PROMOTING THE NEW ENTERPRISE 1. Work of the promoter.—In the financial sense, a promoter is one who assembles the capital for a new business enterprise. Individual and partnership un dertakings rarely require the services of a professional promoter, but corporate enterprises are frequently so large and so widely owned that their capital can be assembled only by trained professionals. Capital must frequently be drawn from many scattered in vestors, who are not acquainted with one another or with the business which it is proposed to develop. These parties have no mutual interests which bring them together in business. It is the function of the promoter to find a business opportunity that will ad mit of the profitable employment of capital and then to interest the owners of capital to invest in it. Any reader who may have attempted to raise funds for a new enterprise can appreciate the difficulties of this task and will understand the great judgment, ex perience and intellect required by the successful pro moter.
Altho the forming of consolidations constitutes, in one sense, a new enterprise, the process is distinctly different from that of promoting a new and previously non-existent business. The forming of consolida tions will be discussed in a later chapter; it is our pur pose here to set out briefly the general characteristics of promotion work, with particular reference to the new enterprise.
In the first place, it should be understood that the promoter is necessary and deserves to be well paid for his work. Some one possessing the requisite experi ence and skill must grasp the opportunity and pre sent it in the proper manner to investors. The fact that dishonesty, swindling and foolish optimism per vade the field of promotion reflects less upon the pro moter than upon the intelligence of the investing public, many of whom are totally unable to analyze a business proposition. The more speculative the enterprise, the fewer are the facts presented and the greater is the appeal to the imagination. The slip pery gentlemen who make a business of selling blue sky securities are unfortunately large in number, but there are honest and reputable promoters.
2. Investigating the new opportunity.—The busi ness world is so full of opportunities that it is never difficult to find a good one. But it is not so easy to select from the many opportunities the one which will yield the quickest, greatest, and most certain profit with a minimum of capital and effort.
In order that investors may be induced to enter a new proposition, and that their capital yield the maxi mum earnings, every phase of the proposed undertak ing should be thoroly investigated, even if based upon some reasonably assured monopoly right, such as a patent or a special franchise. It is important that every advantage be taken in selecting a location, pro viding a suitable financial plan, and making an ef fective appeal for capital.
Many millions have been lost in attempting to capi talize inferior opportunities, by locating a new enter prise in the wrong place, or by investing capital funds unwisely. In most cases, these losses might have been avoided by thoro and efficient investigation. Many new companies have been wrecked because the finan cial plan did not accord with the needs of the business or the desires of investors. Other worthy ventures, possessing all the essentials of success, fail to secure the requisite capital because not properly presented to the investing public.
3. What the investigation covers.—When a cursory examination points out a good opportunity for profit, an exhaustive investigation should be made before the financial plan is prepared for presentation to investors. Some of the more important considera tions may be briefly listed: 1. Extent and permanency of the demand for the product or service 2. Existing or potential competition 3. Size, growth and profits of other concerns in the same line 4. Capital investment required to establish a new concern of maximum efficiency 5. Effects of possible substitution, seasonal require ments or fluctuating demands for the product 6. Possible effect of hostile legislation 7. Costs of manufacture, amount and stability of earnings, with special reference to the cost of maintenance and improvements 8. Probability of securing honest and effiicent management 9. Location of the industry, with due regard to: Proximity to sources of raw materials and supplies Proximity to the market for finished products Cost of constructing or renting, and of equip ping the plant The extent, cost and character of the labor sup ply Cost of power, light, heat and insurance Possibility of expansion Suitability of climate Adequacy of transportation service Proximity of banking, repairing and other supplementary services.