and external program participants and manage and provide program linkage.Program reporting must be simple, useful and not imposing for program participants. The emphasis is on generating information that will determine how effective the campaign is (at different stages) and capturing vital and timely data to make mid-course, program corrections. The program owner must be an individual that has respect, within the organization and has power and clout to get things done.5. Program Continuum – although most programs and campaigns have a life-cycle, it is necessary to note that the Market Programs process is self-perpetuating. As a program goes through different phases, there may be occasions where a program needs to be refreshed, redefined, combined with other initiatives or programs or obsoleted.6. Putting it all together – An early-stage, technology provider decided to change its focus from varied commercial markets to the Defense and Military Market with emphasis on training and simulation applications. Their business suffered from a lack of focus and a range of discrete commercial projects that provided no sustainable base of business. The company secured several projects directly with large, Defense Contractors and could see the potential of establishing its innovative, 3-D Simulation Platforms, as a standard within this large and potentially, rich niche.Their dilemma was that the company and its technology were literal unknowns and they were not well-connected with the TOP Defense Contractors/Integrators, and Program Offices/Agencies that were key to their success. The company was in the midst of introducing a 2nd generation platform that not only would change the rules, but also determine the survivability and continued success of the operation. Where to start?Step 1: the company conducted a front-end, research effort to identify the TOP 50 Defense Contractors (cross-division) and the companion Program Offices/Agencies that represented its prospect set. This included full contact data on Program Managers and Engineering Management – the primary target audience.Informal sessions were conducted with a prospect sample to gain insights into current methods of training/simulation, competing alternatives, price bogies, applications emphasis, budgetary cycles, funding allocation priorities, etc., which provided a base of understanding. The information collected was then translated/interpreted by company principals, with the help of an outside, Industry specialist.Step 2: a baseline profile was developed, which outlined the key elements captured in the front-end, research. Primary insights revolved around the buying attitudes/opinions of the target audience, strength and weaknesses of competitive offerings (included in-house solutions), cost/pricing considerations, delivery vehicles (web-based, preferred portable devices, etc.), risk profile of prospect audience (would they buy from a small, unknown technology company), budget availability and timing, etc.This output also paved the way for determining the “right” program mix and fueled the positioning/messaging and format that supported the program.Step 3: the program was implemented with the following elements:-3-Phase E-Mail Communique – this segmented campaign introduced the company and built awareness and credibility, as a dedicated Defense & Military technology supplier. Phase 2 outlined the technology with example applications, based on real customer projects, with the 3rd mailer setting-up the target audience to attend a powerful, problem-solving webinar – which encouraged potential customers to bring some of their toughest problems to solve.-Media Coverage – featured interviews and contributory articles were set-up with major, Industry publications to reinforce the company’s commitment to the Defense & Military Market and promote its new product introduction.-Target Account Development – direct sales efforts were directed at the TOP 10 Defense Contractors/Integrators (cross-division) and selected, Program Offices/Agencies – LinkedIn and other social media vehicles were leveraged to reach and engage with target prospects. A well thought-out and executed plan of attack to crack these accounts open was put in-place.-Distribution Channel – to broaden the company’s coverage and build a rich, opportunity base, an active recruiting and selection program was initiated to create more “feet on the street.” The selected Reps were well-connected with the target audience and conversant in simulation and training systems.-Collateral – creative material was developed to support the campaign – with emphasis on Customer Project Profiles – many of which were implemented on iPad and other portable media devices. This allowed the company to reach a broader audience and “strut its stuff.”Step 4 – a Senior Manager was assigned Program ownership. Reports were generated bi-weekly at the start of the program, which was extended to monthly, as the company gained more experience with the program. As the company ramped-up its new Distribution Partner Network – the reporting requirements became more diverse, but meaningful. There were several shifts in the program format, during the campaign based on new insights that were derived from prospect and Rep Partner inputs.This particular program is currently in-motion and will be driven for the balance of 2011. To-date, the program has created an active forecast and rich, opportunity base for the technology company, put them in the media forefront, established them with key contacts, within the TOP 50 Defense Contractors (cross-division) and netted them Industry awards for the impact their simulation and training platforms are having on redefining standards and for their innovative use of portable media devices to demonstrate product capabilities and application benefits.So – how’s your Market Programs methodology holding-up in this tough-as-nails, Market Economy?