Latest Blog Posts

RSS Feed for Shaf Rasul's Blog Subscribe to Shaf Rasul's blog.

  • Looking for synergy

    Saturday 21st November 2009

    Looking for synergy

    It’s very interesting to think about HP taking over 3Com.  Any entrepreneur knows that when they are buying companies they are looking for a good fit between the two companies.  HP finds a product, market and strategic fit with 3Com.  It will double its presence in the network equipment market, expand its international market in China and strategically take the war to Cisco in this market. It also expands its business into more profitable areas than its massive PC business.


    This search for synergies works too for small businesses as well.  In order to buy the right businesses into their portfolio of companies, entrepreneurs look around for companies that fit.  Perhaps they use the same suppliers, sell to the same market or even the same customers.  Perhaps you offer each other a new channel to market.  For example, would a click through from your web site direct to theirs increase sales and vice versa?  Would it work to virtually combine the two web sites? 

    Perhaps it’s something about having the expertise you already have on board that makes an opportunity seem right.  Suppose you have built up skills in, for example, Web selling and viral marketing. That could make a target business look attractive if once you had bought it you could increase its rate of growth by putting your people with those skills in to help the new business partner forward.

    How do you find out where this synergies lie?  Well, you read the papers and technical journals and eventually you talk to the managing director and owner of the business of course: you research their web site and perhaps talk to one or more of their customers. 

    But don’t forget the front line troops.  Speak to the people who really know at the sharp end what the opportunities in the business are.  Talk to the salespeople, for example, they’ll almost certainly say things like, “If we only had product B as well as product A we could do a lot more business.”  Speak to the people doing the purchasing and you’ll hear something like, “We could almost certainly get a better deal on a number of items if we worked with a new supplier; but we are very tied into our current supplier and senior management don’t want to change.” 





    Tip from Shaf – supplier loyalty

    The worst answer to the question “Why are we doing business with these people” is “Because we have been doing so for years and we have a good relationship with their people.” People have a huge inertia caused by their relationships with their current suppliers.  Two lessons here:

    1. Don’t let it happen to you.  Make sure that all your suppliers are aware that you are consistently looking for cheaper ways of buying the products or getting the service.
    2. Look for opportunities to shake people out of their inertia by offering better terms.  A taxi operator I know offered a perfectly good service from a town about 15 miles away from Heathrow taking business people to the airport.  He got an appointment at a big company in the area and offered to undercut their current supplier.  They were nice but used the ‘long time… good relationship…’ argument to turn him down.  He went back as the credit crunch started to bite and got the business.



    The right business to buy next is the one where you can get it to quickly take a giant step forward in sales and profits through its synergy with your other businesses.

  • What’s your business worth? Part 4

    Monday 9th November 2009


    What’s your business worth?  Part 4

    Right, we’ve said that a business is worth what someone will pay for all or part of it.  The key to proving the potential value of your company to an investor means not only selling the idea but selling yourself as well.  Truth be told, I invest in people as much as I do in ideas and products.

    It’s surprising to me how many people come into the Dragons’ Den with a very poorly prepared presentation of themselves.  Some so lack structure that we have to ask questions just to find out what the product is and what benefits it offers potential customers.

    So, what sort of presentation are investors looking for?  To begin with there’s a quite simple opening - I would like you to invest £x in my business.  We all know that you are looking for a sum of money so you might as well air that right at the beginning.  In the Den we expect the person at that stage also to tell how much of their business we will be buying.  With other investors you might want to leave that for later negotiation.  It’s a bit early to make your fist bid. 

    Now give a bit of background into the market you are attacking.  (Notice the market at this stage, not the product.)  Keep it short because investors will get frustrated if time passes and they still don’t know what you’re selling.  But knowledge of the market and how you got it is much more impressive than the detail of how your product works.  So, you have put into our minds the fact that a lot of people out their have a problem or a need and that you have a solution to that.

    Now tell us a bit about the product itself and demonstrate where appropriate.  Make sure you knock investors out with the weight of the benefits your product brings to the people who will buy it.

    Now to the numbers, what are your margins, what are sales to date where do you expect to be without further investment in say one year’s time and so on.  Give evidence to back up your assertions wherever you can.

    Move next to what you plan to do if you do get an investor interested.  Is it just money you want or expertise as well?  Take care to be realistic about how much time you will need from the investors themselves.  They can have lots and lots of money but they only have exactly the same amount of time in the day as everyone else.  Tell the investor exactly how you will use the money and why that will cause the huge upswing in sales and profits, that hockey stick again, that investors are looking for.  Then try to close the sale by asking for the money again.  That will get the questions going and then its up to your ability to think on your feet.



    Tip from Shaf – Time is more than money

    If you want a mentor or someone to lead the company forward then you will have to pay for it with lots of equity.  If your presentation makes it look as though you can more or less do it on your own with only occasional intervention from the investor you will probably keep a lot more of your company to yourself.




    If you’re passionate about your idea don’t let yourself down by presenting it badly.  Do the preparation and be prepared to prove your assertions.  Show what your business is worth.


  • What’s your business worth? Part 3

    Friday 30th October 2009

    When you approach an investor looking for them to put money into your fledgling business you must have a good idea of how much you want the investor to put in.   I prefer to see it as how much you need the investor to put in to allow your business to grow to its next stage.  You should also have in your head how much equity in the company you are willing to give for that level of investment.  This gives your business a nominal value.  I say nominal because if your business has not yet made any profits, by the price/earnings ratio method of valuation it’s worth nothing.   Find out what your proposition should be by going through the same series of questions that investors will go through.  In other words, try to see it from their point of view.

    Bring to the meeting answers to these questions:

    Product or service:                

    • In what way does your product offer customers an improvement on what they have now, and what do you think they will pay extra for that improvement?
    • If your product is completely new, what new benefits will it bring to customers and what do you think they will pay for those benefits?
    • What have you done in the area of patents or intellectual property rights?  You may not have done much but at least make sure you know something about how to go about the process.


    • Who are the potential users of your product?
    • How many people fall into that category?  (Make sure it’s a lot; investors want scalability: remember the hockey stick)
    • What are the potential routes to market?  Think widely about this, consider international markets, franchising, licensing, using the Internet and so on.  Don’t just think that your first idea is the only way to go.


    Sales and costs

    ·         What estimate can you give of the sales you will make in the next two years and the associated costs of producing the product or service? 

    ·         How will these numbers differ if the investor puts money into the business?  Make this estimate sensible not fanciful but make it as big as you dare; we’re not interested in small.

    Value the business

    Now you are in a position to value the business.  Start from how much you need the investor to put in and take into account the profits you forecast. Come to a conclusion, once again sensible rather than fanciful, but go high, make it stretching.  After all it’s going to be hard work so it’s got to be worth the bother.  If you want a rule of thumb make sure the investor will double their money in at the most two years.



    Tip from Shaf – Evidence, evidence and more evidence

    Prove your assumptions in as many places as possible.  A product endorsement from a potential big customer can be worth a lot.  A contract, or even a Letter of Intent is better than a sales figure plucked out of the air.  Some documentation from the Patents Office shows your seriousness and so on.  Think of every assertion you are going to make and ask yourself how you can prove it or show that you have thought that through. If you haven’t got evidence ask for a postponement and work on it.



    After you’ve done numbers the rest is up to you: how well do you sell the opportunity.  Any investor, like the Dragons, will value the company by valuing you.

    That’s what we’ll look at in the fourth blog in this series. How do you sell yourself to an investor?

  • What’s your business worth? Part 2

    Sunday 25th October 2009


    Let’s go up to the top end of company valuations, the value the stock market puts on the shares of a listed public company.  This can be very volatile.  If a number of people are selling blocks of shares in the same company, its share price may well go down.  If lots of people want to buy shares the share price will go up.  This changes the value of the company on a day-by-day, or actually minute-by-minute basis.  That value is often called the capitalisation of the company and is a simple calculation - the price of a share today multiplied by the number of shares.  You can read that value in the financial pages of the newspapers. 

    Don’t forget that the value people put on public companies listed on the stock exchange is just the same as an investor in small and medium sized enterprises.  It reflects investors’ opinion of the ability of the company to grow profits allowing them to pay dividends and increase those dividend payments in the future.

    Another wee bit of revision from last week’s blog - remember that the best indicator of the value of your house was to look at what people paid for similar properties recently.  So the best indication of the opinion of the professionals working in the stock market as to the value of a company is to look at what recent investors paid for the share.  You get that too from the business pages.

    So how does an investor use this information?  Well, they know yesterdays share price and they can find out what profits, often called earnings, the company made in the last year from the company’s web site.  Divide the share price by the earnings per share figure and you get a key ratio known as the Price/Earnings ratio, the P/E.  Knowing how this calculation is made is useful; but investors don’t have to do it for themselves because the journalists on the financial pages have done it for them.  You can read the P/E on a daily basis in the papers or on numerous sites online.



    Tip from Shaf – Learn the basics

    If you want to learn more about reading the financial pages or interpreting a company’s annual report there’s an excellent book on the subject - Smart Finance by Ken Langdon and Alan Bonham published by Capstone.  




    So how does knowing the P/E help the investor to evaluate if a company has little or large prospects for growing its business and its profits?  If the market believes that the company has steady growth prospects the P/E will be low, if the market expects the company to kick up a storm in the future the P/E will be high.  So, a utility company could have a P/E as low as, say, 5 while the market might believe that a high-flying software company might look such an attractive growth prospect that shareholders will still buy the shares when the P/E is as high as, say, 40.

    Now in the Dragons’ Den we can get the information on one side of the P/E ratio by asking the person looking for investment what profits, if any, the company made last year.  But we don’t get the other side of the equation because nobody has bought shares in the company recently – there is no share price.  So, that’s what we are trying to assess when people are presenting to us, what is the company’s real potential for growing profits and when is that growth likely to take place.  This allows us to have a stab, if you like, at calculating a fair price for the share.   After all, we are at the start of the chain of company growth that eventually produces the public limited companies of the future.

    The next blog will look at what you can do to prepare yourself to impress a potential investor and give yourself the best chance of getting the money.


    Valuing a company is much easier if you can detect what experts think is its likely future performance



  • What’s Your Business Worth? Part 1

    Friday 16th October 2009


    Into the Dragons’ Den came a chap with a proposition to sell us 5% of his business for £20,000.  I checked that he understood what that meant in terms of his current valuation of his business.  He was well aware that it valued the business at £400,000.  To be honest some people who come in have not done the simple calculation of working out that figure.  If, in this case, 5% of the business is worth £20,000 then the whole business is worth 20 times that.  The revenues of the business were £7,500 in the past year and the profits zero so can that valuation possibly be right?

    Funnily enough it might be. 

    So how do you value a business?  I’m going to tackle this topic in three blogs starting from this one that concerns start-up companies and small businesses that have been trading for a while.  We’ll get to quoted companies in the next blog and finish off by looking at how to get your company to have the highest possible value, preferably just before you sell all or part of it.



    Tip from Shaf – Getting investors

    Make sure that you can explain to a potential investor how their money gives you the opportunity to massively ramp up the amount of business you are doing.  Think of the shape of an ice hockey stick put on a graph.  It goes fairly straight for quite a while and then suddenly takes a rapid upward nearly straight line.  Investors want to invest at the point on that hockey stick graph where the business has the potential to turn the corner to rapid growth.



    To understand how to value a business, start from thinking about what your house is worth and how you know that.  You can value it in various ways, ask an estate agent, find out what a similar house in a similar location was sold for recently by asking the buyer or the seller or go to a site like and get a record of the house transactions in your neighbourhood.  But you can’t be sure can you?  The fact of the matter is that you do not know the exact value of your house until you have not only put it on the market at a price you think sensible but also sold it. 

    That’s what market value means – the price that someone has agreed to pay for a house, a sofa, a car or, of course, a business.  So it’s really the buyer who decides what a business is worth.

    So how do investors go about it?  Think first about how an investor makes a return on their investment.  They can take a salary as a non-executive director; but that could be counter-productive as it reduces both profits and cash: that limits business growth.

    They could take the money out as dividends.  Over the medium term that might give them the return they are looking for.  In order to pay a dividend a company needs two things, first profits over and above its overheads and taxes and secondly the cash to pay it.  More likely the small company investor looks to sell the business for many times the amount they invested to someone who thinks that they can make profits grow even more and that their return could come from dividends.  To make a big profit on selling a business you need two things.  Firstly a huge growth in volume: it’s called scalability.  Investors look for the point at which the business will really take off in terms of sales and then profit.

    That’s why the business with sales of only £7,500 might be worth £400,000; but the entrepreneur will have his work cut out to prove it.  He has to make us believe that profit growth is close and very rapid, like an ice hockey stick.


    The value of a small or medium sized business is governed by its current profits and its potential to grow those profits into the future



  • Look at the person not just the product

    Friday 9th October 2009


    This week’s Dragons’ Den online included Darren Fenton from Northern Ireland that Julie and I both warmed to. His presentation was logical and engaging and he made a good first impression. The problem was that the product he wanted us to invest in didn’t have a lot going for it. If I’m rude, it was a torch with an elongated bit on the top to make it look like a shortened version of the Star Wars lightsaber. We couldn’t see how it would make money. The other issue was that if it did start to make money it would take no time flat for a big manufacturer to imitate it and pretty much put him out of business: he had no patents of course, because you can’t really patent a torch!

    But he was good, and I would be glad to talk to him again about the possibility of getting together in a business that sold a product that had legs.

    It made me think about how I choose my business partners. In the end, if truth be told, I invest in people rather than products. I still want to be sure that what I call a product/market exists. Product/markets is a simple concept that says your company does not have a product unless there is also a market. Ask yourself “what am I selling and to whom am I selling it?” But investing in people means that I look folk in the eye and decide whether they have the passion, the commitment and what I call the business nous to take a product to market. Darren had all of that and I hope he finds a feasible product/market that will take him into a successful business.

    The person that Julie and I did invest in, David Warr, had a well-developed product with a feasible and potentially large market.


    Tip From Shaf – Measuring People Up

    I use a simple formula to decide who I want to work for me or with me. Do I trust the person? Could my people and I work with them? Are they good at the job they are going to do? In some ways the first two questions are more important than the third.

    I’ve said before that anyone can be an entrepreneur and I believe that; but I’m working on a checklist that people can use to see if they fit into the profile of an entrepreneur now or, if they don’t, what they might do to put their weaknesses right. Watch this space!

    In football they say, “play the man not the ball”. In business I say hire the person not the product.





  • To Control Or To Not Control

    Friday 2nd October 2009


    My view as an entrepreneur is that there are only two possibilities in terms of shareholdings in companies – you have control or you don’t have control.  I don’t like messy compromises where it’s unclear who can make the final decisions about the way forward for a business.  With the Dragons’ Den investments that I make, I do not normally buy a controlling interest in the business. Though there was an exception in the case of Alex Foreman.



     As a minority shareholder I hope to be listened to where my expertise can help.  I also, of course, have some rights over the future shareholding of the company and, for example, the sale of the business.  But the business belongs to the person who persuaded me to invest and they are, in the end, in control.  I want them to feel that they are really responsible for their own destinies and that whatever I say and think, theirs is the final decision. 

    I always make sure that Shareholders’ Agreements make it clear what everyone can and cannot do.  Shareholders’ Agreements don’t need to cost a lot of money to draw up and can be adjusted to fit any conditions that the interested parties agree.



    Tip from Shaf – Borrow carefully or not at all

    Banks are very experienced in protecting their positions when they lend money.  They can take rights over your debtors and stock. They can insist on mortgages on your plant and property if you let them.  When you are passionate and impatient about a big step forward you may enter into covenants and agreements with lenders that could cost you control of your company.  At such a time you probably need a bit of advice – speak to your accountant or even a lawyer to make sure you are not taking a rash decision and risking getting into hot water.



    I would hate to lose control of a business where my shareholding should earn me the right to make decisions.  This also concerns lenders.  There’s a case in point at the moment with Blacks Leisure, the outdoor clothing specialist retailer.  They are closing shops and making people redundant at Head Office right now.  Look, I am not saying that such a situation will never exist in a company that you run.  Markets change and sometimes people can find that they have over-expanded their business in, for example, an adverse economic climate.  They have difficult choices to make but at least they are their choices.  Blacks Leisure is having to take action because its lenders are going to put them into administration if they don’t: they have in fact lost control of their business to the banks. Borrowing money can be very useful when you are taking your business forward but remember always to look at the downside of what might happen that would make the lender butt in and take control.

    It can also cost a lot of money if, when you have a problem, minority investors or lenders force you to get in consultants and write reports about what you can do.  However clever the report is, you’re still worse off by the amount you have had to pay these people.

    The reason you have taken the risk to be an entrepreneur was to be in control and not to have someone bossing you around: keep that in mind as you make your plans.


    You can see Shaf on programme Four of Dragons’ Den Online this Thursday at 10pm, on BBC2


Recent News

News Archive