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Home > Resources > eNews > Mar 2000 |
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The Managed Care Insider eNews Volume Two Number 3 March 2000 PART ONE of TWO Welcome to The Managed Care Insider eNews. You are receiving this because you have subscribed; the eNews is never sent unsolicited. Subscribe/unsubscribe information can be found at the end of this eNews. The Managed Care Insider eNews is published, copyrighted, and owned by The Scheur Management Group, Inc. (SMG), http://www.scheur.com and is distributed monthly, free to subscribers. If you wish to forward this edition, you may do so only if the edition is forwarded in its entirety. No reproduction of any part of this publication is permitted without the express permission of the publishers. ---------------------------------------------------------------- While the last edition of the Managed Care Insider eNews focused on people, this edition focuses on money. The premise is any healthcare business, health plan or organization relies on money to produce the services and products necessary to take care of its people. In this edition we feature the so-called "closet entrepreneur" within the healthcare industry and his/her quest to find the money to make the business succeed. Part Two of this edition discusses, from a managed care organization perspective, why it's important to "Follow the Money." As always, we encourage our readers to send their comments to us at insider@scheur.com Insider Vision For The Closet Healthcare Entrepreneur: What You Need to Know About Finding the Money But Were Afraid to Ask By Barry S. Scheur, President, Scheur Management Group Many entrepreneurial individuals, especially those who work in the healthcare field and feel beleaguered by the constant barrage of negative publicity, dream about starting their own healthcare-related business. Some see opportunities in doing things more efficiently, with improved quality and more attention to customer and other external relationships. Others see the explosion of Internet e-commerce activity and its myriad of applications to provide useful information, education and data. Still others see all the money that has been made and believe they are a lot smarter than their bosses or organizations which they continue to represent daily. Perhaps this even applies to you as you believe you have a great idea, one you work on relentlessly after a full day of work or during the weekends. Perhaps you even invest your own money, and maybe you share your idea with friends and colleagues. As you begin the development process, you labor over your first attempt at a budget and a business plan. Maybe you get friends and family to invest some of their savings. Maybe you even get your first client, and you start to seriously consider when you can quit your job and devote yourself full-time to your "passion." Thinking about taking the plunge is exhilarating; starting up is educating and liberating. But at some point, you will get to the place where you want to expand, diversify and reach for the stars. And that, usually, almost always, in fact, takes money - more money than you can easily raise. And so begins an adventure filled with great hopes laced liberally with anxiety and self doubt. For those of our readers who are contemplating entrepreneurship, this article is dedicated to you. In the late 1980s, I left the safety of a large law firm and consulting practice to set up my own shop. Some 11 years and $40 million in revenues later, my career wheel turned again. Over the last several years, I have undertaken a shift in direction of my business focus from consulting to founding two private equity funds -- one which relates to the acquisition and turnaround of troubled HMOs and the other that deals in early-stage healthcare technology, medical devices, and e-commerce companies. Managing healthcare start-ups and turnarounds for fifteen years did not prepare me for the venture capital climate of the early millennium. To all you would-be entrepreneurs with your ideas and ideals held high, I hope the following lessons about raising money and negotiating with investors saves you at least one night's good sleep, not to mention use or need for the latest anti-depressant or anxiety-reducing prescription. From my lessons learned files, may I caution you that just because their business ideas and reputed expertise are great, don't go into a start-up business with people you don't already know and have faith in. Business relationships are hard enough to build with people you know well and trust. Getting together with a few people who have good ideas and trying to create a business will usually leave at least one of the prospective owners resentful that he or she was left out or taken advantage of, and usually at his or her lawyer's office. The rule is, as with mergers, if the cultures/people don't necessarily fit or have interpersonal synergy, the excitement over the business deal or opportunity itself will not make up for the interpersonal void. What Your Need to Know About Finding the Money -- Here is my list of learned truths: - Never believe that people will invest in an idea in any amount beyond $10,000 without a business plan. Even if you believe that the plan is so obvious or that you are the greatest salesman or woman since P. T. Barnum, you can't do it without a focused, concise document that makes the case why people should invest in you rather than put their money into the stock market for what has proven to be almost guaranteed returns. - Unless your product or service involves the use of the Internet or e-commerce (and this premise too will change), be prepared for lots of rejection, well-meaning but crushing criticism, cynicism, rudeness, and unkept promises. Successful private equity investors put up money once for every 100-250 deals they review, on average. That means there are a lot of would be entrepreneurs being pounded upon before they make it. - Realize that finding the necessary capital is ten times harder than conceptualizing, starting, and growing your company. Yes, there IS lots of money out there, but it always seems that it's going elsewhere. I have found that raising money always takes a minimum of six months, and possibly up to two years longer than I would have expected. In this climate, there is lots of money for a small number of brilliant ideas. - Don't confuse access with accomplishment. There are many folks who will listen to your business proposition or new product idea. Even the big private equity firms will listen to you, ask lots of questions, and maybe show some alleged real enthusiasm - prior to writing you a check. There is an old principle of the equity financing world that we call "SHITS" (Show High In-Thusiasm, Then Stall.) The real interest, as opposed to the platitudes, only starts when you have a term sheet in your hand for financing, and then the fun of negotiation really begins. - Be very wary of self-styled investment advisors or bankers who will just about guarantee that you will have no trouble raising money, but who tell you that you need to hire them first. "Investment advisor" is too often becoming the new version of the chain letter hoax. Before someone or some company asks you to pay them a retainer to either "introduce" you to capital sources or to help you with your business plan or idea, ask one question: Who are the people for whom you secured funding, in what amounts, and can I call them? We all still want to believe in the good heartedness of the person who says: "I can get you the money." Maybe they can; more likely they won't. This unfortunately may also include a number of lawyers/erstwhile investment advisors who should probably stick to practicing law. - Prepare yourself emotionally to accept, and then overcome, the rejection from any one of the following comments: "You don't have the necessary track record for funding!" "Your business is undercapitalized!" "You have ten competitors in existence already much larger than you will ever be!" "Your concept is a great idea as a 'lifestyle' company." Translation: it will support your lifestyle but not with their money! - If you can't handle humiliation, endless self-doubt, insomnia, or being irritable with just about everyone around you, think real hard about attempting to raise money to start a business. - And if a company offers to invest, don't be astounded at what they will expect to own in return for their investment, hence, the percentage of your company that they will demand for a seemingly small amount of capital. Most people who start up businesses intend to remain in control of them. Otherwise, why would you start one up in the first place? But most entrepreneurs, by the time they get successful - if they do, have given up far more than they intended. When it comes to serious money (for example, over $100,000) you will too often find that the usual and customary formula for getting that green stuff is parting with fifty to eighty percent of your business. Too often, people are so desperate to get their ideas launched that they will give up just about everything, only later bemoaning the fact when they discover that they have still been working to a large extent for somebody else. - You will also learn that return on investment expected by money companies may be far greater than anticipated. That is why so many business ideas don't get any funding beyond sympathetic family and friends. Equity investors are seeking a minimum of a thirty percent return per year from their investment, compounded. That means if you are asking for a hundred thousand dollars in 2000, a sophisticated investor will be looking to see how his/her investment reasonably has a good chance of being worth about $350,000 five years later. To ensure that return, your new company has to either grow very fast or the investor needs to own a high percentage of the company. Try not to abandon your ideas after hearing all of the reasons your shouldn't try to raise money to start your own business. Just be realistic. I have been involved in two capital fund start-ups in the past three years. Both of them have caused me to doubt my creativity and sanity, have made me irritable with my colleagues, friends and family; and have had me convinced that I should have never started down this road in the first place. But proving your idea and testing your mettle to the world and to yourself is the most stimulating, energizing, and challenging activity in which you can ever engage. Zig Zigler is right: "There is always room at the top." ---------------------------------------------------------------- What's New at SMG? E=MC SQUARED BEGINS! Now you can access your own set of managed care experts!... news!... information!... and Ask SMG! at the scheur.com SUBSCRIBERS ONLY site. JOIN US! Our NEW subscriber-based site will afford you access to all of these information resources with a monthly fee of $10 or annual fee of $100. To learn more, visit e=mc squared now at http://www.scheur.com where you can access information, resources, and find shopping sites for your business needs. DID YOU KNOW? Our expertise includes web design, marketing, and real time practical approaches to putting your organization on the Net. By redoing, evaluating, and implementing a newly designed, easy-to-use health site, you will enable your clients and/or potential clients to interact easily with your business. Visit us to learn more at http://www.scheur.com/smghome.nsf/webcontent/emc2.html Rate Us! We need you to rate this ezine. It's easy! Just go to http://www.scheur.com/smghome.nsf/webcontent/ezinearchives.html and click on one or both of the rating sections. We appreciate your taking the time to do this. ---------------------------------------------------------------- Sights and Sounds on the Net: SMG has no ownership of, nor does it endorse the following sites. This information is presented as a resource for subscribers. Since our theme this issue is following and managing the money, and how the changes in the healthcare industry may impact on new business formation, we have included sites which cover these areas. Need to know more about the future of healthcare? From E-Care Management News, a health care ezine to which you can subscribe by sending an e-mail with the word SUBSCRIBE in the subject line to subscribe@bhtinfo.com (It's free!), comes the following information: The Robert Wood Johnson Foundation has released its comprehensive report on the future of health and healthcare at http://www.rwjf.org/iftf/index.htm MoneyNet: a site, created by Reuters, offering information about investing and IPOs at http://www.moneynet.com. For a personal finance learning center, try Invest-O-Rama at http://www.investorama.com. Need a calculator? For all types of finance calculations, and over 120 calculators, try the FinanCenter at http://www.financenterinc.com/products/calcbuilder.html. Need help with business plans, marketing plans, tools for business? Try the business owners toolkit at http://www.toolkit.cch.com. Need Money? For a listing of Venture Firms try Vfinance at http://www.vfinance.com/ventcap.htm. ---------------------------------------------------------------- End of PART ONE of TWO, The Managed Care Insider eNews, Volume Two, Number 3. Scheur Management Group (SMG) is one of the most experienced specialized healthcare operations management and business revitalization consulting firms in the country. Our expertise is in time-sensitive analyses, strategic business and market planning, operational re-engineering, and communications, as well as implementation of start-ups, expansions, and new products. The firm's clients cover the spectrum of insurers, managed care organizations, physician groups, integrated delivery systems, hospitals, employers, governmental entities, vendors, and other providers. Contributors to this edition are Barry Scheur and Robin McElfatrick. Editing and Research by Judith Jaffe. Production Coordination by Nancy K. Belle. TO SUBSCRIBE: visit http://www.scheur.com/smghome.nsf/webcontent/ezine.html or send e-mail to insider@scheur.com with the word SUBSCRIBE in the subject and name, email, company, title, and country in the message. TO UNSUBSCRIBE: send email message to insider@scheur.com with the word UNSUBSCRIBE in the subject. Please take a minute to visit our eNews page at http://www.scheur.com/smghome.nsf/webcontent/ezine.html for archives, subscriber information and to RATE our ezine. Get up-to-the-minute health care news on-line at www.scheur.com Go to March 2000 Part 2 |
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