In earlier articles, I discussed issues confronting early stage and middle market companies. This was in relation to Markets and Model, two of the Four Ms in Newport Board Group’s framework to help companies navigate through No Man’s Land.
Navigating through No Man's Land
In Austin I find early stage companies I have been working with have tapped family and friends and other incubators for start-up money. However what they often have not considered is that they will need additional funds sooner rather than later. Ironically the very success a business achieves drives the need for additional finance.
Expansion of the business puts pressure on the working capital they are generating internally (which is basically receivables and inventory net of payables). This drives demand for funding. At the same time businesses generally need to step up their capacity well in advance of revenue. That creates the need for additional financing, which likely must be longer term financing.
These dynamics are illustrated below.
The financial model that shows how the growth in sales and profitability drives cash demand is demonstrated ably in Doug Tatum’s bestselling book, “No Man’s Land, Where Growing Companies Fail.” Doug has kindly let me borrow the relevant diagram which is shown directly below.
Growth in profitability
Preparation will be key for a successful funding event. Let me give you some findings from my experience with companies that were interested in raising capital or being acquired. What I have often found when I have been on the buyer’s side of the table is a mismatch between the Founder/CEO’s team and the Buyers team. The problem typically was not the quality of the transaction advisors on the Founder/CEO team. The problem tended to be that the company was not prepared--so substantial value was lost on the sale price.
Here is an analogous situation: you have to go to court as a party in a serious law suit. You meet one morning with the best lawyer in Texas and his team. After a challenging discussion he and his team say they think on balance they can win the case. They ask when the case to be heard is. You say 2 PM this afternoon. Nobody would expect that timetable to work and you shouldn’t expect such a hurried transaction timetable to work either.
In the next article in this series I will explain steps in preparing for a transaction.
If you would like to learn more about how to navigate and break through No Man's Land, schedule a diagnostic to find out where your company stands. 
About the Author
Peter Duff is a versatile operating executive with a long record of accomplishments running a wide range of companies. As an EVP, COO and CFO, he has been responsible for significant improvements achieved in revenue, margins, expense and cash levels. Contact or learn more about Peter here.
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