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Guest: Dan Berkon, Founder and CEO of Culmen International
Episode in a Tweet: A huge bet on a new line of business forced Culmen to raise $11 million in 30 days or face termination of its big new contract.
Quick Background: Culmen International is like a company you’d expect to see in a James Bond movie. They help the government to detect and interdict illicit trafficking of weapons of mass destruction, explosives, narcotics, and other weapons. They train people in counter-terrorism, ordnance logistics, and border security. And a couple years ago, Culmen, founded and led by its long-time CEO Dan Berkon, made a major play to enter a new line of business. Success was immediate, but there was one problem. The company had to raise $11 million–and fast–or they’d lose the contract. You’ll learn in today’s podcast how they scrambled to raise money, secure the contract, and double the size of the company. You’ll also learn how Dan pulled a Jerry McGuire-like exit from his first employer, took one employee with him, and went on to build a $50 million company with offices all over the world.
Transcript: Download the full transcript here.
1. Model out your cash flow needs when bidding for big deals.
Dan said his team got caught a bit flat-footed as the big deal they were bidding on came through in a much better way than expected. Being in a capital intensive business, the new deal required Culmen to come up with $11 million in order to close the transaction. In hindsight, Dan realized the importance of modeling various cash flow scenarios and getting a better understanding of where they could secure capital if needed in a pinch.
2. Tap your networks to raise money when you have to scramble.
Where do you turn when you have to raise money quickly? “I relied on my coach, Mark Moses at CEO Coaching International. I relied on my YPO network, and I relied on my management team to really focus on the solutions that we could target to get the cash that we needed to execute,” said Dan. And it worked. “We managed to do it. We got the cash we needed. We executed the program. It took the company to a whole new level. But I’ll tell you, we were sweating it there for a while,” he said.
3. Find creative ways to get bankers comfortable in loaning money or investing in your firm.
Much of the work performed by Culmen takes place in locations that people have never heard of and deals with commodities that most people are not comfortable with. “It’s not the kind of thing that a lot of bankers jump up and down to go finance,” said Dan. As a result, “We try to find ways that we can mitigate risk so that when we are presenting opportunities to financial institutions, they feel like it’s a safe bet, and they feel like it’s the kind of thing they can support, they can get past their board,” he said.
For example, Dan said, “We have a lot of equipment manufactured overseas. It’s sensitive equipment manufactured in strange places. What we’ve been able to do is find insurance companies that will insure the deposits that we make to these foreign manufacturers. We have to give them working capital to produce the goods for us. We get insurance on those deposits, so if our suppliers should default, go out of business, not produce what they were supposed to, and don’t return our money, the insurance company then is able to step up and help to get us those deposits back. When we put those types of layers of protection in place, then the financial folks are a lot more comfortable being able to give us access to a line of credit to provide that working capital to our foreign partners.”
Your situation may not be exactly like Culmen’s when it comes to finding creative ways to raise money, but the concept is the same. Tap your network and find ways to mitigate the risk to your lenders and investors so they feel more comfortable loaning or investing in your company.
4. Don’t doubt, persevere.
Dan is a big fan of perseverance. “We’ve been confronted with situations where most smart people would have just given up; but we just don’t. I found that if we persevere, if we keep trying new approaches when one thing’s not working and the next thing isn’t working, eventually we’re going to find the right solution and we’re going to break through. We’re going to get to the next level. Perseverance is what has really gotten us through the toughest times,” he said.
Raise Money Takeaways
1. Model your cash flow needs. You can “grow broke” if your business grows faster than your cash flow can fund it. Make sure you model your cash flow for various scenarios so you don’t get caught in a squeeze.
2. Find cash in your networks. If you’ve been in business for any length of time, you have networks of people you can call on. Don’t be afraid to contact them when you need quick cash.
3. Persevere. When you try to raise money, it’s not always easy. But get creative and persevere. Chances are you can make it happen if you truly want it bad enough.
Transcript: Download the full transcript here.