EQ Journal Archive 16

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Claypso’s Challenges

Posted on
Tuesday 14 December 2010

(Originally Published in Ottawa Business Journal Dec. 13, 2010)

I recently spoke with Sylvain Lauzon, Vice President at Calypso Park
and former employee of Rick Hunter’s rival firm Pro Slide, which hopes
to open Lottawatta Water Park in 2012 on Moodie Drive in Ottawa’s west
end. Is Ottawa-Gatineau and environs big enough to support not one, not
two but three water parks? (Mont Cascades, also owned by Rick Hunter, is
the third and has been in operation for many years.)

Lauzon projects supreme confidence that he, Guy Drouin (Calypso’s
owner) and their team have what it takes to dominate this marketplace.
Their ‘magic marketing button’ is that they are not, in fact, a water
park. Instead, they are about a total mind and body experience. “It’s the programming and theming that counts,” says Lauzon. “We
bring entertainment to another level. We incorporate theming and
programming this way: 1. there is a sense of arrival at the Park, 2.
people can stroll our commercial Main Street, 3. they can experience our
boutiques and restaurants, 4. we use a Caribbean theme for design, for
our staff and for our mascots and 5. we give our customers a
world-class, Disney’esque feeling and the warmest atmosphere and best
guest experience possible.”

They are also not standing still—they are constructing ten more
slides this off season including two never-before-seen, gravity-defying
rides and one of them will have the tallest tower in North America.
Lauzon declined to provide more details preferring to unveil these new
attractions to what he hopes will be a receptive audience next summer.

And what a reception Calypso has received: their biggest surprise was
the reaction they got from the local community around Limoges. They
bought tens of thousands of season passes at a price point equal to
three individual visits to the Park (the industry norm is one and a
half). Limoges and surrounding communities embraced Calypso as their
own.

The other killer market for Calypso was Montreal—90 minutes to the
east. 40% of all attendance at Calypso in its first season in 2010 was
from Montreal and surveys showed that many stayed overnight and visited
other attractions, mainly in Ottawa. Their radio and TV campaign in
Montreal worked, Lauzon says, because Montreal consumers are interested
in new experiences. They also got a lot of earned media in the Montreal
press from pre-opening interviews they did there. It did not work as
well in Ottawa—a slower moving market. “Ottawa is a skeptical, show-me kind of place,” Lauzon says. “People
thought, it’s ‘just another water park’, not realizing the size and
quality of the place. We need to educate people in Ottawa that they have
a world-class product 25 minutes away.”

When I visited the Park before its opening, the thing that impressed
me most, after my initial reaction to the fantastical, surreal
verticality of the slides themselves, was their parking lot: it’s huge. I
walked the whole thing and it was apparent to me that they were
expecting much bigger crowds than anyone outside their management team
knew about.

The lot is unmarked so you can’t get an exact number but it can hold
about 4,000 to 4,500 vehicles and, with average occupancy rates over 3
persons per car, you get maximum attendance of 14,000 people per
day—that’s bigger than Disney’s Typhoon Lagoon’s 8,000. They got all of
that in the great-weather summer of 2010—line ups backing onto the major
highway accessing the park was proof of that.

I asked Lauzon if he had any advice for other entrepreneurs and
intrapreneurs. It turns out that he is a big believer in market research
and knowing your market/what it wants. “Many people, even quite successful people, don’t really know what their customers want,” he says.

Then as our interview neared its end, he added: “You never know where you’re going to end up in life.”
His passion for skiing led him to work for Intrawest, which introduced
him to the entertainment industry, which led him to Pro Slide and now he
has had the most fun in his career building Calypso from the ground up
with Guy. His training was as a land surveyor so you can see what a long
strange trip it has been. Talking to Lauzon and hearing the excitement
in his voice reminded me of the one line from James Cameron’s film,
Titanic, that is probably destined to last:

“Make each day count,” Jack Dawson.

Professor Bruce M. Firestone, Entrepreneur-in-Residence, Telfer
School of Management, University of Ottawa; Founder, Ottawa Senators;
Executive Director, Exploriem.org; Real Estate and Mortgage Broker,
Century 21 Explorer Realty. Blog: www.eqjournal.org Twitter: www.Twitter.com/ProfBruce OBJ: https://www.obj.ca/Opinion/Bruce-Firestone-5444

Prof Bruce @ 9:58 am

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Should Everyone on the Planet Have a Personal Business for Life?

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Posted on
Saturday 11 December 2010

The Road to Financial Security and Independence

Foreword

Have you ever wondered whether entrepreneurs are born or whether they
can be trained? What are the ten key steps in creating and running a
successful start-up? What is a Personal Business for Life and how can
you get one? How do you start a business without much in the way of your
own start-up capital? Can you organize your work life so that if
anything goes wrong in your business, you and your family will be OK? If
you are successful, can you hold onto your business so that it will
sustain you and your family for a long time? What does it take to be a
successful entrepreneur? Can you be an ethical entrepreneur?

If these are questions that interest you, read on below to learn
more. You will learn how people are creating long-lived enterprises that
have significant differentiated value—control over factors of
production that sustain their business models in a tough competitive
world. Find out how to start a business with no (or little) money down.
Learn how businesses from the Ottawa Senators and the Ducks of the
National Hockey League to Qwantz.com, an online comic strip, used
Bootstrap Capital and Smart (Guerrilla) Marketing to get going.

You will also learn what Chris Rock, Comedian and Satirist, meant
when he said that Shaq is rich but the man who signs his paycheque is
wealthy; i.e., find out what the difference is between being rich and
being wealthy…

You will learn that it takes a big commitment to turn an idea into a
successful organization—one that can provide more value than if you just
had a JOB and one that can survive its founder. Lastly, you may be
surprised to learn what the moral underpinnings of entrepreneurship are
and how entrepreneurs also serve a higher social purpose.

What is a PB4L (personal business for life)? Here is my definition–

A personal business for life is a business owned by a single
individual with no partners or at most one partner (most likely a family
member) with little or no debt which uses small amounts of startup
capital and provides real value to its stakeholders as well as having a
close connection with its clients and customers as well as suppliers. A
PB4L is never put at risk by taking on too much debt or by being over
reliant on a single customer or supplier.

A PB4L, as my dad used to say, is an iron reserve—something that you
can fall back on when all else fails. If you look at the definition
above, the words “provides real value” and “being over reliant on a
single… supplier” mean that I am excluding pyramid and multi-level
marketing schemes. Things like, “I’ll tell you how to earn a million
dollars if you give me a dollar” and a million people do it, are not
PB4Ls.

They have to be real businesses. One way to find inspiration would be
to go get a copy of the Encyclopedia Britannica and look for crafts
from the 1930s. PB4Ls could be things like making specialty paper,
selling nostalgia products, writing, artwork, jewelry, getting a REALTOR
license, urban farming (fruits, veggies, eggs), grass cutting,
landscaping, personal support worker, hairdressing, bookkeeping,
computer repair, car customization, window cleaning, painting, home
repair, deck, fence and gazebo construction, games, toys, crafts,
recipes, sign maker, consultant, life coach, mentor, vintage furniture…
There are millions of ideas.

Go for it,

Prof Bruce
https://twitter.com/ProfBruce

Introduction

Can you train entrepreneurs or are they just borne? I believe that,
in part, entrepreneurship must be learned by doing and that success in
entrepreneurship comes from a combination of personal attributes and
other factors such as:

a. a pre-disposition to it;
b. supportive family and friends;
c. education and training;
d. finding the right mentor(s);
e. good timing;
f. focus and effort;
g. creativity and innovation;
h. openness to new ideas;
i. willingness to change;
j. ability to discover ideas in the process of doing;
k. high energy;
l. tolerance for risk and stress;
m. acceptance of outside best practices;
n. ability to compartmentalize;
o. ability to sell ideas, products and services;
p. leadership skills;
q. figure things out as you go;
r. dump the losers and keep the winners (know when to quit and when to stay in the race);
s. self motivated;
t. team player;
u. impeccable warrior (see Appendix I for more on this);
v. not easily discouraged;
w. able to juggle many tasks and hats;
x. a finisher—able to complete things;
y. commitment and passion;
z. luck.

Now let’s assume you have most of the above working for you. Is that
enough? Obviously not. In order to create a successful new enterprise,
you need to be able to execute on your ideas. I have created a list of
ten things that you also need to do to be successful.

Of course, there are certainly a lot more than ten things you need to
do to create a successful startup but for the sake of brevity, I
limited myself to ten.

So here is my list:

1. Select the right idea for your next startup;
2. Create business models for the 21st Century that produce great
results so that the harder you work, the more money you make and so you
can compete effectively with hard charging entrepreneurs from China,
India and other Tigers by having a business model that can not be easily
duplicated or dislodged and gives you a lasting, sustainable
competitive advantage and concession or franchise.
3. Add differentiated value, innovation and ‘pixie dust’ to your business models.
4. Create a compelling value proposition and learn how to clearly demonstrate it to customers and clients.
5. Self-capitalize (bootstrap) the new enterprise so that you end up owning it and not a VC firm or other investors or partners.
6. Use smart marketing (guerrilla marketing and social marketing) so you will acquire customers and clients cost effectively.
7. Mass customize products and services using the Internet so that, for
the first time in history, you can get custom outputs from standard
inputs as well as reverse out some of the work to your clients,
customers and suppliers creating a scalable enterprise that can produce
more value than if you had a JOB.
8. Find pre-launch and launch customers and sell, sell, sell (as Ben
Affleck said in the film Boiler Room: “ABC—always be closing).
9. Execute expertly, show leadership and become a trusted member of your community and business ecology.
10. Make your own rules and set and achieve your goals!

PB4L—Personal Business for Life

For the last few years, I have become increasingly certain that
people in the 21st Century are going to need what I can only call a
Personal Business. It seems to me that there are so many changes going
on in the local, national and global economy and so many things can and
do go wrong, that it might not be a bad idea after all to have a
fallback position.

I have insisted that my students have a Personal Web Site for life—a
place where they can collect their personal IP over their lifetime and
career and one day, maybe, they can find a way to make money from it
too—while they are lying on a beach.

But something else struck me recently: just how many people have
little sideline hobbies, gadgets, gizmos … micro businesses really, that
make a bit of money. It also struck me that this could be a highly
useful thing to have.

Best of Kanata

Let me give you an example. My friend, Richard Rutkowski, a former
City of Kanata Councillor is an intriguing person—very sure of himself, a
good marketer, a good promoter and a sure handed politician (now a
successful REALTOR with his own Brokerage.)

I asked Richard if he did something else beyond being a REALTOR and,
sure enough, he hauls out this cute little magazine called The Best of
Kanata. Now this is really low tech—essentially, local businesses
advertise in it, so that is one revenue stream for Richard.

It costs about $600 for a half page and there are lots of pages.
Then, people buy these books for 20 bucks and in the back of the
magazine, there is a ‘member’s card’ about the size of a credit card,
which entitles them to 10% off at all stores and services featured in
the book.

When I did a Google search, there was no mention of it. So, Richard hasn’t even bothered with a web site.

Well, this is a pretty simple business and folks advertise in it like
crazy because they like Richard and it works for them and it is pretty
inexpensive.

Richard sells 5,000 copies of the book, so you can figure out for yourself the economics pretty easily.

The business model has more depth to it than it might first appear.
Revenues are generated from advertisers and book purchasers. But it
turns out that Richard’s clients are also his suppliers and his
suppliers are also his clients.

Advertisers supply ads, which form the content of the book. Plus they
supply the 10% off cards that drive sales to the public. But
interestingly, the advertisers also stock the books for sale to members
of the public. If you place a half page ad in the book for, say, $350,
and you sell the book for $20 of which you get to keep $10, so you only
need to sell 35 books before your ad costs you nothing.

Think about the compelling value proposition that Richard can present
to a single customer—you can buy an ad for a negative cost if you can
sell more than 35 books.

In this way, his clients form one of his sales channels. Another
sales channel consists of local charities and other good causes. The
Kanata Food Cupboard, for example, sells each book for 20 bucks and
keeps 15. Minor hockey teams use it too—to raise funds for hockey
tournaments, for example.

There have got to be a zillion of these kinds of ideas. I told
Richard: “NEVER, NEVER sell this thing; it is like a sinecure, a
franchise, a license, a concession … it is your ‘pixie dust’ forever.”

It is low tech and low intensity to manage this particular micro
business and it is a kind of concession as it is so local, so focused
and Richard is so well known locally that everyone who is anyone in the
‘urban village’ that is Kanata is going to be in it.

The cost to start the Best of Kanata was negative—Richard was able to
pre-sell enough advertising so that the cost of printing the first book
was more than offset by deposits from advertisers. They gave Richard
50% of the cost of their ads upfront because they trust Richard and
because they want Richard to succeed since it’s in their best interests
that he does.

I have thought that there is a big, scalable business in this
model—how about the Best of Dartmouth, Best of Cole Harbour, Best of
Lower Sackville, Best of Manhattan!

I think creating businesses via entrepreneurship should aim to
provide an individual with more value than if he or she just had a
J.O.B. but maybe there is a more subtle message here.

Perhaps, we should each have one micro business that we hang onto for
life; that never gets shared with anyone, no partners, never is pledged
to a Bank for a loan and, thus, something that we can fall back on in
troubled times.

It would be pretty cool if every man, woman and child on the planet
each had a Personal Business (PB) that stayed with us throughout our
lives and, if things get messed up, well, we have (as my father would
say): a fallback position or an iron reserve. My father lived through
two World Wars and he really understood the need for both.

A PB4L does not include things like the guy who tells you: “I can
show you how to make a million! Just send me ONE dollar, and I will tell
you how.” And, of course, the answer is: “Get a million fools to each
send you a dollar to tell them how…”

They have to be real businesses. One way to find inspiration I think
would be to go get a copy (from your library) of the Encyclopedia
Britannica and look for crafts from the 1930s. Say, for example, making
high end paper for socialites and important persons who want acid-free
paper to preserve their writings. Who knows what you might find there.

Dinosaur Comic, Qwantz.com

Let me give you another example. Ryan North, a brilliant IT
professional, started qwantz.com in the learn-by-doing part of
Entrepreneurialist Culture, one of the courses I teach. Qwantz.com is an
online dinosaur comic strip.

The only problem Ryan had was that he couldn’t draw. Like most
entrepreneurs, he turned a weakness into a strength. His comic strip has
six panels with two dino characters—all images are taken from free,
publicly available clip art. The key is that the panels and characters
NEVER change.

They are the same, day-to-day.

What changes is the dialogue between the characters—T-Rex is a large,
stumbling, know-nothing and chauvinistic loud mouth. The other two
characters are: Dromiceiomimis (the tan coloured dino in the middle
panel) and Utahraptor (the orange one), who is loving, warm, smart and
wise. From this somewhat inauspicious start, Ryan has become an
internationally known writer who creates and self-publishes the only
daily comic strip with images that never move or change. It is the
subtlety of the dialogue that creates interest and a strangely
compelling read that becomes more interesting the more you read it.

It doesn’t hurt that Ryan is brilliant and quirky.

Here is T-Rex’s take on entrepreneurship:

Ryan’s daily routine is to get up and answer his fan mail for about
an hour. Mixed in are requests for merchandise. That is one of Ryan’s
revenue streams. He sells a ton of t-shirts and, wisely, he handles the
money while outsourcing fulfillment.

After an hour or so, he turns his mind to the comic of the day. By
noon, he’s done and ready for the rest of his day. He travels widely,
does appearances at comic conventions where he signs copies of his books
(such as Your Whole Family is Made of Meat) and had time to fool around
developing an advertising engine (Project Wonderful) that was
profitable within ten days of its launch*. He makes a ton of money and
has a wonderful life.

(* I talk more about the Project Wonderful launch and how Ryan did it here: https://www.eqjournalblog.com/?p=690.)

Ryan in a Tree

Ryan started Qwantz.com with less than $100. His marketing budget was
around $20. He bought the domain name poo.ca and put up cardboard
cutouts of T-Rex around the University with this domain name on it and
nothing else. Students started checking out the mysterious site and got
hooked on his comic.

(If you type in poo.ca it still resolves to the Qwantz.com URL. The
comic has been continually published since Feb 1, 2003. Revenue streams
include: merchandise, appearance fees, book sales, Project Wonderful
ads.)

Ryan also allows guests to create their own Qwantz.com panels. Here
are two of mine based on my experience in Australia where I did both me
Masters degree and PhD and also a send-up of our Bring Back the Senators
campaign. See below.

Why Australians Wins Olympic Medals

Bring Back the Ottawa Senators Campaign

Qwantz.com has also served as a platform for Ryan to build ProjectWonderful.com, a democratic and successful advertising engine and Oh No Robot,
a personalized comic search engine and transacription service. To learn
more about Ryan North, read his interview with Newsarama.com’s Zack
Smith (Feb. 2, 2011): https://www.newsarama.com/comics/wide-world-webcomics-dinosaur-comics-110202.html.

Now a PB4L is not just a fallback position. It can be a contributor
to pulling people out of poverty in LDCs around the world. It was not
government Five Year Plans that brought India and China out of
poverty—it was the unleashing of the entrepreneur class in those
countries that did it.

Micro Entrepreneurs

Here are two examples of the power of entrepreneurship to alleviate poverty:

Gulbadan Nesa in the village of Bishnurampur received a $90 loan from
the Grameen Bank in 2001 when she was completely destitute. She bought
some egg-laying chickens, which have an interesting characteristic: they
lay eggs every day– it is the start of a sustainable cashflow.

She has since traded up and now is selling construction materials.
She is an entrepreneur; she is self sufficient; she now has her own
home; she can take care of her family. Now, she must also learn that
once you have struggled to build a successful business, you have to hold
on to it: she needs a build and hold strategy.

Gulbadan Nesa, Micro Entrepreneur

I read an interesting article years ago in the Globe and Mail (by
Luke Harding of the Guardian News Service, February 10, 2003) about
micro entrepreneurship in Kalmandhai, India.

There, slum dwellers erected latrines—one for men and one for women and a third for children only.

Charging just one cent per use, they built a profitable business
using only $900 USD in start-up capital advanced to them by UK based
WaterAid.

Who would have thought that you could make a successful business out
of a latrine but that is apparently what the women of this village did. I
was intrigued so I sat down and did a spreadsheet on it this morning
and here is what I conjectured:
Village of Kalmandhai, India with assistance from WaterAid, UK

Cost of Construction of New Latrine

Men’s $450 USD
Women’s $450 USD
Children $0
Total $900 USD

Revenues Per Use $0.01 USD
Daily Use Men 300
Women 375
Children 400 free
Total Use 1,075
Total Paid Use 675
Total Daily Revenue $6.75 USD

Annual Revenue $2,463.75 USD

Maintenance 10% $90
Night Watchman 1 $450 $450
Cleaning Staff 3 $1,350

Net Revenues $573.75

Return on Investment 64% p.a.

So they achieved a (possible) 64% p.a. rate of return on this
investment, which is impressive. Just as importantly, there are
significant health benefits that accrue to these people from proper
disposal of human wastes. Plus they generated additional activity
including:

a. the construction of a shower block for traveling truck drivers
that pass through the Village and for the villagers themselves (and more
fees);
b. the use of their ‘product’ (from the latrines) in their herb garden (for self use and third party sales);
c. start-up of a composting business;
d. money lending to women in other villages to start similar enterprises.

Think about the number of jobs they created-from a latrine! Give a human a fishing rod, not a fish.

If these women could create a thriving business from a $900
investment just imagine what privileged people like us, like you
students here today—with all the advantages you have: great education,
access to capital, free, civil societies and much more—can do.

Innovation and Value Creation

How much innovation do you need to create a successful PB4L? Does
innovation always have to be about BIG ideas or never-before-tried ones?
No, of course not.

Not all of us are blessed with the insight to create equations like: E=mc**2.

But here are three relatively minor insights that added significant value to their respective enterprises:

a) Ray Kroc, Founder of McDonalds, taught his employees to famously
ask: “Do you want fries with that?” Who knows if Ray invented the
concept of upselling but he sure made good use of it to create a
globe-spanning business.
b) Jeff Bezos, Founder of Amazon.com*, saved his business by adding one
question to the website: “Would you like to see what other people who
bought this book (CD, DVD, etc.) also bought?”*

This use of Amazon’s gigantic relational data base meant that instead
of perhaps selling one book to a customer, they had a shot at selling
two or three. If you are having a minimum wage slave going into a large
warehouse to pick a single item, imagine how Amazon’s bottom line is
changed when he or she picks and then ships two, three or more items at a
time.

c) Ralph Shaw is helping to create a Real Estate Brokerage that is
one of the few that does both commercial and residential real estate. He
is teaching his agents to ask: “Is there anything else we can help you with?”
after completing a transaction or a listing presentation. You might be
surprised at how many residential clients need help with a commercial
lease for example or how many commercial clients need help selling or
buying a home.

Innovation is where you find it. Often, great innovations flow from
contact with the marketplace—contact with clients and customers. That is
one of the reasons why I always want the folks I mentor to find
pre-launch clients, you can learn so much from them. Innovation is
everywhere—you just have to be open to new ideas wherever they come
from.

The Japanese believe in constant improvement.

Small things do make a difference.

Now once you have stumbled upon your next great idea on how to
improve and innovate within your industry, remember that innovation and
good ideas without excellent execution are practically useless.

(* Amazon’s relational data base has another cool application—for
researchers, you can put in a book you are reading and see what other
people who ordered this book are also reading. A lot of smart people use
Amazon and it is a simple way to add to your bibliography whether you
are a researcher or student writing an essay.

For example, I recently read Nassim Nichoas Taleb’s book, The Black Swan.
Taleb makes a convincing case that unlikely events (such as the recent
economic meltdown) in areas such as economics, weather forecasting,
science and tech, are actually far more common than typical statistical
models (based on bell curves) would suggest. I tend to believe this from
my experience as an entrepreneur. Bell curves might work well for
distributions such as height or weight in human populations but don’t
fit the data well in many other areas. Surprises, good and bad ones, are
surprisingly frequent in many other fields of endeavour.

Here is what Amazon suggests others who bought Taleb’s book also
bought: The Age of Turbulence: Adventures in a New World by Alan
Greenspan, Fooled by Randomness: The Hidden Role of Chance by Nassim
Nicholas Taleb, A Demon of Our Own Design: Markets, Hedge Funds… by
Richard Bookstaber, The Halo Effect by Phil Rosenzweig, Way of the
Turtle by Curtis Faith, When Genius Failed by Roger Lowenstein, Super
Crunchers: Why Thinking-by-Numbers Is the New Way to Be Smart by Ian
Ayres. These are just some of the Amazon results. There are 17 pages of
results! Enough to round out any bibliography! This is a free ‘service’
by the way. Just put in the name of a book and you get the suggestions
from Amazon.)

Having said that, the only real way to boost your take home pay is to
increase your productivity. And by now, just about everyone has
realized that in a global economy, the only way to do that sustainably
is to innovate. Working longer hours for less pay will also boost a
nation’s productivity stats but who wants to volunteer for that duty?

Dental Floss

My wife recently introduced me to a new kind of dental floss—it is
sold by a major consumer products company. Their dental floss is caked
with a toothpaste powder. This is so when you floss your teeth,
toothpaste is applied to hard-to-get-with-a-toothbrush areas, namely
your gums between your teeth.

I wanted to shake the inventor’s hand. If you think eating nice foods
with your own teeth in your 50s, 60s, 70s and 80s would be nice, this
is an important innovation.

And I am sure it is not trivial to do this. Adding toothpaste powder
to a long string isn’t easy: first, it has to stick to the string,
second, dental floss is exposed to a lot of different environments and
the toothpaste powder must not dissolve when the floss gets wet or is
exposed to a lot of humidity and, thirdly, it can’t rot and poison
people if it sits around the store for a while and then in your cupboard
or (worse still) your shower stall.

Now I have read lots of books on becoming more creative and innovative, and I recommend: Think Better: An Innovator’s Guide to Productive Thinking by Tim Hurson (McGraw-Hill, 2007) and The Black Swan, The Impact of the Highly Improbable by Nassim Nicholas Taleb (Random House, 2007).

Hurson has a formula that he applies to organizations to help them
become more creative; part of his formula is using Galeforce—writing
down as many ideas as you and your team possibly can in five minutes (at
least 50) to solve a problem you face. By going really hard at the
problem in a short period of time, you prevent group-think from taking
over the session or guess-what-the-boss wants behaviours or satisficing
(settling for the first likely useful idea before you get any other
ideas on the table) or allowing your own or others critical judgment to
suppress ideas by saying things like: ‘that sucks’ or ‘that will never
work’ or ‘we can’t do that because we have never done it that way
before’ or ‘we don’t have the resources to do that’…

Hurson also has a six step Productive Thinking Model that he takes his clients through that looks pretty useful.

But one of the things that I think is missing from his model is provision for Black Swan events.

Taleb’s book’s title is based on the idea that just because you have
seen thousands of swans and all the swans you have seen are white, that
doesn’t mean that there aren’t any black swans. I think that Taleb’s
book will appeal to entrepreneurs a lot.

Go Travel Direct and Zoom Airlines

I have flown with GoTravelDirect.com a few times.

Their business model was certainly a sound one in my view. Let people
book charter flights and hotels online; fly from my home town (Ottawa)
direct to their vacation destinations without having to transit through
either Montreal or Toronto (which adds as much as one day to trip
times); fly and stay at nice places for not too much money if you book
well in advance and fly full planes and get cheap hotel rates because
you are delivering a lot of people to the resorts.

They later added to their business model by buying their own airline,
Zoom Airlines. This way, they would have more control over their
schedules and costs (or so they thought).

On the afternoon of August 28th, 2008, Zoom went bust and now (August
2009) GoTravelDirect.com has suspended operations. Clearly, the
consumer’s confidence has suffered.

I was wondering what could possibly have been done to prevent the
demise of Zoom. The business model absolutely requires people to book
well in advance. It is the only way to be sure that you can fly full
planes. And people who book in advance want certainty about the price
they pay and they want low prices.

But who would have thought two years ago that oil prices would reach
$140+ per bbl? If anyone tells you that they predicted that, they are
probably not telling you the truth. I predicted higher fuels prices over
six years ago (which is why I bought a VW Beetle at the time) but there
is no way that I would claim I foresaw $140 per bbl.

Neither did Zoom*. Their fuel costs went up over $50 million in less
than a year and there was no way they could pass those rising costs on
to their customers. This is a Black Swan event of the first order and
shows you that sound business models can go south in a hurry and
planning can be useless.

(* This would make a good case study and I hope one of my student
teams will take this on. If Zoom and GoTravelDirect.com had anticipated
the rapid increase in fuel costs maybe they could have built-in an
inflation factor into their pricing policies. But I would guess that if
they had done this, they would have lost many of their customers and
actually may have gone bankrupt even sooner. It is a difficult and
possibly intractable problem but, perhaps, some creative genius student
will solve the problem in his or her case study.)

I suspect that what the US experienced in 2008 and 2009 is not only a
Black Swan event but also something that Malcolm Gladwell described in
his book, The Tipping Point. Running (unsustainable) twin
deficits (Trade and National Account) for many, many years, the US
courted disaster during George W. Bush’s two terms. Either one by itself
might have been manageable but when combined with a credit crunch, a
housing meltdown, little or no personal savings, enormous household debt
loads (including high interest payments and rates, unsecured debt such
as credit card debt, ridiculous CEO pay levels tied not to long term
performance of their companies but to short term stock market
fluctuations, greed and corruption on Wall Street plus ever increasing
complexity and opaqueness in financial products), sometime in 2008, the
tipping point was reached and a non-linear event happened.

What I am saying is that being more innovative and creative is
important. I believe that you can learn to be more innovative and
creative. But part of that is learning to take advantage of
unpredictable events—somehow seeing that toothpaste powder and dental
floss go together or that getting my real estate broker’s license would
lead to a completely new situation in my life, a better one.

Entrepreneurs know that necessity is the mother of invention and,
while I wouldn’t wish all of the circumstances I have faced to be
replicated for anyone else, I think you have to recognize that chance
plays a big part in life. Mind you, you have to be open to change, be
able to see how seemingly unrelated things are, in fact, relevant to
each other and be prepared to seize the day.

Field Notes: Something Old is New Again

I collect stories about Personal Businesses for Life (PB4L). We can
all learn a great deal from people who have already bootstrapped an
enterprise, made it successful and kept ownership of it—away from Banks,
VCs, Angel investors, angry creditors, partners, ex-spouses, what have
you.

As we have already seen, a good source of ideas for PB4Ls might be to
visit your local Library and look at old copies of the Encyclopedia
Britannica. I recommend pre-World War II and even pre-World War I
vintage encyclopedias—what you are looking for are ‘ancient’ crafts that
you can reuse and recycle.

Former snowboarder, Aaron Draplin, created a $1 million per annum
business based on an old recipe—authentically crafted, offset printed
sets of Field Notes.

Field Notes Nostalgia

I am an inveterate note taker and the nostalgic look and feel of their website and product really appeal to me. See: https://fieldnotesbrand.com/. Their tagline, taken from one of their ancestors, is too precious for words: “I am not writing it down to remember it later, I’m writing it down to remember it now.”

There is a lot of truth in this—I don’t care what anyone says, there
is something quite different between writing something down using pen
and paper versus recording it on your tablet, say. Many authors over the
years have told me that they produce a completely different style of
writing if they eschew a computer (or for that matter a typewriter) and
write a novel by hand. No one does that anymore and it shows.

When we designed the Palladium (now called Scotiabank Place), you
NEVER saw the architects of record (Gino Rossetti and his son, Matt)
without their Field Notes and Sketch Pads. I asked Matt why, with all
the CAD software he has access to, he still used his sketch pad. He told
me: “Here’s why: I can create much more complex, much more graceful
architecture, much faster, with my sketch pad than with a computer. It
is much too confining.”

I still haven’t found any better way to control a business, even
large businesses, than through the daily making of lists of things to
do. I insist that people around me do that. Folks I know who use their
smartphones or PCs to control their calendars and to-do lists are much
less accurate and productive, I am sure of it.

This is not to say that I don’t love the tools we have available to us today. I am on record as saying: “I’m like the Scarecrow in the Wizard of Oz: I have half a brain. My computer is the other half.” So this post is not an argument against technology, just its misuse.

To survive today, you need to be innovative as well as productive and
I think Field Notes or just a simple pad of paper can still help you
with all of that.

Now Draplin and his partner, designer Jim Coudal, sell these 3” x 5”
books for $9.95 in sets of three. They have developed numerous sales
channels including their website, attendance at agricultural fairs and
250 retailers who have to apply to be accepted into their network. This
reverse snobbery works for them—these retailers have to prove that they
buy-in to their philosophy which includes: authenticity, “Made in the
USA”, use of local materials, a heightened sense of the importance and
central mission of design and fashion, transparency, and nostalgia for
community values of days gone by. Their clients go out of their way to
suggest to them which retailers might qualify…

They bootstrapped the firm—no VC money. Their marketing is based on
video documentaries they produced for an online community that focuses
on the Founders’ experiences with the development of Field Notes as well
as those of their suppliers, retailers and customers—they understand
that they work within a business ecosystem that nourishes them and that
they, in turn, embrace by involving them in the whole, evolving story of
Field Notes. Customers can post examples of how they use Field Notes
and learn from each other’s experiences with the notebooks.

Now let me tell you a story about Jeff Cavanagh from Thomas Cavanagh Construction.

A few years ago, I asked him: “Hey, Jeff, do you have a Blackberry?”

“No, Bruce, I got me a Strawberry instead.”

“What’s a Strawberry? I haven’t heard of a smart phone called the ‘Strawberry’.”

“Well, it’s this here little black, pocket-sized notebook of mine
where I write down all the things I gotta do with this little pencil.”

“But don’t you miss not having email, your calendar and a bunch of apps on your cell phone?”

“Nope. Look at it this way. Let’s you and me suppose that Sir
Alexander Graham Bell had invented email instead of the telephone, that
his patent in 1876 was for email not voice communications. OKAY?”

“Sure.”

“Let’s further assume that voice did not become possible until Tim
Berners-Lee invented the Web in 1991. So we reverse the order of
invention, OK?”

“Got it.”

“Then imagine the conversation you and I might be having today. It
might go something like this: ‘Did you see this new fangled thing that
just came out—it’s called a tell-a-phone. You can get someone on the
other end and you can actually hear what they are saying. You can pick
up nuances in their voices, you can laugh together, you can plan
together, you can negotiate and you can do it all in real time. It’s
almost as good as being there.

‘No more waiting, sometimes days, for someone to answer your email.
No more misunderstanding stuff just because you were trying to be funny
or sarcastic and it fell flat in yer email.

‘Or suppose you need something done urgently, you can actually get
some action by impressing upon someone the importance of what you are
saying by raising or lowering your voice—people are good at picking up
tonality on the tell-a-phone…’”

There is a lot of wisdom in this. The best way to do things might
just be a bit old fashioned—like having F2F meetings, like writing
things down, like making phone calls. Clearly, Draplin and Coudal have
found something special that people want and, by combining it with
modern marketing and distribution, they have created lasting value for
themselves and their families.

It will be hard to knock off Field Notes, not because you can’t
create a nice looking notebook too but because you can’t (easily)
recreate their dedicated community of suppliers, retailers, customers
who have also become friends/fans and followers and who have together
formed a bond around the themes that the Founders have woven together
into a compelling story.

Sources: Financial Post, December 6, 2010 story by Deborah L. Cohen: “Social media gives old medium new life”.

Identifying Risk Factors—A Case Study: Two Monkeys Coffee & Tea House Inc.

Here is a short case study of a new Personal Business for Life (a
coffee house) set up in suburban Ottawa by two partners, both in their
30s, Jill Sheppard and Rob Kay, who each own 50% of the business. The
current business environment is fraught with peril—they have opened
during a world-wide economic crisis that began in October 2008 and
continues, the location is a suburban mall (in Barrhaven, a suburb
outside of Ottawa, Canada) that is close to a relatively prosperous
residential area but the storefront is not easy to see or find, there is
a lot of competition from established national chains like Starbucks
and Tim Horton’s as well as local chains such as Bridgehead.

The students’ job is to read Jill’s description of the business below
and identify the risks for the business in addition to the ones
described above.

From your analysis, you should be able to describe all the risks you
have found and identify possible solutions. You will be talking to an
audience made up of family and friends who are thinking of investing in
this business.

The Case

From: Jill Sheppard
Sent: Friday, September 04, 2009 12:27 PM
To: Firestone, Bruce
Cc: Rob Kay
Subject: Two Monkeys Coffee & Tea House Inc.

Hi Bruce,

It was a pleasure to see you yesterday in the shop; it seems life
after we worked together at (unnamed tech co., ed.) has been good for
both of us.

I was thrilled to hear you enjoyed your muffin and tea yesterday –
the next time you come in I will try to coax you into trying one of our
loose leaf teas, I know you will enjoy every drop.

I have attached photos of the shop in hopes of taking you up on your
offer to be one of your students’ case studies. In terms of our “secret
sauce”, we believe there are four major components that contribute to
our ongoing success.

A. The first is my mom – she does all our baking and soup
making. That’s not just a name we put on the cook, she really is my
mom.

Everything we serve is made fresh on site. Our soup is made daily
from fresh ingredients and lots of love. Our regulars don’t even ask
what the soup and sandwich of the day is, they just order it and tell
us: ‘It doesn’t matter what it is, it’s going to be good.’

At Two Monkeys: Mom’s Cooking

Is Delicious

B. The second is our kids’ zone. Without a doubt, we are the
most family friendly coffee shop in the city. We are parents first and
we have designed the shop from a parent’s perspective. We have given
the front of our shop a traditional coffee house layout to ensure we
satisfy the need of those without “little monkeys”. We feel it’s a
great blend of both worlds. (Moms and Dads can actually go someplace and
get a tea of coffee and bring the tykes. No complaints here about
rambunctious kids, Ed.)

Kids’ Zone

C. We wouldn’t be an outstanding coffee shop without our fair
trade, organic, locally roasted coffee, prepared fresh 15 minutes from
our shop. It could only be fresher if we roasted in the shop ourselves,
which we won’t do for several reasons. Our tea selection is growing
almost daily. The best thing about being independent is the ability to
react to our customers’ requests. We can order any flavor as often as
we need to. Our suppliers are first rate and our relationship with them
ensures continued success for all.

D. And of course, we couldn’t be a great place to hang out if we
didn’t have a décor that worked for adults too—with comfortable seating,
lots to read, Wi-Fi wireless Internet (for free) and great service.

Comfortable Place to Hang Out for Adults Too

I welcome the opportunity to discuss this with you in more detail.
Obviously I am passionate about my business and could talk endlessly
about it. I love what I do and I love making Moms and Dads happy when
they are here.

One of the best comments I have heard in our short five months is: “I spoke in full sentences today and I had my kids with me.” The formula is easy… make the little ones happy and Moms and Dads are happy too.

It was also nice to hear you say: “Why didn’t they have a place like this when my five kids were little!”

As you know, we hope to start franchising the business and spreading the joy to other areas too…

I look forward to seeing you again and hopefully providing you with excellent service and outstanding products!

Kindest regards,

Jill Sheppard, Two Monkeys Coffee & Tea House Inc.

Instructors’ Manual

This section is not to be read by students until they have completed their analysis and pitch.

The risks the business is faced with include:

1. There are still two chairs in Heaven waiting for the first
partners to get there and still like each other. Will Rob and Jill (who
are business partners, have kids and are married but not to each other)
put in the same amount of capital, put in an equal share of the work and
have the same objectives over the long term?
2. A 50-50 partnership is one where there is no controlling mind—maybe
the two partners face a crisis and can’t decide what to do about it—they
are paralyzed/stalemated by their equal say.
3. Suburban malls tend to age poorly—there is little to prevent a newer
mall from opening up nearby and drawing traffic away from established
malls. Unlike most downtowns in Canada and Europe, there is no scarcity
of space that creates long lasting traffic patterns that also support
long lasting businesses.
4. They are renting space—many Landlords will raise rents for successful
tenants so that, if Jill and Rob are successful, the cream may end up
in the Landlord’s pocket.
5. Landlords are also fussy about changes to the premises and outside as
well—they may be limited in what they can do over time to change and
renew their premises.
6. What about relying on Jill’s Mom for part of their ‘pixie
dust’/secret sauce/differentiated value (DV)? What happens when Mom
retires?
7. Suburban neighborhoods change over time—kids grow up. Whole streets
tend to evolve together—soon the kids are teens and not going to Two
Monkeys for play time. Middle aged parents don’t tend to go out as much
either. Will Jill and Rob’s business dry up and blow away?
8. What about the name? ‘Two Monkeys’ may work today but will it work
long term? Aren’t demographic trends (favoring smaller families or
households with no kids) working against them?
9. What about City of Ottawa policies favoring downtown inside the
Greenbelt development over suburban development? Will that curtail
growth in Barrhaven where they are located?
10. They are thinking of franchising their concept but are they a generation or two too late?
11. Will franchising work without Mom in each store? Is there enough pixie dust and DV to sustain a franchising expansion plan?
12. Should they focus on getting their first store to the stage where
they have proved the concept, that it is sustainable, that they can make
real money before even thinking of franchising?
13. How can they survive competition from established chains like Starbuck and Tim Horton’s?
14. Could their competitors mimic part of their secret sauce by, for example, adding playrooms for kids?
15. Maybe they shouldn’t have opened during the worst recession since the 1930s?
16. Lastly, what is their ‘Magic Marketing Button’? Their storefront is a
bit hidden. What is something inexpensive and effective that they can
do to attract customers for the first time? We can be pretty certain
that they will probably keep their clients coming back once they have
stopped by once; but how to get them in the door that first time? If
they can’t find some marketing that really works in a cost effective
manner, their business is sunk.

Conclusion to the Case

At the end of the day, every enterprise is started not because a
hard-headed analysis says it will be worthwhile doing. New enterprises
are started as an article of faith—the founder or founders believe that
they can make a difference and that their endeavor will succeed.

This is not an argument against quantitative analysis—setting goals,
financial and otherwise, is very important. Knowing what your breakeven
is, aiming for that plus enough to sustain you and your family and your
employees and suppliers and other stakeholders is incredibly important.

But most new enterprises take twice as long as you thought to get off
the ground and twice as much money plus three times as much effort. In
most cases, if you knew then what you know now (to paraphrase Bob
Seger), no one in their right mind would start a new business.

But I am proud of Jill and Rob and their new place and I believe it
will be successful. It is up to you, students, to deal with the problems
I have outlined above and identify other challenges and their
solutions. I just get to be a cheerleader here for these entrepreneurs.

MINI HERB FARM IN THE SUBURBS

You never know where a Personal Business for Life (PB4L) may pop up (so to speak).

Here is an example from BusinessWeek and the Wall Street Journal,
where they are turning small properties in the suburbs into
profit-making herb gardens.

They have to pitch landowners in the suburbs and convince them as to why they should rent them their gardens for the season.

It is not just that this represents local food growing and a (small)
contribution towards a more environmentally sustainable economy, it
could be a cool thing to do with your family as well:

Mini Herb Farms in the Suburbs

Here is an analysis on the above:

Area 0.125 acre
43,560 sq. ft. per acre
5,445 sq. ft.
Cost of Plot $5,500 BW
Start up Cost $2,000 BW
Sales $15,000 est.
Gross Margin 30% est.
Gross Profit $4,500

IRR Cashflow
0 ($7,500)
1 $4,500
2 $4,500
3 $4,500
4 $4,500
5 $10,000
$20,500
IRR 58% p.a.

Assumptions:

a. You sell for the same as you purchased for at end of year 5.
b. You can probably require most developers to put aside
more than 5% of their lands for parkland and mini farms
too. You might even be able to get a plot for a de minimus
annual rent.

To download the above in .xls format, please go to: https://dramatispersonae.org/MiniHerbFarmInTheSuburbs.xls.

You may also want to introduce some innovation of your own—perhaps
you could stress organic farming as a competitive advantage here or
instead of renting property (you pay the landowner), you could get the
landowner to pay you! E.g., you could open a ‘school’ and teach the
landowner how to start his or her own mini herb garden. You could also
sell them seeds, fertilizers, soils, books, manuals, even merchandise.
You could help them to sell their produce and take a cut. You could act
as a middleperson and arrange for a local merchant to sell their
products.

GradeATechs.com

So you want to start a new business? Which one should you select from that list of ideas you have?

Selecting the right one is very important—one of the things you learn
about successful entrepreneurs is that they know which ideas to choose
to put their efforts behind. Even more importantly, when they choose
wrong, they admit it and go on to other more worthwhile endeavors.

When some of my engineering students from the Carleton University and
the University of Ottawa came to me after graduation with their list of
six ‘great’ ideas, five were either impractical, required an amazing
amount of R & D, needed the world (read markets) to come to them or
required a huge amount of startup capital. Then there was the sixth
idea—which turned out to be GradeAStudent.com (today rebranded as
GradeATechs.com or just Grade A).

Their value proposition was simple—we will come to your home or place
of business and fix your PC or network: on-site computer repair and
training at a fraction of the cost of the computer repair industry. The
results have been outstanding.

There was only one problem they said– NerdsOnSite.com was already up and going.

Is this a problem?

No!

Why not? Because they had:

• a strong value proposition;
• a huge and growing market.

If it is a good idea, there will be competition. If it is a bad idea, there won’t be but so what?

It’s a BAD idea!

What they needed to do was out-execute the competition by:

• Providing superlative Customer Service;
• Using GASnet to reverse out the work to clients and suppliers.

GASnet was a match-making service; it linked techies and clients. For
first time ever, a service business is scalable due to the Internet.

GradeAStudent.com was not the first at home computer repair service
but their execution was good and they used their back end system
(GASnet) to automate their appointments and their billing systems.

Grade A Techs

They have turned it into a multi-million dollar biz (Ottawa,
Mississauga, Montreal, Tampa, Bellville, Brockville, Oakville, Gatineau,
etc.)

Your biz idea/biz model has to meet the following criteria:

1. you must be able to bootstrap it (GAS was started with around $10,000);
2. you must be able to use Guerrilla Marketing (GAS used lawn signs and market by press release);
3. it doesn’t have to be the very first of its kind (GAS had NerdsOnSite to contend with);
4. but you don’t want to face humongous competitors though (like if Dell or HP were in the GAS space say);
5. there has to be BIG demand (probably 20 to 30% of PCs in NA don’t
work at all or less than optimally at any one time; so GAS’ market is
probably 120,000,000 PCs just in NA alone at any one time);
6. you must be able to get customers without killing yourself and they
must become repeat clients which gives you recurring revenues (once
people hear about GAS and use GAS, they use them over and over again);
7. the biz must be able to grow big enough so that you get more out of
it than if you just worked for someone else in a JOB (GAS could be a
$100m per annum biz);
8. you need to bring some creativity and differentiators to the industry
(GAS uses GASnet to match student techies and customers and to invoice
instantly; they also use fixed pricing);
9. you need to be able to explain your value proposition in less than
two minutes (GAS provides at-home COMPUTER SERVICE at prices you can
afford; no need to disconnect your PC, take it to a repair shop, wait
three weeks, pay an unknown amount, take it back home, reconnect it to
find it still doesn’t work properly or your hard drive has been wiped or
both.)

LeNakedLunch.com

You are the Chef running a high-end restaurant at 4816, rue
Wellington, Montréal, Québec and you are trying to convince your two
partners to sell the restaurant to your employees and focus exclusively
on canning your recipes and selling them across the planet in specialty
shops and at trade fairs and shows like the Fête des vendanges in
Magog-Orford, Quebec.

You just came back from a visit with your accountant and he told you
that last year you made around $55,000 from your restaurant and deli
counter. You worked unbelievable hours running the restaurant and you
have a dedicated client base that love your food.

You speak some English but like many Québécois, you feel more comfortable in French.

As you were leaving your accountant’s office, he offhandedly told you
that one unusual thing he noticed was that your deli counter made le
Chef and his partners almost 80 grand last year. You didn’t think too
much about this but a few days later, you found yourself awake at 3 am
with a thought: “If we made $80k from our puny nine foot long deli
counter but only $55k overall from the whole enterprise, is there a
message here for us?”

You know you are a great chef with unbelievable recipes—this is your
business’ ‘secret sauce’. Colonel Saunders had his 11 secret herbs and
spices, Coca Cola has their secret formula but how many people know how
to make your Smoked Meat de Canard that sells for $18.95 per tin (CAD)
or TAJINE DE LÉGUMES À L’OLIVE ET À L’AGNEAU that sells for $14.95 for a
tin that holds 530g? Answer: only one person knows how to do that—you.

Le Naked Lunch

What if you could work 1/3 fewer hours, travel the world selling your
stuff, visit fabulous places, meet cool people, sell online and in
specialty stores? What if you could actually make money by selling your
restaurant to your employees and make still more money by selling them
your products on an ongoing basis too? Is the fact that you made more
money from your tiny nine foot long deli counter selling take home
products than running a complex operation like a high-end restaurant
with its long hours, demanding clients, needy employees and greedy
landlord, is this telling you something?

(It’s interesting to note that when you disaggregate results for even
quite small businesses, you can learn something new. In this scenario,
the deli counter is making an $80,000 profit while the overall business
is seeing just $55,000 on the bottom line. That means the restaurant
itself is losing $25,000 per annum.

When we ran the largest mini-office operation in eastern Ontario, we
found that we made money renting minis but lost money in our word
processing and services division. Rather than closing it, we did
something similar to what the owners of Le Naked Lunch did: we sold it
to an entrepreneur. Within six months of buying it from us, she had
turned a $3,500 per month loss into a $4,500 per month profit.
Meanwhile, we received $45,000 from selling the biz, its equipment,
client list and lease plus we turned a monthly loss into a new rental
income stream (she paid us rent for her space).

Also, when we were a partner in Rentalex Tool and Equipment Rentals,
our analysis found that the 16 locations in Ottawa were making money and
all 17 locations in Toronto were not. We sold the locations in TO to
our chief competitor and between the money we got from our leases there,
our inventory and goodwill, we made enough to recover all our losses
from the Toronto operations since their inception. We also turned an
overall annual loss for the company from a negative $800,000 to a
positive $1.4 million per year in just two years. As my father, the late
Professor O.J. Firestone, said: “Keep the winners and dump the losers.”

Please note: that the accounting scenario presented above for Le
Naked Lunch is created by the author as a plausible set of circumstances
for the change that took place for the Chef and his two partners based
on a discussion with one of the partners in Magog, Québec in September
2009.)

Bootstrap Capital

How can you start a great business or, for that matter, a PB4L, with
no money down? How do you get ‘table stakes’ so you can have a place at
the table too? The rule today is, if you have cashflow, you will get
financed, not the other way round.

There really are no ‘no money down startups’; there are only those
with little money down. In reality, every business requires some
investment. What we are talking about is starting a business with an
amount of money that is really de minimus with respect to the size of
the opportunity.

The late Mark McCormack started a world-leading sports management
business (IMG, International Management Group) with $500, his law degree
and Arnold Palmer as his first client. Mind you, it doesn’t hurt if
your first client is an Arnold Palmer.

Probably less than 1% of all startups ever get any funding from VCs;
that means that 990 out of 1,000 new enterprises are forced to use
bootstrapping as their only means to success.

Some observers feel that bootstrapped businesses, ones that start
with nothing, can actually be better businesses because they are more
focused on results as well as efficiency and economy of effort.

They certainly appear to be hardier if they manage to get by their first few years.

Maybe it is the same difference between people who win the megabucks
lottery as their way of becoming rich and the self-made entrepreneur.
Many million-dollar lottery winners are worse off five years after their
big win than before; by that time, they have blown their dough on can’t
miss opportunities and they have no J.O.B. to go back to. Whereas,
someone who earned it himself or herself knows how hard it is to do it
and are less likely to throw it away.

I find that students and others cite the reason they can’t start a
business as not having any money are really saying that they are afraid
to start a business. Now it’s true that starting a capital intensive
business like, say, an alternative energy photovoltaic farm can not be
done without funding. But that does not mean that the entrepreneur has
to have the money in his or her piggy bank before starting.

Entrepreneurs, almost by definition, have no (or very little) money.
But if I was starting a photovoltaic farm, I would look for capital from
strategic partners—you can identify those people by asking the
question: Who benefits? This would include: power generators, power
distributors, power consumers, land owners, Provincial or State Economic
Development agencies, equipment manufacturers, constructors, indeed,
all stakeholders are also potential investors.

Maybe you could pre-sell five years worth of power to a large
industrial products company and get cash up front for that contract.
Maybe you could get equipment from photovoltaic manufacturers with no up
front payments in exchange for a cut of your power sales. Maybe a
friendly landowner would give you a land lease for $2 per year plus a
cut of your power sales. Maybe you could get a higher rate for your
green power*.

(* In Ontario, you can get 42 cents per Kwh or more versus around 8 cents for conventional power.)

So even a capital intensive project like this might be amenable to a
bootstrap approach. Certainly, the longest journey is one where you
never take the first step.

Here are some sources of Bootstrap Capital. This is a partial
list—which is all it can be: there are as many varieties of bootstrap
capital as there are ideas out there in the minds of clever
entrepreneurs.

(For the Last Word on Bootstrap Capital, please see: https://www.eqjournalblog.com/?p=1162.)

1. Soft Capital: Mom, Dad and rich Uncle Buck; basically this is a
friends (Angel Investors) and family round of financing either formally
or informally organized.
2. Home equity loans.
3. Business plan competitions for cash (e.g., the Wes Nicol Competition or the Celtic House Competition.)
4. Future customers, clients or launch clients (e.g., homebuyers in Ontario can be asked for deposits of up to $20k in advance).
5. Future suppliers can sometimes be persuaded to extend long term
credit to you (e.g., Vendor financing of 30, 60, 90 days or more) or
invest cash in your business since they have a lot to gain if you become
another (good) customer of theirs. They will probably want a long-term
supply agreement though.
6. Strategic partners (like Ogden was for the Ottawa Senators in return
for a 30 year arena management deal plus F&B deal, they invested,
loaned and guaranteed significant capital to/for the nascent team.)
7. Micro capital lending and grant programs; for example, the GOC’s SBL
Program (Small Business Loan or other government-sponsored sources of
start-up capital like the Ottawa Community Loan Fund.)
8. Supplier rights, product placement and licensing fees (for example,
Molson’s purchased pouring rights for Scotiabank Place and the Civic
Centre after the City of Ottawa was awarded a franchise by the NHL in
December 1990 but before they commenced play in October of 1992. Another
example was the selling of 15,000 PRNs (Priority Registration Numbers)
during the Bring Back the Senators campaign of 1990 for $25 each. Each
PRN holder the right to purchase a season ticket in their preferred
location in numerical order, if the team was awarded to the City of
Ottawa in the NHL expansion round of December 1990. Note, however, that
there were no refunds if they were not successful. For $25, one got the
right to purchase a season ticket and a bumper sticker and a cool
looking certificate too.)
9. Patent or other IP licensing fees and royalty payments (e.g., Noma
Industries purchase of the rights to LED Xmas light strings).
10. Consulting services (a lot of entrepreneurs support their startups by providing consulting services at the same time).
11. Partners.
12. Debentures.
13. Financial leasing of fixed assets.
14. Receivables factoring.
15. Publisher’s advance on a book or script.
16. Sponsors (see for example the signing up of 500 Corporate Sponsors
at $500 each and 31 Original Corporate Sponsors at $15,000 each for the
Ottawa Senators before the team was awarded. Or for example, getting
sponsors like a beer company, an accounting company, a law firm and
others to put their logos on a new curved gold club that a client of
mine is coming out with (it helps golfers drive the ball straighter).
Not only are these types of firms looking for ways to get in front of a
valuable audience like golfers, they are also looking for ways to
advertise that is non-zappable. Every time a golfer brings the club out
of the golf bag for the next five to ten years, they will see sponsor
messages. From the POV of the inventor, sponsors not only defray part of
the cost of producing the new drivers, they are also a distribution
channel. A beer company, an accounting company, a law firm or others
like this will probably buy a number of clubs each year of their
sponsorship to give out to their valuable clients as prizes or than
you’s. So sponsorship applies not only to large businesses like pro
sports teams but to startups and SMEEs as well.)
17. Trading activity: buying low and selling high, taking advantage of
arbitrage opportunities (like finding out what percentage of dot-CA
holders do not have their dot-COM equivalents and the dot-COM
equivalents are available and then selling them the dot-COM extensions),
building-businesses-to-sell, buying and selling and buying and selling
and trading up, … Check this out:
https://oneredpaperclip.blogspot.com/. This person traded a red paper
clip for a pen and traded the pen for a doorknob and then for a Coleman
stove and then for a generator and then for one instant party and then
for a snowmobile and then for a trip to Yahk and then for a cube van…
His idea was eventually to get a home for himself, which he did and now
they are trading the house for who knows what…
18. Credit cards (oft used strategy but dangerous because of high
interest costs and what can happen to you and your credit rating if you
fail to make payments).
19. Scientific R&D Tax Credits (e.g., SR&ED from the GOC).
20. Extracting upfront value from your lease for office space– an example of a services company that got $800,000 upfront.
21. Reverse or Negative Pledging of Assets (e.g., O & Y not pledging
the value of an office tower to anyone and extracting loans from banks
based on the value of their real estate and based on their not agreeing
to pledge it to anyone. Another dangerous strategy because you can end
up over-leveraged.)
22. Co-guarantor: borrowing someone else’s stronger credit rating (e.g.,
Scotiabank Suite Leases pledged for construction financing or Mom or
Dad co-signing a loan…)
23. Accretive buying: buying another company with the target company’s
balance sheet as collateral where you end up with more cash than before.
(E.g., Disney buys the Mighty Ducks of Anaheim for $50m: $25m goes to
the NHL and $5m per annum for 5 years goes to Bruce McNall and the LA
Kings. Then they borrowed $35m against the asset and, after receiving a
$20m leasing inducement from Ogden to enter into a 20 year lease for
Arrowhead Pond, they had more cash on hand after than before they bought
the team.)
24. Accretive Selling: sell products or services with financing in place
where you end up with more cash after the sale than before (e.g.,
Leon’s don’t pay a cent until…. (OAC). Leon’s than turns around and
sells the sales contract for cash.)
25. Employee ESOPs (Employee Stock Ownership Plans).
26. Pre-sold services. (For example, here is an example from Craig
deSchneider, a student in EC 491 (2003): “In looking for some start-up
capital for our automotive related business, myself and my partner
offered potential investors future discounts through our business. In
selling automotive parts, we had accounts set up with distributors,
accounts which could only be set up through having a business license,
tax numbers, and some negotiating, so the average person off the street
does not have access to these discounts. We set no specific investment
amounts, simply the most the person could afford. We kept these
contributed amounts a secret among the different investors as we offered
them all the same return. Therefore, in return for a fair investment,
we extended to our investors cost prices for all of their future
purchases through our company. The only limit we set on this agreement
was that the investors’ annual purchases could not exceed our company’s
sales revenue from our average monthly sales figure (not including cost
purchases made from investors). The overall idea was to provide our
investors a very fair return on their investment, and at the same time,
these investors would promote our company. Why you may ask, well the
greater our monthly sales were, the greater the amount of goods they
could buy for themselves at a cost price.” Ed.: Basically, Craig and his
partner turned their investors into customers and their customers into
investors. Nice going.
27. Collectibles sales and auctions. Here is a new one. Michael Moshier
put the original version of his SoloTrek flyer up for auction on eBay,
hoping a museum would pick it up. It didn’t even fly but by January
12th, 2003, the bidding on eBay had already reached $6.5 million USD:
money he planed to use to fund his Trek Aerospace startup. Cool.
28. Extended family savings and investment fund: an old style of
acquiring start up capital is to have the extended family contribute to a
pool of funds to help family members acquire or build businesses.
29. Vendor Take Back mortgages: typically used in real estate
transactions, the Vendor provides some or most of the financing for the
sale by way of a (first or even second) mortgage back to the Purchaser.
30. Sweat equity.
31. Investor syndicate or investment club.
32. Retainers (typical for consulting services or legal and accounting services) and deposits on sales.
33. Collecting early and paying late (boosts cashflow in the short term).
34. Progress payments and deposits on contracts.
35. Advance ticket sales.
36. Becoming a reseller (this is big in the Internet age where you can
set yourself up for practically nothing as an agent to resell services
such as domain names or web hosting). There are a huge number of things
that can be resold on the Internet: many sites generate large revenues
by reselling ads powered by Google or other providers. Check out this
silly site which generates up to 8,000 so-called facts on Chuck Norris
and got 18 million hits in December 2005. Really the purpose of the site
is to generate clicks (by asking people to rate the facts) which
generates a new ad and maximizes revenues for the site’s
owner:https://www.4q.cc/chuck/. Or have a look at this site:
https://www.milliondollarhomepage.com/. Here the young person (age 21,
based in the U.K.) apparently wanted to pay for his tuition and so he
created a million pixel home page. You could buy an ad for $1 per pixel
(minimum ten pixels) linked to your site. He sold all 1,000,000 pixels
so guess what? He got his tuition and a lot more. I presume the ads are
for a limited time so he also has the chance to resell the million
pixels over and over again. The site gets a LOT OF TRAFFIC. Remarkably,
this might be a sustainable business (a Personal Business For Life!)
37. Importing.
38. Distributing.
39. Exporting.
40. Exploiting signage rights.
41. No money down, land speculation.
42. Using OPM (other people’s money).
43. Asset flipping.
44. Buying under power of sale (again, real estate related).
45. Buying distressed companies and turning them around.
46. Day trading.
47. Asset speculation.
48. Franchising.
49. Branchising.
50. Training and uniform fees (e.g., GradeAStudent.com required each of
their contractors to be Grade A certified before they could provide
services to clients and customers and get access to the billing system
and the appointments calendar (a system called GASnet). To be certified
the contractors had to pay in advance to take the course.
51. Pre-sales in real estate allows you not only to ask for cash
deposits but also may give you access to Bank or private lender
financing. For example, if you pre-sell 50% of your condo or townhouse
project—you can usually qualify for construction lending where, in
essence, your Bank or private lender is advancing you money to build the
condos or townhouses on the basis of the strength of the credit ratings
of your customers (buyers) and not your credit rating per se.
52. The same type of thing can help you a lot if you are a manufacturing
business: if you have a guaranteed supply contract with a credible
client or customer, you can often finance against that.
53. Land options: sometimes you can convince a landowner to give you an
inexpensive option to buy his or her land at a fixed price at a later
date. You can then use the time to set up a sale office and begin
pre-selling. As discussed above, you can then take cash deposits (which
are impressed with a trust in that the money doesn’t really belong to
you until you actually have delivered the condo, townhouse, single
family home, whatever), finance against Agreements of Purchase and Sale
executed by you and your clients, approach a Bank or private lenders for
funding (often through a mortgage broker), arrange for private equity
lenders or other investors to invest in your project, etc.
54. I recently learned about a new method of bootstrap capital from my
daughter, Jessica. One of her best friends lives in a single parent
family. Her friend’s parent is unable to work and lives on a modest
income. However, every year they are able to take a family vacation to a
nice destination in a rented van. How do they afford to do that?
Bootstrap capital. They take with them five other kids: each kid pays
$250 for a week’s holiday: that’s a total of $1,250, enough for a
camping holiday and some neat adventures too. It pays for the gas, the
van rental, food and a few outings. The kids` parents contribute cash
and their children,

Jessica’s friend and her parent go for free but they provide the opportunity. Everyone wins.

At the University of Ottawa’s Telfer School of Management, we are
focused on the bootstrap entrepreneur. There are other colleges and
universities where the VC track takes prominence.

So self-capitalization is an important area of study and research.

If Canadian Banks had their way, they would probably do no small
business lending at all. If you go to the bank for a small business loan
(SBL) of, say, $350,000, you will find that: a) they need a massive
amount of data from you and b) they need an expensive infrastructure in
terms of on-the-ground bank managers, loan officers and back office
types to approve your loan application. If they could get away with it,
they would probably choose to turn down nearly every small business loan
request and eliminate a whole cadre of Bank staff.

Other students tell me that they want VC funding. I believe that most
startups have about as much chance of attracting VC funding as they
have of winning the annual Ottawa Hospital Lottery and probably less.

First of all, most business startups don’t have the growth prospects to attract VC funding.

Secondly, most startups are in industry sectors that don’t appeal to VC funds anyway.

Thirdly, most startups should be much further along in their
development before they go after VC funding, if they ever do. If your
business has real cashflow and real customers and clients, you are on a
much more even footing with respect to negotiating a fair agreement with
VCs, if that is what you choose to do. Finally, it is much more
efficient for Canada if VCs fund more mature companies that are at a
stage where large capital injections are: a) less risky, b) more
inclined to be put to wise use by (now) experienced entrepreneurs.

So if you plan to start a business and you don’t want to give up
control and a ton of equity to VCs and Vulture funds, learn everything
you can about self capitalization—you are going to need it.

I have always believed that (most) debt is less expensive than equity but many of my students view equity as ‘free’.

Let’s suppose you want to start that mini farm business we looked at
above and you need $7,500 to start it. The mini herb garden business,
under certain assumptions produces cashflow of $4,500 per year and a
return of 58% p.a. (This is an IRR, Internal Rate of Return.)

Now let’s say you are like me and know nothing about farming so you
decide to bring in a partner who does and you are going to give her,
say, 1/3 of the business and she is going to put up 1/3 of the startup
capital or $2,500. You can not only use the extra expertise but also the
extra dough and since it is equity, there are no interest or monthly
repayments. Phew, you say.

Maybe she is a great partner but let’s assume as in many
partnerships, this is your idea, your baby and you are the one with the
most enthusiasm. So after giving you a few tips that you probably could
have found on the Internet yourself (like how to grow herbs organically,
without pesticides, and not let the bugs eat them all either), she kind
of loses interest and you end up doing most of the planning, planting,
weeding harvesting and sales.

You become a bit resentful because you have to give her 1/3 of the
annual profits ($1,500) and it is bugging you that she is getting a heck
of a return ($1,500 each and every year on her $2,500 investment) and
not putting in her fair share of the work.

Her ROI is obviously the same as yours: 58% p.a. (Don’t make the
mistake of thinking the ROI, Return on Investment, is $1,500/$2,500 or
60% p.a. Be a bit more rigorous and use the IRR as a lifecycle approach
to analyzing projects.)

Now let’s say you had to borrow this extra amount on a credit card
instead of getting it for ‘free’ from your partner. Many credit cards
charge you 14% to 28% p.a. depending on your creditworthiness (which is
what Banks determine using your beacon score). Even at 28%, you are
borrowing for much less than the cost of your equity which is 58%!

So the advantages of debt are:

1. It is usually cheaper than equity.
2. You don’t have to put up with a partner.
3. Decision making is fast: your Board of Directors meets in a closet (i.e., you meet with yourself).

The advantages of a partner are:

1. If there is a problem in the business, you may have an extra pair
of hands around to help you deal with it (if the partner doesn’t throw
up her hands and bug out on you).
2. You have access to what you hope will be patient capital.
3. You hope she brings expertise that you don’t have to the table.

Most partnerships end up badly and you will have to buy her out, let
her buy you out, sell the business or shut it down. Now if in the above
example, your partner likes the returns she is getting and say she puts a
11 cap rate (capitalization rate) on her share of the annual profits,
then it will cost you a LOT to buy her out.

Here is how it works:

Cap Rate = NOI/S.P.
where, NOI is Net Operating Income and S.P. is Selling Price.

Obviously,
S.P. = NOI/Cap Rate.

Therefore you are going to have to pay her:
S.P.(your partner’s share of the business) = $1,500/0.11 or $13,636.36.

You have turned a $2,500 problem into a $13,636.36 problem in a hurry.

So:

a) don’t have a partner to begin with if you can avoid it;
b) use debt or bootstrap capital to fund your business because it will probably be cheaper in the end;
c) understand that there is a higher risk with debt.
Debt is like the hare and the tortoise running around a track. Debt is
the hare. You are the tortoise. If you take on debt (especially bad debt
like credit card debt), your tortoise better be relentless and get
around the track because he is working all the time to pay off the debt
as soon as he can. Once the hare catches you (in a foreclosure or power
of sale or bankruptcy), you are probably dead.

Maybe instead of ending up borrowing the extra $2,500 from a credit
card, you could have got a loan from Farmers Credit or a government
grant program to grow more food locally or even gotten a pre-order from
Whole Foods or a few organic food shops in your area that included a
down payment on their first herb orders that just happened to equal
$2,500. The latter has an interest cost equal to zero and also gives you
a secure feeling that once you start producing herbs, you will have
customers!

Negative Cost Labour

Sometimes, you can turn a cost into a negative cost. A former
architecture student of mine, Dominique Tonetti and her husband, Frank
Dutton, are managing to do that on their new project, Solisterra in
Québec.

Dominique and Frank are building wonderful straw bale structures on a
150 acre property they own in West Québec (in Kazabazua) close to
Ottawa. The lands are beautiful—abundant wildlife, several lakes plus a
huge variety of trees.

They are going to build off-grid cottages on their lands that will be
rented by the week to people who want to de-stress and live a simpler
life. (Where do I sign up?) Some of the things they are working on
include: straw bale construction, solar electricity, solar heating (for
hot water [which I really like]), solar ovens and green roofs.

Negative Cost Labour/Straw Bale Construction

They are determined to retain ownership of their property, not go
into a mountain of debt (and thus run the not insignificant risk that
the bank or finance company will one day own the cottages and the lands)
and yet produce seven or eight cottages, a rec hall and a retreat to
compete with the best in Eastern Ontario or West Québec. How will they
do that?

First, they turned down ruinous interest rates from some predatory
financiers who were going to advance construction funds. Not only were
their interest rates punishing, they also required large fees—fees when
they originate the loans, fees when they provide a draw, even fees when
you pay the thing off with a permanent mortgage. And on top of that, Dom
and Frank would have to pay legal fees and appraisal fees. Every time
they want a draw, they would have to beg the appraiser to come out, then
beg him or her for a decent appraisal, then beg the loan company and
lawyer for a draw that was enough to pay all the darned fees plus their
costs of construction (less the 10% holdback).

A friend of mine (another former student, Matt Nesrallah, who runs
his own financial advisor shop at Primerica) told me that the most
powerful force in economics is compound interest. This is not a new idea
but it needs to be said again here. If your repayments to a Bank or a
credit card company or the IRS or CRA compounds at a high rate of
interest, you’re doomed.

So Dominique* and Frank decided to:

a) build the homes themselves thus reducing the cost of construction;
b) build only one unit at a time thus reducing their cash requirements further;
c) take a low interest rate mortgage on their existing home to fund what out of pocket costs they do have;
d) lastly, Dominique has offered to train and teach people straw bale construction.

In effect, she is running a school and can charge people for coming out and working on her project.

They learn design from Dom, they learn construction techniques, they
work with their hands which can be therapeutic, they work in a lovely
setting with great people, they have fun, they feel like they are a part
of something bigger than themselves and they gladly pay for the
privilege.

THIS IS NEGATIVE COST LABOUR.

Now how about that?

* Comment from Dominique:

Bruce,

It is a good story, it makes us sound more business savvy than we
feel, but it is indeed how we operate. A small correction however,
Solisterra is 350 acres, 150 of which is the two lakes. The workshops go
beyond straw bale construction.

Since we needed extra arms and many people wanted to learn how to
build their own dream homes, we discovered that we could “sell”
knowledge of: a) timber framing (which is very easy to build when you
know how), b) masonry ovens, as well as c) installation of solar
electric systems.

For next year’s unit, we are putting together a 10 workshop package
(some people really want to know every step from the foundation up) in a
one price deal. The great thing for us is that people become much
handier by participating in our workshops…

I almost feel guilty charging them when they become very useful…but
not quite! I have to remind myself that knowledge has a price. I learned
all these construction techniques the hard way. I had to perform many
tests before I could write specs (with a good conscience) to accompany
my plans on previous projects.

Thank you for thinking of us for this story.

Dominique

Bootstrapping the Senators

Let’s look at another example where I have some direct personal
knowledge—the steps we took to secure a National League franchise for
Ottawa.

Step 1 (Generate Idea): Driving down the Queensway in 1987 wondering
what I could do next, I asked myself what does Toronto have that we
don’t? (Ottawans constantly compare themselves to big brother
Torontonians). Ah, back came the answer: “They have a NHL team and we
don’t.”

Step 2 (Apply Ingenuity): To clip the wings of any other potential
bidders arising locally, we secretly bought 600 acres of land for a new
arena, rezoned it, sold 15,000 PRNs (Priority Registration Numbers,
basically giving people the right to buy season tickets in the then
non-existent franchise), signed 500 corporate sponsors and 31 original
corporate sponsors to help us in our campaign to BRING BACK THE SENATORS
(a team that had played in the NHL until 1934 when they transferred to
St Louis because of the deepening Depression).

Step 3 (Have Courage): The local media wrote a story the night before
we won the franchise that there wasn’t much hope for success for our
bid.

Step 4 (Form Team): We had a superb group of young, talented and
extremely dedicated executives, all trained by me. THEY WOULD’T BACK
DOWN.

Step 5 (Execute Well): The campaign was tightly focused on the only
people who mattered—the 21 voters (Members of the Board of Governors and
owners of the NHL Member Clubs) and the President of the League too.

It took a great team of unimaginably dedicated people to BRING BACK THE SENATORS.

I still remember an Ottawa Citizen headline a few days before we got
the Ottawa Senators franchise: “And the winners are … Seattle,
Milwaukee.” That hurt.

Of course, it was Ottawa and Tampa.

The night before we won the franchise, one of the voters (i.e., a
member of the Board of Governors) told me (at a NHL dinner thrown for
the nine bidders) with his face just centimeters from mine: “You’ll
never, ever get a franchise for Ottawa.”

I can remember Norm Green, then Owner of the Minnesota North Stars,
coming over to my table and asking: “What’s wrong.” “Nothing,” I said.
“Well, get that schmucky look off your face, kid, and get out there and
hustle.”

Good advice. Lydia Leeder, in Ottawa, on hearing that comment from
her spouse, Cyril later that night said: “You can’t stop now! It’s just
like the Canada/Russia series of 1972. Canadians never quit. Everyone is
running to their radios every half hour for an update … We’re counting
on you.” Now that’s pressure!

We did just that and in fact the last thing the Board of Governors
saw before they shut the door to consider the matter the next day at
8:00 am was my nose and the faces of my whole team.

We never stopped.

At about noon that day, the pressure was enormous and frankly getting
to me; so I went for a run along the beach (this was Palm Beach in
December- actually December 6, 1990). I returned at about ten to one and
saw some of my team members waving frantically to me. “What’s up,” I
asked. “The NHL has asked all bidders to be in their suites at one for
an announcement,” said Connie Cochran. “What announcement?” “They didn’t
say.”

Without a shower, I changed into a suit. At one, NHL security took us
down to the basement of the Breakers Hotel, a huge antique of a hotel.
Next to rotting garbage and standing under dripping pipes, I turned to
my colleagues to say: “Fellows. This doesn’t look too good. You have
done everything that you could do. I am proud of you. If we have lost,
we are going to thank the NHL for allowing us to join this process, we
are going to congratulate the winners and then we’re going to have a
press conference to announce- ‘we’ll be back’.”

Then NHL security took us up to the meeting room. Marcel Aubut (of
the Quebec Nordiques) gave Randy Sexton, a big hug: “Felicitation, mon
ami,” he said. We thought he was congratulating us on a good try!

When I went up to the front of the room and sat next to John Ziegler,
I saw the words: ‘The NHL is proud to welcome, as conditional Members
under the Plan of Sixth expansion, the cities of Ottawa … and Tampa.” It
was a magic moment.

Winners never quit and quitters never win.

(Footnote: After collecting myself for a few minutes, I asked Mr.
Ziegler what the final vote was and he told me with a nonchalant shrug:
“It was unanimous, 21 to 0.” About six weeks later, I did call the
Governor who had told us that we would never, ever get a franchise. He
told me that his comment was part of a plan by a few Governors. They
told each bidder the same thing; it was a character test designed to see
how each bidder would react. Two of the bidders stormed out; they
weren’t successful. Only two bidders got up the next day to continue
lobbying until the last possible second—Phil Esposito (leader of the
Tampa group) and us.)

Now is it possible to bootstrap a NHL expansion franchise that cost
$50 million US to purchase. Well, the answer is a qualified yes.

The Ottawa Senators were supposed to be an accretive arrangement too. (Not all good plans work out I am sorry to say. Oh well.)

Cyril Leeder, Randy Sexton and I dreamed up the idea of bringing back
the Ottawa Senators in 1988, after a pick up hockey game at the old
Lyons Arena. Cyril, in true CA-style, after hearing the idea, asked:
“How much is an expansion franchise likely to cost?” We all wrote down
our guesses, which ranged from $25m to a high of $34m (the latter being
the number for a NBA expansion franchise the year before.)

Our idea was simple—private money would buy the team and build the
arena (this would not be another SkyDome, which cost the Ontario
taxpayers at least $450m), the Province would build us an interchange
(at a cost of $30m) and the City of Ottawa would use a Magic Wand to
make sure it all happened.

Jimmy Durrell’s and Andy Haydon’s Magic Wand

Jim Durrell was Mayor of the City of Ottawa and Andy Haydon was Chair
of the RMOC (Regional Municipality of Ottawa-Carleton) at that time.
Our concept was that: a) we would buy 600 acres of land for an average
of $12,500 an acres (which we did), b) we would keep 100 acres for
construction of the Palladium (aka the Corel Centre, Scotiabank Place,
Canadian Tire Centre which we did) and c) we would ask the RMOC and the
City of Kanata for a rezoning of all the lands causing the value of the
additional lands to increase from $12,500 to $112,500 per acre and we
would sell the additional, surplus lands (500 acres) for a profit of
$100,000 per acre or, hmm, $50m in total, which would then be shipped in
a couple of Brinks Security trucks to John Ziegler in NHL head office
in NYC to pay for the franchise. Ah, it was a simple plan.

From the POV of the City, it wouldn’t actually cost them
anything—they just wave their magic wand, et voila, the lands are
rezoned. We make a $50m profit, which we don’t get to keep, but instead
we give it to Ziegler and he gives us (a fairly ratty-looking) piece of
paper for a NHL franchise* for Ottawa.

(* There has been a lot of air and ink about what the City gets from
the franchise being here but one thing I can tell you, when I traveled
in the US in the 1980s, no one knew anything about Ottawa and now
everyone does. Some VCs have told me that by having a world-class sports
team here, we got on their radar. Without it, they would question
whether the ideas coming out of Ottawa were also world-class. Hundreds
of millions, billions, in fact, of investment money came here, at least
in part because of the Sens. Fair? No. But then life isn’t fair at all.)

Well, many of you may know the story—Liberal Premier David Peterson
who had approved much of our plan called an election two and a half
years early, lost to NDP Premier Bob Rae, whose government opposed the
Palladium. We won the battle to rezone the Palladium lands (100 acres)
at the OMB but lost the war (the other 500 acres remained unzoned for
another ten years). We had an $80m hole in our capitalization plan (yes,
Mr. Rae declined to have the Province build the public infrastructure
(aka, the $30m interchange)) and I sold control of the team to new owner
Rod Bryden within two years. C’est la vie.

Large or small, there are thousands upon thousands of examples of
Bootstrap Startups. This is the way most businesses get started. And one
can argue that Bootstrap Startups are often ‘better’ than VC-funded
startups

Better in the sense that: a) they have to put an enormous emphasis on
sales from the moment they begin; b) they have to have real customers
and real cashflow otherwise they are dead in a few months; c) they need
to be more creative and more adaptable to changes in their environment;
d) they need to be more efficient with what money they do have.

“Simply put, an entrepreneur is someone who can (creatively) do with a dollar, what any fool can do with two,” Prof Bruce.

The Ottawa Senators formally returned to the National Hockey League
on October 8, 1992 after a 58-year absence; it was another great day for
Ottawa. I was at ice level at the old Ottawa Civic Centre when the team
was introduced. The people in that arena applauded those players—they
gave them a standing ovation—for six minutes. I realized that they
weren’t really applauding the players, they were applauding themselves.
This City came of age that day—there was a feeling that ‘we did it, we
did it together’. It was that special feeling that only comes from being
part of something greater than ourselves. Professional sports can do
that. But surely, we can add more days like that. It is a challenge for
you to take up. Carpe diem.

Let me give you a quote about the role of hope in human affairs,
which frankly does not get enough attention. Human beings need to have
hope to live.

“Most of the important things in the world have been accomplished
by people who have kept on trying when there seemed no hope at all,” Dale Carnegie.

Build and Hold—The Difference between being Rich and Being Wealthy

I read in October 2004 that Ottawa-based QNX Software Systems was
sold to Harman International for $138 million USD. I know that some of
my students and clients read it too and they will be thinking build
something and sell it for A LOT OF MONEY. The only problem is that most
of them might not read to page 2 of the Ottawa Citizen article (October
28, 2004) which says: “For Mr. Dodge, 50 and his partner Gordon bell,
49, the deal marks a vindication for their effort to build a profitable
company without venture capital over 24 years.” (The emphasis is mine.)

I am not saying that you should never sell your business but what I am saying is that it takes time to build a great business.

People who build and sell quickly are known as flippers. Most of them
flip ‘til they flop. If you have built a successful business, you have
climbed Mount Everest twice. You have captured lightning in a bottle.

It is so hard to build a successful business, it takes so long to do
it, you use up so much of your lifetime storehouse of luck doing it,
that you should think very carefully before you sell it. Successful
entrepreneurs often think: “Well, I did it once, I can do it again and
again”. Bad news, people, often you can’t.

If you have built a great business, why sell it? What exactly will
you do next? Start again? Why go through all the heartache and risk
again when you already have a fine business you built yourself?

I didn’t feel that an essay on Building and holding onto your
business (and helping to creditor proofing yourself at the same time)
would be complete without mentioning this trap that so many of us fall
into. It’s called hubris.

One of the best ways to get out of creditor hell is never to get into
it in the first place. One of the ways to do that is to not sell your
successful business. In almost all cases, a successful business will
sustain you and your family and your employees and your suppliers and
your other stakeholders far, far better than cash in the Bank.

Let me tell you another story, this one about Sean (not his real
name). Sean was a by the bootstrap kind of guy and he had one great
thing going for him—he had charm. He was a born salesperson and in the
game of entrepreneurship, if you can’t sell, you’re out of the game
before you can begin. (The three most important things in
entrepreneurship are SALES, SALES, SALES.)

Well, one day about fifteen years ago, Sean found himself working in
the fish department for a large supermarket chain; he was wearing one of
those hair net things and he was developing arthritis in his hands from
the cold and ice he was constantly exposed to. He and his spouse,
Freda, had their first child (of what would eventually be a clan of
three kids).

Sean thought to himself: “I can do better than this.”

The next day he went out and bought himself his first computer (never
having even booted one up before) and started an advertising and
promotion business in his basement with nothing other than guts, charm
and a high school diploma. (I have changed his industry too to protect
their identity. I apologize to my readers.)

I met Sean one day, about two years after he started working out of
his basement, and he convinced me to move our entire advertising and
promotion account over to his company. He was that good. I certainly
asked him about his bona fides. Could he produce the volume we needed?
How was his Quality Assurance program? Yadda, yadda, yadda.

I didn’t know until years later that this was his big break—it
allowed him to finally move his business out of his basement, buy more
equipment, hire more, better people, etc. But when he told me, we
laughed about it together and I was doubly glad—glad that he was a
success and glad that he didn’t let us down.

A few years later, Sean called me out of the blue. He had an offer to
buy his business from a larger competitor for TWO MILLION DOLLARS IN
CASH. I told him to slow down and think about it a bit more. I asked him
a few questions. How much are you taking out of the business? About
$200 to $250k a year. How much do you pay Freda to do your books? Oh,
about another $50k. Do you have any company cars? Yeah, reckon so—two of
them in fact.

In total, Sean and his family were getting about $300,000 a year from the Company, year in year out—it was a sustainable number.

I asked Sean, do you know what interest rates are on term deposits
right now? No. Well, they are about 1.7% p.a., which means that even if
this sale was tax free, your income from your two million dollars is
going to be 34,000 bucks a year and every year inflation is going to eat
away your principal. Now why would you give up $300,000 a year and a
business you love and built yourself for that?

Let me quote actor and comedian Chris Rock:

“Shaq (Shaquille O’Neal who plays in the NBA) is rich but the man who signs Shaq’s pay check is wealthy.”

Chris Rock got it exactly right. You can get rich by winning the
lottery, becoming a NBA Star, speculating, asset flipping, gambling,
picking the right parents or prospecting for gold, diamonds, nickel,
whatever, but you can’t become wealthy doing any of these things.

Wealth derives from control over a factor of production, a license, a
franchise, a territory, a concession, some IP (Intellectual Property
like the secret formula for Coca Cola or the 11 secret herbs and spices
that the Colonel used to fry chicken), a competitive advantage, a
comparative advantage, property ownership—anything that creates a
sustainable, repeating and renewable income stream; it is your ‘pixie
dust’—the magic that really makes your business work.

What was the grant by the Crown of exclusive fur trapping and trading
rights to the Hudson Bay Company in Rupert’s Land (all the lands [all
3.9 million square kilometres of it] that drained into Hudson’s Bay) in
1670 worth to that firm? Well, they became one of the longest-lived
corporations ever known—in continuous operation to this day. Their great
wealth and economic and political reach was based not only on their fur
trading rights concession but also on their control of real estate—they
later came to control some of the most valuable sites in many Canadian
cities.

Long term wealth is often based on these types of privileges gained through political maneuvering.

The Fred Harvey Company controlled the Mule Train concession to the
bottom of the Grand Canyon for many years and was an enduring source of
monopoly profits for them. As discussed above, my wife and I had an
opportunity to take a couple of mules down to Phantom Ranch and stay
overnight there in one of the most memorable trips of a lifetime. The
Canyon is a sacred place but the only company with the right to take
visitors down to Shangri-la by mule was the Fred Harvey Company. Waiting
times for a place on the mule train is over one year. Think about it—no
competition by fiat (i.e., by dictat or edict of the National Park
Service), long waiting times, total price setting control, a seller’s
market, what more could you want.

If you are the Emperor of Japan, head of the House of Windsor (aka,
the Queen of England) or head of the Holy Roman Catholic Church (aka,
the Pope), you have a different type of concession but ones that have
proven to be hugely long lasting. But maybe they aren’t quite so
different after all—their fortunes are based on real estate as well as
hereditary or faith based positions of power. The Queen is a huge
rentier (basically, a landlord with residential and commercial
properties as well as broad acres for lease); the value of the Emperor’s
estate in downtown Tokyo (the Imperial Palace) is incalculable and the
Church has developed one of the greatest portfolios of property on the
planet by colonizing some of the best sites in every city and town where
the Church was represented. Astutely, they almost never sell their
property, calculating, correctly, that land leases of 49 or even 99
years were the right way to produce income for an institution with a
time horizon measured in millennia. They can enjoy income from their
properties without having to give up long term control over their lands.
After the completion of a land lease, the property reverts back to the
Church and the process begins all over again—perfect inflation
protection and, since they are tax exempt too (in most instances), the
Church has one of the most stable financial platforms imaginable. In my
view, the Queen seriously eroded the long term stability of the House of
Windsor in the last decade of the 20th Century by voluntarily giving up
the Crown’s tax-exempt status in an attempt to appease her critics. It
was very democratic of her but certainly will have adverse consequences
for the future of her heirs.

There is no better business to be in than the Government
business—they keep all the best businesses for themselves. For example,
there is no higher margin business than the Casino or lottery business
and governments everywhere seem to either keep the business and operate
it themselves (as they do in Canada) or regulate it and tax it heavily.
They dole out other choice concessions to their friends or influential
people who can help them get re-elected. If their costs go up, they
simply increase their prices (aka, taxes) and, if you don’t pay the
higher prices, a) you have no where else to go for service anyway (e.g.,
for your water and sewer connection) and b) they can force you to pay
either by taking away your property, your liberty or both.

Governments love the liquor business too—again, either they control
it and operate it themselves or they simply control it and hand out
concessions to private operators and tax them to the max. Yesterday’s
bootlegger is today’s protected oligopolist.

Just how important are these types of ‘concessions’? Well, look at
what the professions do. Professional Associations (for Architects,
Engineers, Lawyers, Accountants, even Real Estate Agents, etc.) are
based on the tradition of guilds made up of artisans who band together
to: a) raise prices and b) restrict or otherwise raise barriers to entry
for newcomers. They always cover their tracks (it’s called political
cover) by claiming that they are raising standards to protect the
consumer and the public interest which no doubt they are doing at least
in part. Not to be too facetious about it but self-interest is a top
consideration for these organizations. Unions (like, say, the NHL
Players’ Association) perform exactly the same function for their
members BTW.

In Canada, the Canadian Radio, Television and Telecommunications
Commission, the CRTC, was formed to dole out concessions to industry
players in one of the most profitable sectors of the Canadian economy.
Their so-called mission is to protect Can-Con (Canadian Content, aka
Canadian Culture) but there is no doubt that the regulator of Canadian
airwaves (i.e., the CRTC) has been captured by the major firms that are
‘regulated’ by the Commission. The proof is that when new licenses are
issued, they invariably go to established players. New entrants need not
apply. The final proof is just turn on any Canadian TV channel in prime
time so you can watch Friends reruns, Everybody Loves Raymond and see
Will ‘Fresh Prince’ Smith in his endless turn as a hip teenager in
Belair.)

Now let’s just look at some numbers; let’s say someone controlled the
early Beatles catalogue (say, someone like Michael Jackson, now the
heirs of MJ). Mr. Jackson is reputed to have bought the catalogue in
1985 for $47m (but he lost his friendship with Paul McCartney along the
way). By 1993, MJ’s company was reportedly earning $30m from it (albeit,
MJ had added other songs by other artists by that time but let’s ignore
this for the moment) and it was estimated to be worth $300m at that
time. This yields a cap rate (capitalization rate) of 10, which is
pretty typical for this type of privately held asset. No one knows what
kind of income stream he gets from this now but it has a rumored value
of $1 billion today. MJ still owned 50% of it, the balance was owned by
Sony.

With a cap rate of 10 and given that MJ owned half of the catalogue,
we can guess that MJ got $50m a year in income from his ownership. Plus
the Beatles made a huge comeback—just ask my daughter, Jessica, who when
she was 12 only wanted Beatles CDs for her birthday and knew just about
every word to every tune the Beatles ever recorded. So it wouldn’t
surprise me if MJ’s income went up every year from this source. This is
called wealth. However, let’s say that MJ needed some quick cash and
sold his interest to Sony for $500m. Now MJ would have been rich (for a
while) from selling his interest in the catalogue but he would no longer
have been wealthy because he had lost the ability to renew his wealth
every year by producing an income stream from control over this
particular factor of production.

But what’s that you say? He could have invested the proceeds in
T-Bills, Muni Bonds and GICs (Guaranteed Investment Certificates). Sure
he could, but they produce puny 1.7% to 4% rates of return. If MJ had
paid $100m in taxes, he would have been left with $400m, which would
have given him an income stream of $6.8m to $16m a year with no
inflation protection. I mean if MJ continued to control the catalogue,
he could always have increased the price (aka royalty) paid for each
tune if inflation takes off and starts to bite into his revenue stream.
But even ignoring inflation, why would MJ trade an income stream of $50m
a year that made him wealthy to become a remittance man getting $6.8m
to $16m a year? MJ turned down many offers to sell; presumably he
understood the Chris Rock difference between becoming rich and being
wealthy*.

(* Somehow I doubt whether Lisa Marie Presley ever read this piece.
In December 2004, it was announced that Lisa had sold her father’s image
and name as well as 85% of Elvis Presley Enterprises Inc. to Robert
Sillerman-controlled SFX Entertainment for a reported $100 million,
which included some stock in a new SFX controlled business. So not only
does Lisa no longer own, control and direct a valuable franchise (her
father’s estate, which brought in $45 million in 2003), she didn’t even
get all her compensation in the form of CASH. As any entrepreneur knows,
cash is KING. (Pardon the pun, Elvis). Now compare that with J.K.
Rowling’s absolute and tight control over her creation (the Harry Potter
series)—not only the publishing rights but also the film rights and
other media rights as well. It has made her the richest woman in the
U.K., worth more the Queen).

Did you know that many, maybe most, lottery winners blow their entire
wad in less than five years? By that point, their spouses have left
them, they are alienated from their old friends, they have got a whole
new set of ‘friends’ who are only around while the money lasts and they
don’t even have their old job to go back to. Many of them have picked up
nasty habits along the way like taking drugs. It’s absolutely amazing
how many of them end up in bankruptcy. They are much worse off for their
‘good fortune’.

People are meant to work. They are built for it. If you have built a
good business, control a great concession, own a valuable franchise,
possess a ‘secret’ formula, whatever, hang on to it, fight for it*—it is
your security against creditor phone calls in the middle of the night
asking you: “Mr. Jones, when can we expect payment?”

(* I was doing some work recently with a mega real estate agent. He
is a salesperson for a large brokerage and is vying for one of the top
national spots in terms of sales volume. He has developed a team
approach to selling residential real estate and will sell more than 120
homes this year (2004).

I was surprised to learn (and it surprises me that after a great deal
of experience with the real estate industry that I didn’t already know
this) that he has developed a long term and sustainable competitive
advantage. Remember, this is an industry that has no minimum educational
requirements, not even a high school diploma is required to get your
license. After successfully completing a three phase course in Ontario,
virtually anyone can become a real estate agent. So the ‘barrier’ to
entry is pretty low. (If you can’t be real estate agent, you can always
be a homebuilder. If there is absolutely nothing else you know how to
do—not even sell real estate or used cars, then just pick up a hammer
and saw and become a builder.)

There are more than 40,000 real estate agents (more properly called
‘sales representatives’; technically, ‘agency’ is a term reserved for
the relationship between the broker and the client.) in Canada. Many of
them are very hard working and smart people. How in the world would
anyone ever develop a sustainable, competitive advantage in such an
industry?

Well, first of all, John (not his real name) treats his position as a
salesperson as if it were a stand alone business. It is my personal
belief that every salesperson in every industry should consider himself
or herself as a quasi-independent entrepreneur.

John has a business model for himself and his team of sales
assistants. He views his broker as one of his suppliers—the broker
supplies John and his team with office space, holds his license, manages
the trust accounts, pays the phone bill and keeps the lights on. He
doesn’t really expect much more from his broker although he counts on
the firm (which is a nationally known company) to burnish its reputation
so, at a minimum, his association with the firm is not a net negative.
Trust in this business is hard earned, important to his success and
easily lost. But what freedom—you don’t have to worry about keeping the
lights on, paying the phone bill, staff or what have you—you get to
concentrate on your own core competency (i.e., selling) and there is no
upper limit on what you can make. If more people thought this way and
they treated their sales as a personal business for life (PB4L), then we
would have a lot more high performance and happier sales reps.

As a supplier, the Broker represents John’s major COGS (Cost of Goods
Sold), taking a 30% bite out of his commissions. John is responsible
for his own marketing and sales, personnel selection and HR policies as
these relate to his own team.

By thinking strategically about himself as a separate business unit,
John and his team have experienced tremendous sales growth. But all of
this would not have been possible without a bit more ‘pixie dust’—John
has spent the last 15 years ‘farming’ a specific geographic area—he now
controls more than 20% of all listings and sales in ‘his’ area.

Now I realize this is an old real estate trick—i.e., concentrating
your marketing effort in one target area. In the real estate business,
listings are everything. If you control a listing, then buyers or
buyers’ agents have to come to you. Eventually, if you control enough
listings within a designated area (probably around 20%), you become the
market maker—sellers have to come to you to get their properties listed
and sold because you have so many buyers coming to your (already) listed
properties that if one isn’t just right for Harriet and Albert Smith,
you probably have another one that is just perfect for them…

John has so many of his signs in his designated area that: a) it
discourages other agents from trying to set up (poach) in that
neighborhood and b) people who want to list and sell would be think
twice before listing with anyone else. The awful thought in the minds of
potential buyers if it isn’t listed with John’s team might be: “What’s
wrong with this house?” and that is the kiss of death in residential
real estate. Perception is everything.

It turns out that farming a neighborhood and becoming its market
maker are sustainable competitive advantages in an industry that really
shouldn’t have any, given its fundamentals. So think about it—it took
John 15 years of incredibly hard work to get to this position. He sells
over $30 million worth of homes a year. He does this with an average
house price still in the $200,000s as compared with other agents in
larger, wealthier markets where average home prices are in the $700,000s
or higher and he still manages to make it into the top 1% of agents in
his firm. Now if decides to cash in his chips and sell his PB4L, what
would he get for it? Well, nada, nothing. That’s why it’s called a
Personal Business for Life.

Postscript: John could, of course, explore a way to perhaps pass on
the value he has created. He could take his broker exams and set up his
own shop. In that way, his clients’ loyalty would be to the Brokerage
(his Brokerage) and not necessarily to John. So when it comes time to
sell, John has (maybe) something to actually sell—the Brokerage’s client
list and existing listings. But there are obvious problems with this
approach—a) the clients may not port over to a new, unknown and untested
Brokerage, b) maybe after John retires, the clients that have followed
him to the new enterprise might drift away because they followed John
and like and prefer working with him and c) having a national brand is
important in building trust amongst clients and trust creates sales. Not
having a well-known brand could then crater John’s sales. I am not sure
that there is any simple solution to this problem because surely one of
the objectives of entrepreneurship is to create something that has a
life beyond your own; in that way, you would have created something that
can make money for you ‘while you are lying on a beach’.

For real estate salespersons and entrepreneurs, this remains a
challenge that requires more thought. What John has created, so far, is a
PB4L that remunerates him richly. This is only half the equation in
entrepreneurship. He and I haven’t (yet) solved the other half and,
unless we do, what he has done is basically create a J.O.B. for himself,
albeit, a highly paid one. Whatever John does though, he should clearly
and doggedly keep what he has so dearly created—Build and Hold, Friend.

Innovate and Execute

Let’s return to the ten things you need to do to create a successful PB4L. Let’s work through the list, one at a time.

Selecting the Right Idea

If you ask me, the big idea is LESS important than good execution
which obviously includes staff training. Most of my students think that
the big, NEVER BEFORE TRIED, idea is most important but there are lots
of companies that do very well with a good execution of fairly mundane
things.

I am pretty sure that the only thing that is in infinite supply is
ideas; numbers, for example, represent an idea and they are infinite.
There are probably more than 25 million smart Americans in their
basements at any one time trying to come up with the next big idea
(like, say, Google). Ideas are being generated in huge volumes; that
tends to suggest, in economic terms, a surplus of ideas while the skills
to implement them are in much shorter supply and, hence, the latter
will generally attract a higher price.

The market for new ideas, such as it is, tends to put a low price on
them (just try to sell your BIG IDEA at a business model stage and you
will see: a) how hard it is to do that and b) just how little you will
get for it). Obviously, a startup that combines some type of innovation
with good execution is better off than one with just sound execution.
Fred Smith, when he started Fed/Ex, brought the hub and spoke system to
the overnight package delivery business, essentially creating that
industry.

Before that, it was thought to be an impossible challenge—if you had
60 cities as both origins and destinations in your US network that would
have meant that you have 1,770 unique pairs of cities ((60 x 59)/2) and
you would need to make 3,540 overnight flights to connect them all, an
obvious impossibility. If you had instead five hub airports within easy
trucking distance, you would have ten unique pairs of cities and, hence,
could get by with just 20 overnight flights to connect continental USA …

However, most successful startups do not create new industries or are
not necessarily first movers. Google wasn’t the first search engine;
however, they did bring significant innovation to the table including:
neutral search rankings, search rankings that reflected traffic loads on
and links to a site, paid search links and auctioning off of paid
search links. GradeAStudent.com, now GradeATechs.com, was not the first
at home computer repair service but their execution was good and they
used a back end system (GASnet) to automate their appointments and their
billing systems.

Creating Business Models for the 21st Century

Digg.com’s founder, Kevin Rose made $60 million in 18 months. Kevin was just 29 years of age so there is still time for you!

A Happy Kevin Rose

While I do think great execution is really important, having some
type of innovation in your business model can help you to create a
sustainable advantage; i.e., you need to have some type of ‘pixie dust’
or differentiated value in your organization’s business model. This
creates a franchise or concession for you that is hard for others to
copy.

Let’s look at the Digg.com model. What makes it different? What is its differentiated value?

1. It is a new model for a newspaper uniquely adapted to the Internet.
2. It is not simply the online version of the New York Times or some classified advertising page transferred to the Internet.
3. It is a digital community made up of a fairly homogenous demographic: 80% are male, mainly young techie readers.
4. Readers are also contributors.
5. Readers dig up interesting stories from all over the web and post
brief synopses to the site and links to them whereupon other readers
vote on them—the most popular ascend the page.
6. The site harnesses the competitive instincts of the readers/contributors to compete to see whose story will lead.
7. The site works because of its homogeneous demographic—contributors only post stories that will be of interest to the group.
8. The site is dynamic—leading stories change by the minute or hour.
9. Digg.com’s cost for headline writers = ZERO.
10. Digg.com’s cost for journalists = ZERO.
11. Digg.com’s cost for editors = ZERO.
12. Digg.com’s cost for distribution = ZERO (at least, the marginal cost is practically zero).

This is a lot of pixie dust. I think Digg.com is important for
another reason—I believe that it is important for communities that are
working together to be reading the same things, to share a common
culture. If you think about it for a moment, many of the communications
you have in a given day are made much easier by possessing a common
culture; you don’t have to explain where you are coming from and the
context of what you are saying in every conversation you have.

Now the innovative nature of Digg.com would be pretty useless without
good execution so creativity is a necessary condition for the kind of
success Mr. Rose has had, though not a sufficient one.
Add Differentiated Value, Innovation and ‘Pixie Dust’

To build sustainable business models, you need to have control over some type of ‘factor of production’.

When my wife and I took the mule train to the bottom of the Grand
Canyon to visit Phantom Ranch, I realized how valuable the concession
was to operate the service. First of all, it’s a monopoly service.
Second of all, it operates in one of the seven wonders of the world, a
sacred place. Thirdly, there is practically unlimited demand– you need
to book ahead many months or you won’t be going.

Phantom Ranch Canteen

How would you like to control the bridge from Windsor to Detroit
which in the first 11 months of 2005 carried 8.9 million vehicles and is
one of North America’s most congested choke points? And every one of
those vehicles paid a toll to Manuel Moroun’s company. Now it appears
that Mr. Maroun has negotiated a 90 year agreement with the Wayne County
Port Authority to build another bridge. The Port Authority is rumored
to get a 2.5% royalty. Sheesh. That means that Mr. Maroun gets 97.5%.
Seems like a pretty good deal for him.

Business models that work need to have some kind of differentiator;
some type of ‘pixie dust’, the magic that makes a business work. For a
National Football League franchise, it is the right to operate an
exclusive franchise within a defined geographic area and exploit all the
revenue rights within that area– tickets, merchandise, suite rentals,
sponsorship, signage, parking, etc. and to share in national television
revenues.

Most entrepreneurs who don’t have some type of value differentiator
either can’t build sustainable businesses or the ones that they do build
produce no more value for them than if they just went out and got a
JOB.

The role of an entrepreneur, in my view, is to build a business that
creates more value than that, one which can take on a life of its own–
i.e., survive the passing from the scene of its founder or make money
for its owner while she/he is lying on a beach. The latter is the
preferred option, obviously.
A spa, for example, might have some pixie dust because of its high end
location or because it has some highly sought after hair stylists or
because it has some sophisticated software that runs its appointment
calendar and inventory of products and reverses out some of the work to
its clients (e.g., they can self book online).

A friend of mine, Rob Hall, runs Pool.com, a business that
revolutionized the backordering of domain names. Instead of paying $60
to backorder a domain name that may never delete, Pool.com allows you to
register your backorder FOR FREE. You only pay if Pool.com is
successful in getting the name for you. Guess which site gets most of
the backorders now? (BTW, over 5,000 dot-COMs delete every day).

Pixie dust/value differentiation– think about it, see how you can add
some to your business and watch your revenues and margins grow.

Creating a Compelling Value Proposition

Demonstrating your value proposition from your client’s point of view
is a powerful tool in sales and I don’t care if you are selling vacuum
cleaners, architecture services or hockey tickets. Clients and customers
don’t really care what cool technology you are using or incorporating
in your product or service or what, in general terms, it can do. What
they want to know is, what can it (you) do for me? And usually, that
means, what can it (you) do for my bottom line?

Recently, I ran into Yoga Specialist, Heather Moore, at Mountain Goat
Yoga Centre in Kanata. Heather is in her first year of training Ottawa
Senators players who are trying Yoga for the first time and I wanted to
know how it was going. She told me that the European players, especially
her Russian players, were really into it. They were seated at the front
of the class. Some of her North American players tolerated it and some
thought Yoga training is for sissies.

She thinks things will go better when they get their own Yoga mats
with their names on it (she admitted that she wasn’t the biggest hockey
fan before and didn’t know all their names). Knowing their names will
mean she can call out recalcitrant players and encourage others.

Yoga uses your own weight to improve your flexibility and core
strength and, at advanced levels, is hellishly hard. It makes sure
oxygen gets to all parts of the body and promotes faster healing. It
gets stress levels down and, if you don’t think stress levels are high
for professional athletes, you don’t know much about sports. How would
you like your on-the-job performance rating done every day and on the
front page of your local newspaper too?

More core strength, more flexibility, greater agility, better
balance, faster healing and lower stress levels are sure to be good for
hockey players. They need tremendous levels of dexterity to play in the
National League. They need strength too but not brute strength like NFL
players do. Long lean muscles will beat muscle mass in the NHL.
It turns out that, in all probability, a very small investment in Yoga
training will result in very large benefits for the Sens by reducing the
number of player days lost to injury.

Check out the spreadsheet (https://www.old.dramatispersonae.org/ValuePropositionOttawaSenatorsMountainGoatYogaCentre.xls)
I did on this which I have uploaded to my server in .xls format so that
you can download it and save it as a spreadsheet and fool around with
it yourself on your PC.

(For an investment of just over $7,000 in Heather’s Yoga instruction
fees, the Sens reduced team injury costs by over $350,000 in the
2006/2007 Season according to my rough calculations… a pretty dram good
ROI.)

See if you can adapt it for your product or service or create one
like it from scratch. Try to show how one single customer or client
benefits in terms of cold, hard cash by using your products or services…

There are other benefits too for the Sens*. For example, if the team
earns more points during the regular season and, as a result, attracts
more fans, revenues will increase. Further, if the team has, say, one
more home playoff game as a result of a stronger, healthier team then
benefits from Yoga training climb astronomically.

(* The year the Sens started doing Yoga they also went to the Stanley Cup Finals…)

And lastly, hockey players are human beings so reduced injury means reduced human suffering, and that is a good thing…

Self-capitalizing (Bootstrapping) the New Enterprise

I have felt for a long time that VCs are heading in the wrong
direction; they should NOT fund startups. Rather, they should wait until
startups have proven themselves in the marketplace. It’s kind of like
watching for tall shoots in a field of grass. Those are the ones they
should fund. It’s better for VCs, better for the national economy and,
interestingly, better for startups too.

It’s better for VCs because they will fund more winners and fewer
losers and generate better returns for their investors. This, in turn,
will attract more capital to the industry which is good for innovation
overall. It’s better for the national economy since careful rationing of
scarce capital will provide higher overall growth rates. And finally,
it’s better for startups, in my opinion, to focus on: a) building a
sound business model, b) self (bootstrap) capitalization, c) using smart
(guerrilla) marketing to capture customers inexpensively and d)
generating real cashflow from real clients and customers.

The founders of these businesses will find it much faster and much
less frustrating to find customers first rather than spending nine
months or more hoping to attract VC funding or going after government
grants. They will also get help from clients in other ways such as
designing the final product or service. It’s like a war plan—as soon as
your contemplated business model comes into contact with customers, it
will change; they will force changes that YOU CAN NOT PLAN FOR.

Finally, the founders of these businesses will get to keep more of
the equity in their businesses if they do a deal with a VC firm later
when their business is more mature and, frankly, they are more mature.
Nothing gives you more leverage in negotiations with VCs than the fact
that you have enough cashflow to fund the business without them.

Is lack of access to capital really the main barrier to entry for
most entrepreneurs? I believe that the stated lack of access to capital
by many would-be entrepreneurs is more of an excuse than anything else.
Here is my (absolutely unscientific) bar chart of what I think are the
main sources of capital for startups. (I leave it to a future grad
student to prove it or disprove it.)

Home Equity Loans
*************************************************
Soft Capital #
***********************************************
Supplier Credit
********************************************
Consulting
*****************************************
Pre-sales/Launch Clients
*************************************
Credit Cards
*********************************
Deposits, Retainers ##
******************************
Receivables Factoring
****************************
Financial Leasing
*************************
Partners/Debentures
*********************
Trading/Speculating/Reselling
*****************
Strategic Investors/Partners###
***************
Banks
***********
VCs
*******
Government Grants/Tax Credits
******
Angel Capital
****
Franchising
***
Accretive Buying/Selling
**
ESOPS####
**
Sponsorships
**
Patents and Royalties
**
Collectibles Sales
*
Business Competitions
*
# Mom, Dad, Rich Uncle Buck, co-guarantors
## Plus Progress Payments and Draws
### Investment by competitors, near competitors, future clients and future suppliers
### Employee Stock Ownership Plans

This is just my experience talking—who knows I may be wrong but most
entrepreneurs are, by definition, people without money. Again, in my
experience, people with money are not entrepreneurs, they are called
‘old money’ and old money anywhere, tends not to do very much—it sits
around collecting coupons not starting high-risk new enterprises.

I always laugh when my students in entrepreneurship at the Telfer
School of Management at the University of Ottawa go to a bank for the
first time and ask for a loan to star a business—Canadian banks only
want to lend to people with collateral; i.e., people who already have
money. It took 2006 Novel Peace Prize winner Muhammad Yunus of the
Grameen Bank to realize that a bank’s real job is to lend money to
people who need it—a completely novel thought, it turns out.

Dr. Muhammad Yunus, Nobel Peace Prize Winner 2006

Dr. Yunus also realized that the way out of poverty for the vast
majority of people on this planet is to become (at least at first) micro
entrepreneurs. In fact, Grameen Bank lends on a priority basis to
people who have the greatest need and the least money! And you know
what? Their loan loss ratio is tiny and they make a profit too.

It takes very few bank resources to approve a home mortgage, give out
a credit card or make an auto loan. Banks think nothing of approving a
$350,000 home mortgage—if your credit score (your Beacon Score) is high
enough—in minutes. But go to the bank for a business loan of $100,000
and you will find that: a) they need a large amount of data from you and
b) they need an expensive infrastructure in terms of on-the-ground bank
managers, loan officers and back office types to approve your loan
application. I believe if it weren’t for the fact that successive
Finance Ministers lean on the Chartered Banks in Canada, they would
choose to turn down every small business loan request.

Other students will tell me that they want VC funding. I believe that
most startups have about as much chance of attracting VC funding as
they have of winning the annual Ottawa Hospital Lottery and probably
less. First of all, most business startups don’t have the growth
prospects to attract VC funding. Secondly, most startups are in industry
sectors that don’t appeal to VC funds anyway. Thirdly, most startups
should be much further along in their development before they go after
VC funding, if they ever do.

If your business has real cashflow and real customers and clients,
you are on a much more even footing with respect to negotiating a fair
agreement with VCs, if that is what you choose to do. Finally, it is
much more efficient for Canada if VCs fund more mature companies that
are at a stage where large capital injections are: a) less risky, b)
more inclined to be put to wise use by (now) experienced entrepreneurs.

So if you plan to start a business and you don’t want to give up
control and a ton of equity to VCs and Vulture funds, learn everything
you can about self capitalization—you are going to need it.

Use Smart Marketing (Guerrilla Marketing and Social Marketing)

You have to give credit to KFC for some terrific Guerrilla Marketing.
I realize that GM is all about ‘substituting brains for money’ in the
marketing wars but KFC used brains AND money in this.

To tackle households that are zapping their ads using TiVO or their
PVRs, KFC ran an ad with a hidden message that could only be deciphered
if you play it back in slow mo. If you could figure it out, you could
then go to KFC’s website and get a coupon for a free sandwich. The
traffic on their site went up by 40%. (Business Week, April 17, 2006).

So they got people to watch their commercial (over and over again),
boosted traffic on their website AND in their stores. I still think this
example meets the test of what is (and is not) GM since you could look
at it this way: how much money would they have had to spend in
conventional marketing to get this kind of boost in terms of CPM
(thousand pairs of eyeballs on their marketing message) and customers in
their stores?

There is another form of GM that is taking hold today too—a huge expansion of social marketing.

In the past, most GM has been about some kind of stunt that attracts
the attention of the established media—they hear of a neat story and it
then gets a lot of play on the local or national news, in the local
newspaper or gets you a few interviews on radio. This is called ‘earned
media’. Nothing wrong with that—you can certainly do a lot more with
earned media than a ton of paid advertising.

But social marketing is playing a much bigger role in helping
startups grab attention and market share. A former student of mine, Ryan
Anderson, former Director of Communications at FuelIndustries.com and
now owner of Fat Canary Communications, gave a wonderful lecture on the
power of social marketing. Ryan uses the term ‘Social Startup’ to
designate an enterprise that uses social marketing to get traction in
its marketplace.

This is not to be confused with a Social Enterprise; the latter can
be a not-for-profit, a charity or a NGO (Non Governmental Organization)
that performs good works. They too can use social marketing to further
their goals.

You can read more about social marketing on Ryan’s blog at: https://www.ryananderson.ca/.

In simple terms, the Internet has changed the media equation—instead
of limited bandwidth (a few TV channels, a few newspapers and a handful
of radio stations in most local markets a generation ago), today we have
millions of bloggers, Twitter users and Facebook or MySpace profiles
plus hundreds of TV channels.

Social marketing allows you to disintermediate the established
media—to go around them to talk directly to and with your customers. I
build my own PWSs (Personal Web Sites (it shows)) but at least I
disintermediate the techies—I can communicate directly with my students,
clients, friends. There isn’t much in the form of two way communication
because I am so pressed for time. But social marketing really requires
that you should build-in a way for a conversation to take place not only
between you and your audience but between audience members as well.

An example Ryan used in his lecture demonstrates the power of social
marketing—a small South African winery (BTW, it makes good wines,
otherwise this wouldn’t work and, in fact, would probably result in
reverse marketing if the wines actually sucked) sent a case of their
wines to an influential blogger in California and told him they wanted
to sponsor 100 Geek Dinners in Santa Clara County—no strings attached.
They didn’t have to blog about the company or their wines, they just
wanted people to try them.

He wrote about the offer on his blog and the winery sent out 100
cases of their wines. Even though they didn’t ask for it, they got huge
exposure on blogs everywhere in Nocal.

Their sales went up by a factor of six (!) in less than two years.
The total cost for the campaign—around $40,000. That represents less
than half a second of the cost of a 2008 Super Bowl ad. But even
assuming that the NFL and its broadcaster would give you a 30 second
Stupid Bowl ad for $40,000 (trust me they won’t), would it have resulted
in a 500% climb in sales? I doubt it.

Social marketing (in this case, harnessing the power of the
blogosphere) is about engaging your customers in a dialogue, having a
two-way authentic conversation with them, listening to them and making
changes as you learn from the conversation. Ryan told us another quote: “If people talked to people, the way that marketers talk to people, they would punch you in the face!”

(Note: Ryan said that he doesn’t hire anyone who doesn’t have their
own blog. He told our class that a CV is fine but it is pretty static. A
Blog that you have been keeping for a few years tells him a whole lot
more about you. Are you smart, creative, hard working, have good values,
etc. You can get a free blog and set up one for yourself in less than a
minute, so do it! I use WordPress.org but you can find many sites that
will help you with this.)

Mass Customizing Products and Services Using the Internet

Nothing has shaken our world quite like the Internet revolution that
has taken root in our culture and economic life in a massive way since
1993. It is continuing at a fantastic pace—the changes are still
happening though with less hype since 2001and more substance. Much of
this activity is occurring below the waterline, so to speak, and will
profoundly affect our world in the next half century.

Jack Welch said that in his 40 years at GE nothing matched the
Internet in terms of its technical or technological impact and Jack saw a
lot during his career as a CEO.

Professor John Callahan, at Carleton University’s Sprott School of
Business and his research partner, Mr. Scott Mackenzie, have created an
important contribution to understanding the impact that the Internet is
having on how we conduct business-their curve shows that it is now
possible for the first time in history to get custom outputs from
standard inputs and processes.

Getting Custom Outputs from Standard Inputs

What this means is that we have transitioned from the days of an
artisan or guild worker (now called a ‘consultant’) who produced one off
creations to order (made to measure suits, for example) through to mass
produced products (Henry Ford’s automobile assembly line) and now to
made-to-order, custom products created from standard processes and
inputs (like the way Dell’s web site or call centre allows each client
to customize their PCs to their specifications using only standard Dell
inputs and processes).

By reversing out the design work to the customer, Dell has created a
powerful position in the marketplace and become one of the largest PC
makers on the planet.

The internet is all about automation and reversing out the work.
Doesn’t apply to me and my business, you say? Well, it turns out that
most of us have the ability to move up the value chain by using some of
the revolutionary aspects of the Internet in our businesses.

Let me give you another example. We have a number of home builders
who are figuring out that they are soon going to be in the web site
operating business and not the home construction business at all.

Today, with all due respect, the home building business is still
largely a craft-based endeavour which, were it compared to the computer
industry, would still produce five function calculators that look like
primitive World War II vintage Turing machines (used for breaking
Japanese and German codes)—big, clunky and expensive.

Ultimately, a home builder’s web site will allow consumers to
‘goggle’ in to the site in three dimensions, to choose the model that
they want, the lot that they want and then to load up their shopping
carts with the features they desire. As they make changes to their
design and add and subtract amenities, the calculator will tally and
show them their costs.

Visa and MasterCard are moving upstream—their credit cards will be
used for everything including buying a new car or buying a home. There
is a small but fast growing market for power cards that carry credit
limits in the hundreds of thousands of dollars.

This home buying e-commerce transaction using a credit card is only
the tip of the iceberg. In all probability, it is the e-business
applications that will have the most dramatic impacts on home building.
Pre-authorized suppliers and sub-trades will log on to the builder’s web
site to estimate the volume of work required and to bid on it.

Scheduling, based on just-in-time delivery, will be net based.
Payments will flow business to business via e-payments. Municipal
inspectors will log on to see when they are required for inspections.

Municipalities will recognize that home builders are their clients.
The number of separate subcontractors and trades will fall from 25 or 30
today to perhaps just 8 or 9.

If former Russian President, Boris Yeltsin in his early days as a
construction boss in Sverdlovsk (1,000 miles east of Moscow) could build
five storey, wood frame apartment buildings in five days (albeit with a
huge crew), surely we can learn to build houses in 45 days or less at
higher levels of quality, with fewer defects, higher margins for the
industry and lower prices for consumers.

The home builder will become a web site operator. Legal closings,
land registry documentation, mortgage financings … all will be web
enabled. And what does this do to profitability? There is no doubt that
efficiency will climb, productivity will increase and in every instance
where this has occurred, more wealth is created for all to share.

Americans are early adopters of technology and none is more earth
shattering than their embrace of the internet. As a result, the Internet
is eating an enormous hole in the world’s economy. After all, it does
not matter how little someone is paid in the third world, the Internet
can do it faster and cheaper.

Old-line industries are going through incredible re-engineering.

A national advertiser who wanted to launch a national billboard
advertising campaign just five years ago went through a six to twelve
month process. They drew up a campaign theme, got the creative done by
an agency, had the agency contract billboard locations with up to 25
regional billboard companies, sent the artwork out to all of them by
courier, received back the proofs from all 25 for approval, made the
necessary changes to get consistency in the artwork, sent them back,
checked them again, signed off finally. The images were then often hand
painted on huge strips and, at last, a crew went on site and glued them
to the board.

Today, billboard companies can put their inventory of available
billboard locations on their web sites and agencies can book and pay for
that inventory on line. Agencies then can download their artwork over
high speed lines and, as billboard companies merge and become national
and as they move towards replacing conventional billboards with high
definition video boards, an agency can place a national campaign in a
matter of hours or days. It does not matter how little a third world
labourer is paid; the web can do it faster and cheaper.

Harnessing the Internet effectively means:

a. you can ‘make money while lying on a beach’—i.e., your enterprise can run without you being there every second to manage it;
b. the enterprise is scalable—outputs grow non-linearly with inputs—i.e., more hours worked will produce way more money for you;
c. you have reversed out the work—let your suppliers and customers do the work for you like, say, Digg.com does;
d. you can mass customize products and services for clients in a cost effective manner;
e. you can connect with new clients and customers in a cost effective manner using things like social marketing!

The entire global economy has to move up the food chain and the only
way to do this is to invest in education, medical care and social order,
which happen to have been Canada’s priorities for the last 50 years. We
have it right, now we just need to execute the plan.

Find Pre-launch and Launch Customers and Sell, Sell, Sell

Business Week published (Seton Hall University, Stillman School of
Business study, August 25, 2003) their take on why most businesses fail.
I’ll bet you that their top five reasons (too much debt, inadequate
leadership, poor planning, failure to change and inexperienced
management) are in fact related to number six on their list: not enough
revenue.

To me, a business that does not generate enough revenue is probably
(by far) the biggest cause of business failure. Perhaps, they are not
generating enough revenue because of inadequate leadership, poor
planning, failure to change and inexperienced management, which also
means they can’t meet their debt obligations. In other words, they may
not be interpreting their stats in quite the right way in as much as
their independent variables are not truly independent and, hence, their
take on causation might be wrong.

What are the three most important things for a startup to focus on?
SALES, SALES, SALES. The focus on sales is also an important requirement
for established businesses. I mean how long do you think mighty IBM
would last if it didn’t collect its receivables? IBM sells around $85
billion worth of goods and services a year (one customer at a time, btw)
so that means around $7 billion a month. If they don’t collect for two
months that means that they would have a cashflow shortfall of $14
billion so my guess is that even IBM would be in serious trouble in less
than 60 days.

Today, if you have enough revenue, you will get financing, not the
other way round. This is the lesson of the false boom of the late 1990s
when VCs and others financed startups with interesting business models
but no revenue prospects. This has never worked, in any age.

If you have enough revenue, you can meet the cashflow demands of debt
servicing costs so a focus on revenue growth is vital. One needs to not
only generate the revenue but collect it too. This seems self-evident
but a lot of startups don’t do billing, invoicing and collections very
well and many don’t do selling or pre-selling very well either.

In my experience, the number one reason for failure is the absence of
buoyant revenues. I mean how many businesses have you heard of folding
if their revenue numbers are going up and up?
Remember the Golden Rule: “He/she who has the gold, rules.” Put another
way: “Cash is King (or Queen).” If you have real customers and real
clients and real cashflow, you have POWER.

Another thing you have to do is find launch clients.

As soon as you come into contact with a real customer, your business
model is likely to change (for the better). Clients who plunk down their
money (this is called a deposit), are giving you additional confidence
that you are on the right track.

NHL hockey fans in Ottawa gave us $22 million in cash (deposits on
season tickets and sponsorships (signage, media rights, pouring rights,
product rights, etc.)) for the expansion Senators in December 1990, some
22 months before the first game was played (in October 1992)!

Executing Expertly, Showing Leadership and becoming a Trusted Member of your Community and Business Ecology

Jack Welch and Suzy Welch in a Business Week article (Feb. 4, 2008)
state that a CEO (and a prospective President of the US in this an
election year in the US) need five basic leadership skills:

1. They need to be authentic and, hence, trusted;
2. They have to have vision as well as be able to communicate it effectively;
3. They have to be able to hire great people and sometimes fire them too;
4. They need to be able to bounce back from a setback;
5. They need to be able to “see around corners”; notice changes in their markets pretty much before anyone else does.

They also mention another requirement which I would put under the category of management rather than leadership:

6. They have to be able to execute.

These are pretty good guidelines. I would think that they also apply to entrepreneurs but I think entrepreneurs need a few more:

a. They need to be able to sell;
b. They need to be able to control costs;
c. They need to be able to make up their own rules as they go along;
d. They need to be creative in many of the things they do;
e. They have to bring a sense of urgency to each day;
f. They don’t take ‘no’ for an answer;
g. They need to buck the system and be comfortable doing it;
h. They have to be self reliant;
i. They need to be able to deal with risk and uncertainty;
j. They have to be able to set and achieve goals but be flexible enough to change their plan in an instant;
k. They need to be able to borrow best practices from wherever they find them;
l. They need to know when it is time to give up on a business and start something else;
m. They need to be able to work long hours and to be effective during that time;
n. They have to set priorities;
o. They have to see their whole business ecosystem as part of their TEAM;
p. They have to understand human psychology: the psyche of their
employees, their clients, their suppliers and they have to be better
poker players than they are chess players- they need to be sympatico;
q. They need to be humble, learn from their mistakes and never make the same mistake twice;
r. They never try to go back and revisit something that didn’t work already once- they just move on;
s. They can cope with high levels of stress.
I am sure there are a ton more characteristics of successful
entrepreneurs but this a pretty good list to start with. If you get 70
or higher on our ECQ Test, you probably have what it takes to be an
entrepreneur.

Take the Test:

https://www.old.dramatispersonae.org/ECQTest/ECQ(ns)TestAuto.htm.

There is nothing more important for you and your career than your
ethics and your reputation.. When I was just starting out in business in
1982, a wealthy lawyer by the name of Kent Plumley (he made a lot of
his money as an early stage investor in Mitel and later in Newbridge)
told me: “Bruce, the number one thing you have to remember is: protect your reputation.”

I thought that was easy for Kent to say, given that he was sitting on
millions. But as I grew older I realized he was right. Do you know why?

Well, here is how it works:

1. You work hard (for years) to establish a reputation for good work, high ethical standards and trustworthiness.
2. Trust creates an environment for you where clients will send you more and more of their work.
3. Trust creates an environment where your clients will refer other clients to you.
4. Trust gives you breathing room when you do make a mistake—people will
cut you a lot of slack even then because they trust you.
5. Trust creates a personal brand for you individually, independent of your law firm or accounting practice.
6. If you change firms, your clients will follow you because of their trust in you and because they have confidence in you.
7. Trust creates a brand and a brand creates a marketing opportunity
which you can turn into sales or as my wife, Dawn likes to call it ‘IGA
money’—money that you can touch, feel and spend.

One of the best recent examples I have seen of this process at work
is the current marketing for Clarica. Their television ads are done with
a sense of humor and have made a lasting impact on the marketplace I am
sure. But why would Clarica have invested hundreds of millions of
dollars in a marketing campaign like this? It is instructive to find out
why.

First, let me ask you another question. How many of you have wanted
to get up off the couch after watching one of their commercials and
place a call to a Clarica agent to buy some life insurance? I don’t
think there is even a call-to-action at the end of theses commercials;
selling life insurance is not like selling K-Tel slicers and dicers:
“Call now; operators are standing by to take your order at
1-800-555-5555!” Well selling legal and accounting services isn’t like
that either (or at least, mostly, they’re not. You have to ignore the
later night commercials by lawyers asking if you have recently been
injured in an accident.)

So why does Clarica do it? If you look at the diagram above, they
market through a marketing process to build their reputation and brand. A
good reputation and solid brand creates trust in Clarica in the minds
of the public. So when a life insurance salesperson sits down with John
and Sally Smith in their living room to sell them life insurance, John
might say: “Oh, I have heard of you!” John and Sally already trust the
salesperson before their meeting ever takes place.

They trust Clarica a heck of a lot more than they trust, say, the
Pirate Insurance Company of Kinakuta*, who they have never heard of
before and who hasn’t spent a ton of money creating their brand and a
reputation.

(* Thanks to Neal Stephenson for inventing this country.)

Note that Clarica doesn’t sell a thing through their marketing; they
have established a separate sales process (having thousands of life
insurance agents out there, making meetings and actually doing the
selling.) Lawyers and accountants can learn a lot from this example I
think.

Note that a sale, any sale, actually gets completed because of
trust—the client trusts you and, therefore, are willing to buy from you.
That’s the real secret to selling—creating trust. Remember, people like
to buy from people they like and trust.

When I was starting out, one of the real estate lawyers who helped me
also helped herself. We noticed that whenever we were closing on a
property, another developer always seemed to be in the same area,
sniffing around. It wasn’t long before we figured out there was a leak
in the law office we were using at the time and, with the help of the
senior partner, we set about trying to prove it. Unfortunately, it
turned out to be the case. It was a devastating blow to the firm and the
lawyer involved was summarily dismissed. She was never a significant
player after that in the real estate business in Ottawa.

I don’t care what city you practice in a small city like Ottawa, a
mega city like NYC or a city like Buenos Aires, the Paris of South
America. Every city is controlled by a small number of business and
political leaders. In Ottawa, the number of real movers in tech or real
estate or any other major economic engine probably numbers no more than
500. In NYC, it’s more but probably not more than 1,500. So it’s a small
number really.

What that means is that if you muck up your reputation, you probably have to move. Better to keep it in the first place, right?

Make Your Own Rules and Set and Achieve Your Goals

One of the hardest things for my students to learn is that there are
no rules in the field of entrepreneurship. By that I don’t mean that you
go outside the Law; I am not talking about those kinds of rules. You
always obey the Law and protect your reputation; the latter is the most
important thing you own BTW.

But how many times have you heard: ‘We don’t do it that way because
it isn’t done like that and, anyway, no one else does it that way
either’?

Entrepreneurs are constantly asking BIG questions and thinking of
ways to do things differently. It is usually this kind of creativity in
EXECUTION that creates the most value for entrepreneurs. Fred Smith’s
brilliant insight that he could develop an overnight package service
(Fed/Ex) by reducing a 50 by 50 matrix of origins and destinations (with
its impossible requirement for 2,500 overnight flights) to a handful of
flights by developing a hub and spoke system was responsible for one of
the great startup success stories of the late 20th Century.

Let’s remember what Gino Rossetti from Detroit asked the owners of the Detroit Pistons on a visit to Joe Louis Arena: ‘How come the people who pay the most (i.e., suite holders) are the furthest away from the floor?’ Joe Louis only has one ring of suites, which are located at the nosebleed level.

The answer was that all arenas are built that way; it’s just the way it’s done. But Gino whipped out his sketch pad and said: ‘What if we had two lower rings of suites– the first one just 12 rows from the action on the court?’

That single insight revolutionized arena design and economics. It not
only increased the number of suites in these buildings, but people also
paid more (a lot more) for private suites close to the floor or ice
surface. Plus it gave the ownership committed revenues (because they
signed 5 and 10 year deals with leaseholders) and it gave them the
ability to finance new arenas on a commercial basis.

It created the opportunity to bring all the seat holders closer to
the action because the balconies created by the lower rings of suites
could be stacked closer to the arena level much as in an Opera House
with rings of private boxes.

Less volume in the building creates a less expensive but more
intimate structure which benefits not only the fans of major league
sports but concert goers too. So Gino gave the world not only a much
higher revenue-generating sports facility but there is a qualitative
improvement too.

Students often ask me how prices for new products or services are
arrived at. They seem to feel that there is some form of government
control or other, officially approved, algorithm that generates a price.
I tell them the story of Butch Cassidy (in the film BUTCH CASSIDY AND
THE SUNDANCE KID) when he was challenged for the leadership of the gang
in a knife fight. Butch says: “Before we fight, I have to explain the
rules.” His opponent, a giant of a man, says: ‘Rules, in a KNIFE FIGHT?’
Butch then walks up to him and kicks him in a vulnerable spot and then
stomps him into the ground saying; “Rules? There are no rules in a knife
fight.’

Pricing is a bit like that. In a competitive marketplace, you can
charge whatever you like. It may be above your cost (often way above,
in, say, the marketplace for baseball players), at your cost or even
below cost (these are called loss-leaders; e.g., selling below cost milk
to get folks into your supermarket. Ever notice how the milk is always
furthest from the door in every store– that’s to get you to impulse buy
when you are walking through the facility.)

Rules? There are no rules in entrepreneurship; you get to make up
your own. You just have to hope the set of rules you choose, works;
i.e., they underpin a viable business model.

Lastly, I am not a big believer in detailed planning.

I am a big believer in having great business models as you know from
reading this essay but plans, well, they are usually out of date shortly
after you finish writing them.

Good Generals know that war plans are out of date the moment you make
contact with the enemy. Your enemy is not just going to sit there with
large KILL ME signs taped to their backsides. They are going to move and
react to what you are doing so if your troops can’t show some
adaptability in the field—they are likely to wind up dead.

Entrepreneurship is like that. Your competitors want to kill you;
don’t kid yourself about that. They want to buy you out by taking your
customers away from you, one at a time. As Tom Cruise said in the film
Jerry McGuire: “We live in a cynical world. A cynical world. And we work in a business of tough competitors.”

One way to counteract that is to set goals for yourself and your
team, both near term goals (like monthly sales targets) and longer term
goals (we will get x% of the market by year’s end). Tell your goals to
your staff, put them up where everyone can see them—democratize
information!

Also, get rid of negative language. Never say: “I’ll try.” Say and think to yourself: “I’ll do it.”

Humans are uniquely able to visualize, self actualize and internalize
goals. If you can see yourself doing something, your chances of doing
it are much improved. When I was 11, I was the youngest member of our
gymnastics team but I had a hard time doing one particular flip off the
springboard and over the high horse. Our gym teacher, a tough task
master by the name of Major Anderson told me on a Thursday that if I
couldn’t do it by the following Tuesday, I was off the team.

I practically cried when he told me that.

I practiced and practiced but could never get it right. I knew on
Monday I was cooked but that night, I had a powerful dream—I saw myself
hammering that springboard and doing a perfect flip. The next day I went
into gym class and a couple of the guys were sniggering as I lined up
to attempt the flip. I executed it perfectly and made the team.

In my experience, there are a number of reasons why entrepreneurs choose the life of an entrepreneur. They include:

a. They feel they can make more money or they see the need to make more money.
b. They believe they can have more flexibility in their schedules.
c. They think that they don’t have other viable choices; e.g., they get laid off or can’t find a JOB.
d. They want to provide a legacy for themselves and their families and kids.
e. They want the fame that goes with success.
f. They want to prove to themselves and others that they can do it.
g. They want to be their own boss.
h. They want more responsibility sooner in their careers than they could get in a typical JOB.
i. They don’t like bureaucracy and rules—they want to make up their own rules.
j. They want to belong to a team and to feel like they are part of something that is bigger than themselves.
k. They want to give back to society—if they have success, they can better help their fellow human.
l. They don’t want to become a burden on society.
m. They want to be responsible for themselves and make their own decisions.
n. They feel that they can create more interesting work for themselves than others can create for them.

Of all of the above, I believe, after thousands of interviews with entrepreneurs, that the last reason is the most important.

We are driven to be creative. We have these huge brains and dexterous
hands with opposable thumbs and there is a deep seated drive to use
both.

Humans are constantly tinkering with their environment. Living in
Dilbertville is not very satisfying and, notwithstanding all the risks,
effort and heartache that can come with an entrepreneurial lifestyle, it
is still the choice of many, many creative people.

The kids who took over the Internet from DARPA, the DOC and ICANN in
the 1990s wanted to move there—to a fantasy place where there were few
rules and abundant territory to be explored and developed. Remember,
poets, artists, architects, writers, sculptors, musicians,
videographers, software architects and novelists are entrepreneurs.

They come to study with me too because they want to be rewarded for
their creativity, they don’t want death to be a career move and they
want to learn to get rich while they are still alive.

Prof Bruce

Postscript: I often get asked about how I got my start in real
estate. Answer: I bootstrapped it. In many ways, real estate ownership
is PB4L creation for DUMMIES. In any event, I reproduce for you below,
the slides I put together for a speech on:

HOW I BOOTSTRAPPED A $100 MILLION REAL ESTATE BUSINESS IN LESS THAN TEN YEARS

Bootstrapping and Trust

1025 Merivale Road, Ottawa ON: Lipstick Job, Real Estate Flip

1025 Merivale Road, Ottawa ON: Flip Spreadsheet

Bob Compeau: Standing Your Ground

He/She Who Has the Gold, Rules: Golden Rule

Getting Into Bed with a Whale Can Lead to Extinction for the Minnow

Campeau Corp Buy-Out Spreadsheet

Buy Low/Sell High: Easy to Say, Hard to Do

Infinite IRR

Brookstreet Hotel/Marshes Golf Course Spreadsheet

Villager High Ranch Bungalow

Villager High Ranch Bungalow: Ground Floor

Villager High Ranch Bungalow: Lower Level

The Granny Flat in Sanata Cruz, California

In-Home Suites and Apartments

Making Housing More Affordable

Failure Because You are Not the Market

Blue Heron Mini Storage: Go Under the Market

Stay out of the Way of the Whales

Develop Some Type of Competitive Advantage

Be a Good Neighbour

I’d Rather have a 100 clients in a Building than 1; If 1 Leaves, You Still Have a 99% Occupancy Rate

PETA, Presidential Executive Travel Apartments

PETA: Add Some ‘Pixie Dust’

Maple Leaf Design and Construction: Bootstrapped

Borrow Your Clients’ Credit Scores

Invest in Distressed Areas Close to Major Infrastructure

Don’t Follow Everyone Else Off a Cliff

Triole Street Spreadsheet

Going for Broke: The Return of the Ottawa Senators

Bootstrapping the Ottawa Senators

Trying to Make $50,000,000 in a Land Flip to Pay for the Team

Make a Profit

You’ll Never, Ever Get a Franchise for Ottawa

Young People Have a Lot to Contribute, Especially Sweat Equity

Appendix I—The Impeccable Warrior

Ever wonder how Actors get Shakespeare right? How do they memorize
all their lines and deliver them so eloquently and profoundly?

They practice. A lot.

I worked for a really tough guy in the 1980s—he was a PhD in
Engineering Economic Systems from Stanford and that is one tough degree
to get at one of the world’s top universities.

He didn’t brook shoddy performances and, frankly, was no different
than the toughest Director—he wanted the best from his employees
(actors) and demanded that from everyone, including himself.

Everyone I knew who worked there kind of feared him. One day, we were
expected to make a presentation to a senior member of the GOC
(Government of Canada) and he asked me: “Did you practice your
presentation?” I told him not to worry, I am a natural, a good presenter
and it was in the bag.

Naturally, I flopped badly. I was embarrassed and promised him it would not happen again and it never has.

Ever since that day, I prepare for every meeting, presentation, lecture or speech I give. Always. No exceptions.

(* In his book: Outliers: The Story of Success, Maclom Gladwell
(Little, Brown) posits a 10,000 hour rule: if you want to be a top
performer in anything, you need to put in at least 10,000 hours of
practice. That is about five years worth of normal 40 hour work weeks. I
suspect that Gladwell is bang on. My PhD Thesis supervisor, Professor
Max Neutze (now deceased) was a rather demanding person. He told me one
day: “Don’t worry Bruce, the first million words are the toughest.”)

It takes me at least two hours to prepare for a three hour lecture
and this is for a lecture in which most of the material is original to
me. I still need time to prepare, to organize and to ensure that I will
give my students full value for their time in my classroom. It is a
performance and the students are my paying clients. I respect them,
their time and the commitment they have made to come to the University,
both financially and in terms of giving up years of their lives to be
there.

When I first started teaching at Carleton’s School of Architecture in
1994, I noticed how committed the profs were—if they had a lecture
coming up in a couple of hours, they always excused themselves and
prepared. They would stop, sometimes mid-sentence, remember what time it
is and, poof, they were gone to prepare. They earned my respect, for
sure.

That is why I am so concerned about some of the business executives I
meet and some of the students I teach who don’t know what it means to
be prepared.

Even if it is only gathering my thoughts for five minutes, I know if I
scribble down a few questions for an upcoming meeting, that meeting is
likely to be far more productive.

Last week, I briefed the VP of a local property management firm on a
potential client for his firm. I told him a bit about the client, the
five buildings he owned, how many units there are in each building, what
the vacancy rate was like, etc. I gave him a thorough briefing and
organized a conference call for him to speak with the client who lives
out of town.

About an hour before the con call, one of my staff told me that the
President of the firm wanted to take the call—he felt that an important
new client should have the benefit of speaking with the Pres of the
company. So, fine, no problem. Or so I thought.

An hour later, we connect on a 3-way call and the first thing out of the President’s mouth is: “OK, so what’s the deal here?”

He knew NOTHING about the client, the properties and the job at hand.
I was embarrassed for him but also for me. I recommended his firm after
all and I was looking pretty stupid in the client’s eyes.

Now in my experience, if this was an American firm, he would have
known everything he could about the guy on the other end of the line; he
would have found out if they had any friends in common, whether they
like the same sports, he would have been all over the guy’s website, he
would have visited the guy’s five properties and he would have had a
specific plan on how to improve the properties, their look, their
management, their lease up, their rental rates, their landscaping, their
maintenance, etc.

He would have found out ways to improve the guy’s bottom line. He
would have convinced the potential client that hiring his firm and
paying his management fees would represent a NEGATIVE COST. That is, the
cost of hiring his property management firm would be more than offset
by: a) reductions in vacancy rates, b) reduction in maintenance costs,
c) increases in rents for each apartment, d) finding new revenue
streams—like paid parking, paid laundry, maybe telecommunications towers
or billboards added to the properties…

He would have had a spreadsheet prepared and ready to send the
client. He would know the market and how to market the empty apartments
in a cost effective way. He would have projections!

The company did not get the contract; I apologized to the client. I
need to spend more of my time finding an alternative and I will never,
ever refer anyone to that company again.

This is, I am afraid to say, very typical of Canadian Managers and one of the reasons why we have so few world class firms.

I have a kind of informal score that I keep in my head. On a scale
from 1 to 10, firms that I have some familiarity with like, say, the
Disney Company operate at around a 9.8 out of 10. That is about as well
as you can possibly do. Anyone who has ever been to a Disney run Theme
Park can see what they can do. It isn’t as easy as it looks. Trust me.
They call their clients ‘guests’ and treat them that way—just like you
do when folks come to visit with you in your home—and they call their
employees (even their street sweepers and cleaners) ‘performers’, who
must go to Central Casting every day to get into ‘costume’ (not
‘uniforms!) If you ask anyone at a Disney Park, even the most menial
worker a question, they will know the answer or they will immediately
stop what they are doing and help you until your problem is solved.

You know what many Canadian companies think about customer service?
It’s a cost centre! That is why they are usually so bad at it. (It is
obviously a profit centre, if you know what you are doing.)

In my home town of Ottawa, the organization that probably comes
closest to working at a world class level is the Ottawa Senators. Now I
founded the Sens so I am biased but the heavy lifting has all been done
by others. In a small market like Ottawa, the Sens are in the top five
or six in just about every revenue category. (They compete with 29 other
National League Teams.)

I give the Sens around a 7.5 out of 10 which is about as high as you
can achieve in a place like Ottawa. No local company has the depth to
compete with a Disney but 7.5 is darn good anyway.

Now I am a Broker in the real estate industry and I can tell you that
most firms in this industry in Ottawa probably operate around .5 to 1.5
based on my informal and completely unscientific scale. In other words,
we are terrible.

Sometimes, REALTORS may put commissions ahead of clients’ interests;
they may do a lousy job on their information packages and websites; they
may hoard information; they may compete with each other in
inappropriate ways; they may be lazy and unprepared; they may do little
in the way of marketing unless pushed by our clients; they may get a
listing and then practically never talk to a client again; they may pick
the low hanging fruit; they may try to get the list price down for a
fast sale; they may promise to do open houses and then don’t; they make
the same mistake over and over again…

Part of my job is to get the folks to do what they should be doing—if
you put clients’ interests first, I believe you will come out far
ahead. One satisfied client will lead to two more. But trying to get
REALTORS to change is proving harder than I thought.

Postscript: One of my pals runs Wilderness Tours (he is an expatriate
American from Philadelphia) in Beachburg, Ontario. I think WT runs at
around a 7.5 level too. It provides a fantastic experience for its
guests. Joe told me that he works on “TPO”, Touch Paper Once. He tries
to do everything just once—get it right the first time and never, ever
have to go back and re-do it. I hope my current organization will get to
that level some day. Right now, we do stuff over and over again until
we get it right. But it would be a lot better if we could learn to do it
right the FIRST time. Since paper is less a factor in today’s world,
maybe Joe’s slogan should be “TAO”—Touch Anything Once. I also like the
Tao analogy—it will certainly lower my blood pressure if my staff can
learn the Tao.

(Taoism has to do with the ancient Chinese concepts of Yin and Yang
(plus a lot more)—that is, every action begets a reaction. It is
actually quite relevant to this essay because, if you think about it for
a few seconds, if you do a bad job as a REALTOR, for example, that is
likely to bring quite a negative reaction from your clients and the
marketplace and the reverse is also probably true. So doing things right
in the first place is synonymous with doing things once; if you
practice TAO (as we have defined it here) you will become more
proficient and efficient and effective, you will bring about positive
reactions to your work, you will create positive energy around you,
reduce your frustration and the frustration levels of those around you
and be more in harmony with life in general. You will also probably make
more money too and that can’t be a bad thing for you and your family.

I read Carlos Castaneda’s books on the Yaqui Way of Knowledge when I
was a teenager hanging around UCSC. (A beautiful girl was involved
naturally—it was the late 1960s after all.) In his books, Castaneda
talked about the Impeccable Warrior and it had a profound influence on
me. Now many people believe that Castaneda’s books are a fable rather
than what he claimed them to be—first hand research of ancient
Mesoamerican Shaman practices in the deserts of Mexico.

But be that as it may, I have told my students that to be successful
at ANYTHING, they need to assert control over themselves and they need
to develop patience. If you drink too much, stop drinking*. Not getting
enough exercise, change your personal routine. Smoking and toking
interfering with your health, memory and productivity, stop smoking and
doping yourself. I like what Jack Dawson (Leo DiCaprio) said in the film
Titanic: “Make each day count!” Life is so much richer if you are not
hung over or under the influence of other substances…

(* There is an apocryphal story about a well known, New York-based
developer who has a tendency to put his name on his projects. He
inherited a number of residential apartments in the New York area from
his Dad and then proceeded to build a fantastic real estate-based empire
with signature buildings, casino interests and, later on, a hit
television show. But there were some hiccups along the way. The story
goes something like this: he was a teetotaler, a workaholic and a family
man with a lovely wife and kids. For some reason, he got involved with
another woman, installed her in a condo around the corner from his
office and started taking long lunches and coming back to the office in
mid-afternoon smelling of booze. Now how long do you think it took to
ruin his family, his business and his reputation? Incredibly, he
accomplished all of this in less than a year. Tenants were calling,
bankers were calling, suppliers were calling and he was nowhere to be
found. Once confidence and trust in you goes, the rest follows in a
hurry. A few years later, he stopped drinking again, he dumped the other
woman and got his personal and professional life back on track and is
enjoying immense success again. NEVER DRINK AND THINK.)

I am certainly no impeccable warrior. I am a flawed person, for sure.
In fact, I always wanted to be Gregory Peck’s character in To Kill a
Mocking Bird, Atticus Finch. Finch was described by author Harper Lee as
the same type of person at home as he was in public. This is one of the
highest accolades that you can ascribe to any person. In other words,
he wasn’t a phony.

But I can point to a few things I have done that helped me get closer
to the standards set by my heroes (both real, my Dad and my
mother-in-law and fictitious, Atticus Finch and possibly fictitious,
Sorcerer Don Juan): a) got my PhD, b) had five kids, c) brought back the
Ottawa Senators, d) wrote more than two million words of hopefully
decent research material, articles and essays, e) taught some great
students who have gone on to create some really neat things, f) went
back to school in my 50s to get my real estate broker’s license, g) took
up Yoga in my 50s after all the sports injuries I suffered took away
the things I like to do like play hockey, tennis, go skiing and
windsurf, etc, h) stopped biting my fingernails because one day I just
decided to stop doing that (it’s really bad for your health (imagine the
number of bacteria you transmit from under your fingernails into your
digestive system by way of your mouth) and looks like heck) and never
did it again.

I have developed a kind of patience too—I can now understand what Don
Juan was trying to teach Castaneda by making him push a piece of dung
around Juan’s modest desert home with a stick for a day and a night and a
day without ever knowing when Juan would tell him to stop. I can pick
up a spilled can of peas with chop sticks if I have to. I am not
kidding. I could do it.

When Ottawa had that terrific storm last year that dumped a huge
amount of snow on us, I went outside with my kids and my wife and we
started shoveling. We were out there because the contractor we had hired
for the season had quit on us—there was too much snow. He had used up
all the money his clients had paid him and so he couldn’t pay for the
gas or operator time he needed to continue. So he kind of held us
up—“Pay me more money or I won’t show up” is basically what he said. He
probably had that right in his contract to do that—most contracts
drafted up by lawyers have weasel words in them that protect their
clients.

Well, he was protected alright. But to us, it sure didn’t feel right
so we said: “To heck with him” and just got the whole famdamily out
there, some with really tiny shovels, and we shoveled for the next seven
hours.
(I notice this year, that no one on our block has rehired that guy. So
his lawyer sure protected him alright—so much so that he is now OOB, out
of business.)

Now one of our kids had a friend over. He was probably the strongest
of all of us and, at just 18 years of age, he should have been able to
shovel FOREVER. But he is a bit lazy (well, actually really lazy) and he
had an idea—he could call up one of his contractor friends who had a
truck with a plow and get the thing done for us with no work at all!
Great idea, right?
Wrong. Don’t you think that during the greatest snow storm in a
generation, his friend would be out there making some money with his
truck and unlikely to get around to us for DAYS. No way was I going to
be stuck, at someone’s mercy for days. If anything happened, an
emergency or whatever and we needed to be mobile, I was getting our
vehicles on the road. To heck with waiting.

The night of the big storm, I and my two boys were out at 3 and 4 and
5 am digging one of our vehicles out of a snow drift on the main road.
One of our kids had stranded it there. It couldn’t be left there—the
Mayor had declared an emergency and if a vehicle is blocking a major
road, well, the plows will just shove it out of the way. Bye, bye family
van.

Now I have all the equipment to get just about anything out of snow
bank so we just went out there and did it—and at the same time got a few
of our neighbors’ cars unstuck too.

But I can tell you, it was scary out there. I can see how glaciers
can form in a hurry after that night. It’s one thing to see a film about
it (like, The Day After Tomorrow), it’s another to see it in one night
in your hometown. I can tell you if it ever snows year round, Canada
would be uninhabitable in no time.

But the point of all this is: develop some patience. I like to rely
on myself, I don’t like free stuff and I have patience and determination
to do things, to get things done, to finish and complete things.

When I was a kid and attending McGill University in Montreal, I had
my own apartment but I couldn’t afford a vacuum cleaner. I also couldn’t
afford any furniture. (I solved this by raiding the Engineering
Department for milk crates and Styrofoam (my dining room table and work
table) and the Sally Ann for cushions, foam mattress and dishes.)

I also liked to entertain (a girlfriend or two) and it wasn’t lost on
me that they tended to like things neat and clean. I also happen to
believe that being reasonably well organized and living in a clean
environment is a good thing. So I re-learned what my mother’s people
knew—they came from Russia and if they had to clean their carpets, they
swept them with a broom. Not too many Russian peasants had vacuum
cleaners, circa 1909. Ha. Ha. None of them did, of course. And if the
broom couldn’t get all the dirt, I would get done on my knees and pick
up lint piece by piece, no problemo. Don Juan would have been proud of
me.)

I have been asked over the years if I can come up with some ‘rules to
live by’ in order to become a successful entrepreneur. I think those
‘rules’ might also apply to anyone in any field of endeavour. So I put
together my 30 Guidance Rules which are a mixture of new age philosophy
and ideas as old as civilization. I am not claiming originality here.

[I have also argued that, in entrepreneurship, there are no rules but
in that I am essentially referring to something else. That is, as an
entrepreneur, you are a pioneer and, as such, you make up the rules as
you go along. But that does not mean that you forsake your ethics along
the way.]

1. Be someone others can have trust in. Trust is the foundation of a successful life in business and in your personal situation.
2. Under promise and over deliver.
3. Have a belief in something greater than yourself.
4. Develop some self-knowledge. Be in touch with your gut (instincts) and your subconscious.
5. Be the same person in private as you are in public—don’t be a phony.
6. Behave ethically.
7. Don’t place your trust in false prophets.
8. Live a healthy lifestyle—all things in moderation. Don’t drink and
think. Get some exercise. Don’t take drugs. Don’t smoke. Eat reasonably.
Enjoy the life you have been given and enable your body and your mind
to work to their full potential unclouded by substance abuse. Exercise
some self-discipline. Get enough rest.
9. Try not to swear.
10. Try to find some time for yourself and your family every week.
11. Honour your elders—don’t throw people away because they get older.
12. Do unto others as you would have them do unto you. (The Golden Rule.)
13. Avoid the Seven Deadly Sins of pride (vanity), envy, gluttony, lust, anger, greed and sloth.
14. Give people including yourself, a second chance (but not a third chance). Forgiveness is blessed.
15. Be a Good Samaritan and a good citizen and a volunteer.
16. Make no acts of commission but forgive yourself and others for acts of omission, everyone makes mistakes.
17. Don’t hurt anyone.
18. Be faithful to and love your spouse and your family.
19. Be humble—walk a mile in someone else’s shoes. Be merciful. Don’t live an extravagant lifestyle. Be modest. Live modestly.
20. Take care of our planet.
21. Don’t steal. Don’t take what doesn’t belong to you.
22. Seek education, experience and wisdom. Work smarter. Enhance and embrace your creativity.
23. Don’t lie.
24. Love thy neighbour as thyself. Stand up for others who need your
help. Help others and be generous. If you want something done, ask a
busy person. Manage your time—make each day count.
25. Be positive. Do not fear success. Fear failure. Don’t be afraid of
competition—it will make you better. Don’t engage in self-pity when
things go wrong. Look in the mirror first before you blame others for
your failures. Don’t get too high or too low. Compartmentalize—try to
keep going even if parts of your life are not working well.
26. Be patient. Success takes years of effort. The harder you work, the luckier you get. There are no shortcuts.
27. Lead by example. Be committed. Focus. Be competent. Show up every
day for work—the ‘show’ must go on. Do things in parallel. Be a good
team member and friend and colleague.
28. Seek out others who share these characteristics—surround yourself with good people.
29. Take care of your business so it can take care of you and your
family—don’t become a burden on your fellow human. Take responsibility
for yourself. Pull yourself up by your bootstraps and help others to do
the same. Accept help if offered and seek it when you need it. When
something isn’t working, change.
30. Stick together and reach out to others.

Appendix II—The Moral Underpinnings of Entrepreneurship

Optimal Production of Goods and Services for the Maximum Number of Persons

Capitalism is under attack today for the abuses of a few ambitious,
unscrupulous executives who have either perpetrated massive frauds upon
the public or enriched themselves at the expense of others without
providing value in return. We have laws against the former (it’s called
fraud) and we weed out the latter through a process in which people
refuse to buy from or sell to the latter.

Not for a minute should the reader think that such miserable examples
of humanity are any more prevalent in a mixed capitalist economy than
they are in, say, a socialist society, a communist one, a feudal
arrangement, a dictatorship, a religious hierarchy, a co-operative, a
kibbutz, a kingdom, anarchy, tribe, a family or any other type of social
system. Extreme cases make for bad laws—if someone in your company
misuses access to the Internet, banning access for the 19 out of 20
employees who use it as a valuable resource, is wrong for the
corporation, bad for company morale and will lead to a catastrophic loss
of competitiveness.

A Ponzi scheme (a pyramid scheme) is not a new device. Fraudulent
investment products have been around forever. Products of dubious value
and extravagant claims have been peddled to the unwary for centuries
upon centuries. Humans have been trading for about 100 centuries and,
for most of that time, this has led to a huge increase in wealth. Humans
are by far the most dependent creatures on the planet—we specialize and
then we specialize some more—this is as true of individuals as it is of
nations.

Adam Smith in the WEALTH OF NATIONS notes that a seemingly simple
overcoat is the product of “the joint labour of a great multitude of
workmen …without the assistance and co-operation of many thousands the
very meanest (poorest, ed.) person in a civilized country could not be
provided…”

When individuals pursue their own self-interest, they are, in effect,
self-organizing to produce the optimal amount of good and services for
the maximum number of persons in their society. This, of course, assumes
that a competitive market exists for those goods and services and that
individuals are prevented by their competitors from over-charging for
their products or services by their desire to maximize individual
profits.

Obviously, governments have a role to play in ensuring competitive
markets and enforcing laws against fraudulent behaviour. But beyond
that, it is clear that governments cannot be counted on to produce goods
and services efficiently through any form of direct government action.
There is abundant evidence that the private sector can do this much more
effectively.

The Tyranny of the Commons

The City of Ottawa wanted to bring in a new By-Law regulating the
private use of private wood lots. Wood lots in private hands that had
been reliably producing logs and firewood since the early 1800s were
suddenly clear cut in anticipation of the By-Law’s introduction. Owners
who were good stewards of their lands for generations—replanting and
tending to their forests—suddenly became Paul Bunyans. They feared that
their property rights were about to be taken away and they maximized
their immediate return by felling every stick on their properties.

Of course, the local market was flooded with firewood, prices
dropped, lands looked like Dresden after the firebombing in WWII,
streams were contaminated with runoff, wildlife lost whatever habitat
they might have had and future generations lost any income they might
have had from these wood lots.

This is the difference between optimization behaviour and
maximization of the objective function and the difference between the
use of a commons and the use of a private domain.

Lake Baikal, one of the natural wonders of the planet, contains more
water than all the great Lakes of North America. It is the deepest lake
in the world. It was also a dumping ground for spent Soviet nuclear
reactors, literally dropped there—out of sight, out of mind.

If no one owns something, no one cares for it, no one nurtures it, no
one looks after the best interests of its stakeholders or the large
scale ecosystem, of which humans are a part.

Efficiency and the Environment

No society has ever existed that left no footprint on their
environment. All societies pollute. Some more than others as we have
seen.

But it is ludicrous to assume that efficiency and environmental
protection are mutually exclusive. If producers can find more efficient
ways to deliver their products or services, this, by definition, lessens
their impact on the environment. Fewer materials, labour and management
as well as less energy in the delivery of a product or service is
obviously better for the environment.

And private sector initiative is the only way to obtain higher levels of sustainability.

Surely, newspapers, if they are to exist at all by the end of the
21st Century or maybe even by the quarter century mark, must find new
business models. The idea that we should clear cut forests, expensively
transport logs to mills, turn the logs into pulp and paper using
chemical processes that are devastating to air and water quality, ship
the newsprint to printing plants, print huge volumes of newspaper, to be
transported by trucks, planes, more trucks and finally automobiles to
your front door, to be consumed in 20 minutes with your morning coffee,
to be thrown in the recycle bin, to be scooped up by truck and then
shipped to a recycling plant in China to be re-shipped across the
Pacific to the printers to be…

This is an insane industry in sunset for sure.

Devices like the Kindle 2 will almost certainly be used for the delivery of the daily news and not just for downloading e-books.

(This is not an argument against the concept of the local or national
daily. Daily newspapers are an important part of creating a cohesive
society. We need a common language and jargon—if everyone becomes an
island with his or her own niche RSS feed, we will find it increasingly
difficult to have national conventions like, in Canada, the pursuit of
peace, order and good government, which are of paramount importance in
terms of producing a civil society. It isn’t intervention by the police
or the threat of prosecution that keeps the great majority of people
honest—it is the voluntary buy-in to national conventions and accepted
standards of behaviour. National news organizations, national
broadcasters have a vital role to play—but they need to adjust their
business models and soon.)

Priorities

Peter Patafie, a guest speaker a few years ago at the University,
shocked a group of B-School students by saying his priorities were:

1. First, take care of your business;
2. Second, take care of your family;
3. Thirdly, take care of yourself.

One student asked Mr. Patafie if he had somehow got the first two in the wrong order. He said: “No.”

“Do you know what the number one cause of divorce is in Canada? It’s
not that you have fallen out of love with your spouse. It’s not that you
are arguing about the kids. It’s about finances or lack thereof. If you
have creditors calling you in the middle of the night, well, that puts a
lot of stress on the family.

If you take care of your business first, it will sustain you and your
family, sometimes for generations. That is how you take care of your
family and yourself.”

The morality of capitalism is based on the notion that if you, first
take care of your family and yourself, then you will not become a burden
on your fellow human. That is a moral imperative.

And once you have achieved that, you are in a position to do good works for others, another moral imperative.

Conclusion

To summarize then, the moral underpinnings of capitalism are:

a. Self organization to achieve optimal production of goods and services;
b. Efficiency and environmental sustainability are linked;
c. Private ownership of the commons also means careful husbandry of resources;
d. Take care of your business;
e. Take care of your family;
f. Take care of yourself;
g. Don’t become a burden on society;
h. Look out for the interests of others once you have first taken care of your family and yourself.
Perhaps Sir Winston Churchill said it best: “Indeed, it has been said
that democracy is the worst form of Government except all those other
forms that have been tried from time to time. (Speech in the House of
Commons, November 11th, 1947.)

Appendix III—Sponsorship can be a Useful Form of Bootstrap Capital
Even for SMEEs

The Sens and Sponsorship

When we were trying to Bring Back the Ottawa Senators in 1990, a team
that hadn’t played a game in the NHL in nearly 60 years, we had a lot
of help. We signed up 500 Corporate Sponsors at $500 each plus 32
Original Corporate Sponsors at $15,000 each for the Ottawa Senators
before the franchise was even awarded. Perhaps more impressively, we
sold 15,000 PRNs (Priority Registration Numbers—reservations for season
tickets for a team that did not yet exist) to the public for $25 per
PRN, non-refundable.

Of course, no one buys one season ticket, so these were sold in
groups of two. For their $25, potential season ticket holders got a nice
form signed by Cyril Leeder (now President of the Ottawa Senators and
Scotiabank Place) and a bumper sticker. PRNs were sold in twos and
fours, mostly to individuals and SMEEs.

Jim Steele (now head of Sens broadcasting) told me he got into an
argument with a guy on the phone late one night in November 1990 (the
team was awarded by the NHL on Dec. 6, 1990), got dressed, went down to
the bar where the guy was, convinced him of the merits of supporting the
cause and came away with 50 bucks for 2 x PRNs.

What that should tell you is that sales is not about somehow pushing a
button and all of sudden, hundreds or thousands of clients line up to
give you their money. This is about down-in-the-trenches street fighting
for each sale, one by one. That’s just as true for IBM as it is for the
most modest business person like the very successful middle-aged guy
who sells Polish sausages on Laurier Avenue in Ottawa outside the
University building where I work.

When Kevin Rose and his co-founder wanted to populate their news
agglomeration site (the hugely successful and delightful Digg.com), they
didn’t try to send out a mass email or advertise on TV, they called
1,000s of people themselves, one at a time, and asked them to
participate in the launch.

There is still no substitute for ‘shoe leather’.

In the case of the Sens, we raised more than $1.1 million from
sponsors and another $5.4 million from land owners in the form of Seller
Take Back Mortgages. STBs are another form of bootstrap
capital—essentially, the landowners who sold us about 600 acres for what
would become Scotiabank Place and associated development, provide some
of the financing for us to acquire their holdings.

The total campaign including the cost of visiting with all the
Members of the NHL’s Board of Governors, preparing the bid,
participating in meetings, buying the site for a MCF (Major Community
Facility) and so forth was about $9.7 million but sponsorships and STBs
significantly reduced that to about $3.2 million in cash.

Oct. 10, 2009 Sens Sponsors: Bring Back the Ottawa Senators Campaign

Corporate Sponsors $ 250,000.00 500 $500 each
Original Corporate Sponsors $ 480,000.00 32 $15,000 each
PRNs $ 375,000.00 15,000 $25 each

Total Sponsorship Raised $ 1,105,000.00

Campaign Costs

Scotiabank Place Site and Lands ($7,200,000.00) 600 acres $12,000 per acre
Campaign Costs ($2,500,000.00)
Sub-Total Campaign Cost ($9,700,000.00)
Seller Take Back Mortgages $ 5,400,000.00 75%

Net Cost of Campaign $ (3,195,000.00)

Now I hear all the time that this is fine for larger businesses like a
NHL hockey team but that it doesn’t apply to a small startup. But I
find that if you think about it for a minute, you can apply this
practically anywhere.

Curved Golf Shafts

A couple of guys I know were in my office last week—they have a
series of products they are trying to get off the ground—a curved golf
club, a curved hockey stick, a curved walking stick and a curved ski
pole. Their company (pleasantly called WOW) believes that, for example,
their curved driver helps duffers hit the ball straighter while their
curved hockey stick they say helps make a player’s shot ‘heavier’. (I
wrote a piece of the science behind a hard versus heavy shot in hockey:
https://www.old.dramatispersonae.org/HeavyHardShotsVersusFastSlapshot7December2006.htm).

I cautioned them against a GO-BIG-OR-GO-HOME strategy; it almost
never works for these types of gadgets. I told them to use a go slow
approach. Build a 10 cent website using a platform like Yahoo! Small
Business (https://smallbusiness.yahoo.com/ecommerce/), go to a few trade
shows, ask a few high profile folks to try their wares and endorse them
if they like them (but don’t offer them any money because they don’t
have any to give away), trade links with some friends on the web to
boost their Google page ranking, basically, do stuff that is
inexpensive.

Their goal (which I set for them) is to build a sustainable PB4L
(Personal Business for Life) that within a few years will earn $120,000
per year PROFIT, spilt between the two of them. If one of their gadgets
takes off terrific. If not, a PB4L that produces some income will be
better than nothing and they will take great satisfaction from it.

Their idea when they walked in the door was to raise $10,000 to
$20,000 from, say, 30 people and then blow it all on big product orders
from China, an advertising campaign, a presence in major retail chains,
investment in celebrity endorsements, getting major distribution players
to back them and so forth.

This approach usually spells disaster. If you have a game you have
invented or a gadget of some kind, the established players in those
industries don’t want to hear from you. Parker Brothers, Milton Bradley,
Nike, what have you, don’t want unsolicited proposals—they will simply
return them to you unopened with a form letter saying ‘we didn’t look at
them and don’t send us any more’. The reason? They are deathly afraid
you might claim later that your product is similar to one they were
already developing. They have found juries only too willing to believe
(often justifiably) that a large corporation has essentially stolen an
idea from a small scale inventor and damages (especially in the US) can
be huge.

Plus these established players hog all the shelf space and don’t want to share it with you.

For every Air Hog or Trivial Pursuit there are millions of ideas,
concepts and patents that never amount to anything and often cost their
inventor everything. For every Robert Kearns, the inventor of
intermittent windshield wipers who won a multimillion-dollar lawsuit
against Ford, there are hundreds of thousands who gave up.

I believe you have better odds of making a fortune by buying a Lotto 6/49 ticket than you do with most gadgets or gizmos.

So aim low, go slow, don’t risk too much money and you may get a pleasant surprise on the upside.

The guys also asked me if they could sell their ideas to one of the
established players. To those of you who follow my writings, you already
know the answer to that—no. Ideas are abundant and cheap. Large players
buy cashflow and market share; in my experience, they won’t pay a
farthing for just an idea.

Another thing that can really assist these guys is for them to get
some sponsors. This was a new idea for them and we discussed how it
might work:

1. They believe, and I agreed, that the curved driver was probably the best gadget to start with.
2. I told them that the golf audience is a highly desired one by advertisers but hard to reach.
3. What if they put the logos of a few sponsors on the shaft of each driver?
4. Law firms and accounting firms want to reach this audience and they
have (at least in Canada) restrictions on how they advertise. Adding
their logos and website URLs on the shafts of these drivers would suit
them perfectly.
5. Other potential sponsors might include high end autos, a beer company
and purveyors of luxury goods, maybe even resorts and hotels.
6. Every time a golfer drags that driver out of his or her golf bag, they see these logos—they aren’t zappable like TV ads.
7. They continue to work for the life of the club—maybe five or more years.
8. The clubs might retail for $200 and cost about $60 each. Perhaps they
could put five logos on their drivers for, say, $6 per club so half
their costs are covered by sponsors!
9. If the average golfer plays 12 rounds per season and brings his or
her driver out 18 times, then the cost to the sponsor for 1,000 clubs is
$4.63 per thousand views. This is the fundamental measure of
advertising efficiency, known as CPM (Cost per Thousand, the ‘M’ in the
Roman numeral for thousand).
10. That is a very reasonable CPM; CPMs can vary from $5 for newspapers
to $15 or more for glossy magazines to as much as $60 for highly
targeted web ads. Mail drops in Canada can cost 15 cents each when
delivered by CPC (Canada Post Corporation) which obviously works out to
$150 per thousand. So $4.63 to deliver a highly valued audience is a
pretty good value proposition.
11. Co-op advertising is the way of the future—more brands will be
sharing the same space. If you are selling a high end car why not have
an attractive person modeling top end clothes and jewelry to help defray
some of the costs. That is, sponsors can have sponsors! Firms will pay
to have their products placed in other ads!

Here is how you calculate CPMs:

Oct. 10, 2009 CPMs for Golf Driver

Average 12 rounds per year
No. of Holes 18
Use of Driver 18 100%
Views of Driver 216 per year
Life of Club 6 years
Views of Driver 1296 during life of club
Cost of sponsorship $6
Cost of sponsorship $6,000 1,000 clubs
CPM $4.63

Sponsors dollars help defray your costs but sponsors can become
delivery channels too. When the guys from WOW sign up a sponsor, the
agreement might look like this:

A. They sponsor 1,000 clubs at $6.00 each.
B. They agree to sponsor another 1,000 clubs after the first 1,000 are sold.
C. They agree to buy (at a reduced price, say, $175 instead of a retail
price of $200), 20 clubs per year for the next three years.
D. They have to pay 50% of their sponsorship on signing and the balance within 6 months.
E. They pay for their first 20 clubs—50% on signing the Sponsorship
Agreement and the balance within 30 days of receipt of their order.
F. They agree to feature WOW on their Partners Page of their website and
all of the co-sponsors too. They link to all of them and WOW and their
co-sponsors link back to them—they cross promote and raise everyone’s
page rankings in Google.

If you look carefully at the above, you will see that there is an
emphasis on cashflow. Under this model, if they sign up five sponsors,
they will end up with $23,750 right up front—enough to pay for their
first order of clubs, go to a few trade shows, set up a simple website
and have some money left over. They will also be expecting another
$23,750 after they deliver the clubs to their sponsor and collect the
balance of their sponsorship.

Here is their simple cashflow model:

Cashflow Model

No. of Sponsors 5
No. of Clubs 1,000
Cost per club $6
Cost of Sponsorship $6,000
Deposit $3,000 50%
Purchase of Clubs 20
Purchase Price $175 per club
Purchase Price $3,500 for all clubs
Deposit $1,750 50%
Cash on hand $4,750 per sponsor
Cash on hand $23,750 total

Just as important, their sponsors will do something with the 20 clubs
they have been ‘forced’ to buy—they will give them away at golf
tournaments that they host, they will give them to favored clients and,
guess what, they have now become powerful distribution channels for WOW.

Zero Cost Goodwill Marketing

I find sponsorship opportunities everywhere. A couple of young
fellows came to see me recently and I sketched out a plan for them to do
some ZERO COST GOODWILL MARKETING for their new business, Acme
Enterprises in Nashville (the names and places and numbers have been
changed).

They wanted to do a food drive for the Nashville Food Cupboard and
they wanted to offer as an incentive to get people on board a draw for
tickets to a Titans game. They had arranged to get a private suite from
the Titans for $2,000 (a reduced rate from what the normal commercial
value would be) subject to their being able to find the money. They had
30 days to come up with the dough.

Here is the program we set out for them:

1. They decided to support the Nashville Food Cupboard, a worthwhile cause.
2. It would not only help the Food Cupboard which was experiencing a
shortage of food and a simultaneous increase in demand as the economy
worsened but it would also help build their brand and that would help
Acme earn the trust in the community and that would mean that Acme could
better compete in a tough marketplace and sell more of their services.
3. They got a favourable rate from the Titans for a suite ($2,000) but
still had to find the money to cover it—they just didn’t have it in
their budget for this year but knew they needed to do something to help
the community and to help themselves.
4. Everybody who brought in food donations would get one ballot for every item—you bring in ten cans and you get ten ballots.
5. They would hold a draw and the winners (there would be four of them) each get a pair of tickets to the suite.
6. Then they would go out and sign up four other local businesses to co-sponsor the food drive.
7. Each sponsor would throw in $500—for that, they each got the right to
accept food donations in their place of business (driving more traffic
to their stores and offices). Plus they each got two tickets to the
suite.
8. The suite holds 20 people—four winners of the draw would use 8 seats,
the four co-sponsors would use 8 seats and the two owners of Acme would
each get one. Plus they held back two seats for the Nashville Food
Cupboard—one for the Executive Director and one for a guest of the
ED—presumably a key sponsor of the Food Cupboard would also like to
attend.
9. Donations would be accepted at Acme and the other four locations for three weeks prior to the game.
10. Every Friday would be dress down day and every employee would wear a
Nashville Food Cupboard t-shirt. On the back would be the names of the
four sponsors and Acme.
11. The employees would receive these really well designed t-shirts for free.
12. Each co-sponsor would pay 125% of the cost of the shirts—Acme would
pay nothing—since they are putting in their share in the form of SE,
sweat equity. After all, they are organizing the whole thing, putting in
lots of hours including helping the Food Cupboard’s truck make the
rounds and pick up the donated items. Plus they are driving a lot of new
customers to the four co-sponsor locations.
13. It would be a fun afternoon at a Titans game, hoping they can win a
game this season (the Titans are off to an 0-4 start in 2009).
14. They would also put out media releases—announcing the food drive and later the winners with happy smiling faces everywhere.

Here is the model we sketched out on a piece of paper for the guys:

Zero Cost Goodwill Marketing

Conclusion

So sponsorship applies not only to large businesses like pro sports teams but to startups and SMEEs as well.

Postscript: please also read, How to Get Sponsors for Practically Anything, https://www.eqjournalblog.com/?p=1649.

Prof Bruce @ 8:58 am

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Thought Experiment

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PB4L—The ‘Field Notes’ Story

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Work/Life Balance

14 Comments

Posted on
Friday 10 December 2010

I collect stories about Personal Businesses for Life (PB4L)
for this blog and also for my students because they can learn a great
deal from people who have already bootstrapped an enterprise, made it
successful and kept ownership of it—away from Banks, VCs, Angel
investors, angry creditors, partners, ex-spouses, what have you.

I have told my students that a good source of ideas for PB4Ls might
be to visit their local Libraries and look at old copies of the
Encyclopedia Britannica. I would recommend pre-World War II and even
pre-World War I vintage encyclopedias—what they are looking for are
‘ancient’ crafts that they can reuse and recycle.

Former snowboarder, Aaron Draplin, created a $1 million per annum
business based on an old recipe—authentically crafted, offset printed
sets of Field Notes.

Field Notes Nostalgia

To survive today, you need to be innovative as well as productive and
I think Field Notes or just a simple pad of paper can still help you
with all of that.

Now let me tell you a story about Jeff Cavanagh from Thomas Cavanagh Construction.

A few years ago, I asked him: “Hey, Jeff, do you have a Blackberry?”

“No, Bruce, I got me a Strawberry instead.”

“What’s a Strawberry? I haven’t heard of a smart phone called the ‘Strawberry’.”

“Well, it’s this here little black, pocket-sized notebook of mine
where I write down all the things I gotta do with this little pencil.”

“But don’t you miss not having email, your calendar and a bunch of apps on your cell phone?”

“Sure.”

“Let’s further assume that voice did not become possible until Tim
Berners-Lee invented the Web in 1991. So we reverse the order of
invention, OK?”

“Got it.”

‘No more waiting, sometimes days, for someone to answer your email.
No more misunderstanding stuff just because you were trying to be funny
or sarcastic and it fell flat in yer email.

Prof Bruce

Postscript: to read more about this subject, please see: Should Every Person on the Planet have a PB4L, https://www.eqjournalblog.com/?p=421.

Sources: Financial Post, December 6, 2010 story by Deborah L. Cohen: “Social media gives old medium new life”.

Prof Bruce @ 1:07 pm

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Why Not to Work From Home

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Venture Capital

43 Comments

Posted on
Thursday 9 December 2010

I tried working from a home office for 14 months. Just so
you know, at the time we had five kids, a nanny plus my mother-in-law
there so it was not the best test case ever. Still, even if there was no
one at home, I would not be tempted to try again because:

1. Separate home and work and save your sanity. You’ll have time to
decompress between leaving your office and arriving home to your family.
2. In an office, you have people to bounce ideas off of.
3. Have somewhere to meet a client that isn’t your bedroom or your living room is a good idea.
4. With a professional office, someone is always there to accept parcels, nothing gets “sent back”.
5. You can stay on good terms with your neighbours: they don’t have to
put up with extra traffic in your residential area, which means you get
to borrow a cup of sugar whenever you want.
6. You’ll probably have access to better services and office equipment.
7. Having an office to base your business out of creates a more professional image and a stronger brand.
8. By working in a shared office space, you can share costs for reception, staffing, meeting rooms, utilities, etc.
9. You’ll probably find yourself to be more productive, as there are
fewer distractions and interruptions from family and no ‘honey-do’
lists.
10. You’re also likely to shed a few pounds since raiding the fridge is no longer an option.
11. No more sleeping in (though to some this may be a perk of the home office); keep in mind the importance of having a routine.
12. Working from home means less recurring contact with others, so with
an office…you’ll feel less isolated. Your social skills improve. You are
also more likely to get promoted since if you are out of sight, you’re
also out of mind.

Maybe it makes sense to use the home office a day or, at most, two
each week. But a steady diet is not for me and, I suspect, not for most
people.

Here’s what my friend, a top end commercial realtor by the name of
Sonia Lang, said about her experience working from home, “I worked at
home for 6 months–it was a ‘frightening’ time, never again! And, oh by
the way, Bruce, you should add a 13th reason why never to work from
home: you don’t live in a track suit, and then when you do have to go to
a meeting, you first have to check if your clothes still fit!”

Finally, I’ll finish with a question, “Does creativity flourish in a
vacuum?” A gathering of your tribe in a RL (Real Life) and sparking
ideas off each other is hard to duplicate any other way.

Prof Bruce

Prof Bruce @ 11:53 am

Future Vision and Technology

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Posted on
Thursday 9 December 2010

Guest Post by Schuyleur Seccaspina, President, Vittorio Automotive Group, https://www.vittorio.ca/index.htm, Domain Name Speculator and former student of Prof Bruce

The entrepreneurial experience can mimic drilling for oil sometimes.
Even when you believe you’ve finally found it, the well can run dry.

At age 25, I’m currently still searching for an endless supply of oil
and I am finding that the drilling process seems endless at times.

So far, my wildcatting has brought me to the automotive industry and domain name field.

I operate an independent, pre-owned automobile store by the name of
Vittorio Automotive Group. Established in 2007, it is situated in
Carleton Place, ON. Among regular services such as detailing, repairs
and service is our niche: in-house financing.

After exhausting all mainstream financing options, our managers can
qualify practically anyone for our in-house financing program. How do we
do that without going broke? That is our secret sauce, which
differentiates us from the competition. Here’s how we do it.

After agreeing to our terms, making the required down payment (varies
depending on the vehicle), the customer drives away down the road. With
an annual interest rate of 29.9%, the majority of our customers are
purchasing a vehicle because they absolutely need to. They require a
vehicle for their day-to-day activities.

But it isn’t the high interest rate that is our ‘pixie dust’, it’s
the fact that all our in-house vehicles are equipped with GPS. These GPS
systems monitor the vehicle’s location on a daily basis and are tied in
to our direct-debit banking system. In the event of a payment coming
back marked as ‘insufficient funds’, the vehicle is automatically
disabled and we are notified of its location. The vehicle is only
enabled when full payment is made along with an accompanying penalty and
fee.

In the event that full payment has not been received seven days from
receiving an ‘insufficient funds’ message, there’s a second option for
the customer: vehicle repossession. We usually come away unscathed but
it can be dramatic at times. There have been instances when vehicles
have been taken while in full view of their owners. Other days, vehicles
are taken in a more discreet fashion and then there are finally
instances where the customer simply returns the vehicle.

We have been met with harsh words and attacked by purses. We try to remain calm.

All of this to make a living…

Domain names are quieter. And a nice source of Bootstrap Capital as my Prof used to say.

It commenced during a year off from school (in January 2006 to be
precise) when I began to accumulate a portfolio that today consists of
approximately 600 domain names. The first name I registered was
skymanunltd[.]com. The second name came a few weeks later and it was a
much better, more informed choice

It really wasn’t until I read an article about ‘domain squatting’
that the floodgates opened. Within three months, I had 20 names and then
within five months I had my first sale: easyhome[.]info. I had
purchased it for $1.99 and it sold for $1,500; not bad to kick things
off.

When I entered the market, there were few opportunities to hand pick
names that would have value in the future. Within a year, I was already
discovering that in order to obtain premium names, I would have to do so
through the backorder and 3rd party markets; an expensive proposition.

People often ask me how I select my names and I struggle for an
answer. I stick to the .com and .ca extensions, as they’re among the
most popular in North America. The .com extension is currently king of
the domain name market. There are those domain name investors who rely
on key statistics such as Google results or keyword searches. I use
those stats too, but I also use my entrepreneurial mind. For instance, I
ask myself what type of website could I see on a domain name like
worldcigars[.]com? What about studentbusiness[.]com? If I like the idea
and the name has decent stats, I proceed to purchase the name.

Sales are always nice, but the fact is these names also generate
revenue while I sleep. I set up different advertising campaigns for the
domains I own as landing pages. Example: when you make a typo for a name
such as NewZeland[.]com, you are greeted by a series of links. Each
time a link is clicked, I receive revenue. This is pay-per-click
advertising. As it stands today, revenue per month for this name is in
the three figures (merely from random visitors clicking my links). The
old days when one could generate substantial revenue from PPC is long
gone. I believe we are moving into a period where the development of
monetized mini-sites will be required.

I have had a number of notable sales which have included
maclist[.]com (Sale Price: $6,000, Purchase Price $120), zeel[.]com
(Sale Price: $7,000, Purchase Price: $535), Vittorio[.]com (Sale:
$10,000, Purchase Price: $1,575 but I have a bad case of seller’s
remorse on this one since it is my own brand I sold. Not to worry, I
still own the .ca.) and manilla.com (Sale Price: $10,000, Purchase Price
$430).

To me, we are still in the early stages of the Internet, and the
market is similar to real estate except it’s online real estate.

The drilling will continue.

Schuyleur Seccaspina

Prof Bruce @ 11:22 am

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Asymmetric Information

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Financing

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Internet– the Internet is Eating a Hole in the Global

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Best Homes 4 U

Posted on
Sunday 5 December 2010

Create a Virtual Homebuilder, Please

In 2000, in a speech to the Indo-Canada Chamber of Commerce on
Parliament Hill, I tried to get Ottawa-area home builders to create a
Virtual Homebuilder but failed; this is a very conservative industry.

Here is what I had in mind:

-put their available lots and designs online in a physics engine together with all design options and finishes
-allow everyone and anyone to access and use their physics engine, and save their design
-clients go online and choose a lot, a design, their fit-up and finishes
(carpet, tile, kitchen cabinets, counters, lighting package, plumbing
fixtures, vanities, mirrors, etc.)
-put a cash register online too
-the consumer is now able to see what all their design choices (e.g., granite or concrete counter tops) add to cost
-they can fool around for 30+ hours—adding cool stuff, taking it out if
it proves too expensive, substituting one thing for another
-then they can hit the “submit” or “print” button.

It turns out that homebuilders fear putting prices online since their
competitors might find out. But have they never heard of “Secret
Shoppers?” Their competition already knows every detail of what they do.

I also encouraged them to put their CPM (Critical Path Methodology)
schedules online: let customers see where their homes are at and let
suppliers see too when they’re needed for Footing and Foundation work,
framing, roofing, windows, dry wall, paint, carpet, cabinetry,…

Now an interesting thing may occur: the more options available online
at ‘Best Homes 4 U’, the more users might migrate to the site and then
you end up creating a virtuous cycle that goes something like this:

Best Homes 4 U Simple Model

Suddenly, Best Homes 4 U is enjoying network effects: as more
products and services become available online for clients to fool around
with, more clients go online at Best Homes 4 U which then means that
more suppliers (of, say, high end kitchens) will want to be featured on
the site, etc.

Now suppliers to Best Homes 4 U who would normally be paid for
supplying goods and services that go into Best Homes 4 U buildings might
be induced to pay Best Homes 4 U to advertise on or sponsor their
website. They will want to be featured prominently on this high traffic
site.

This reverses the normal direction of the flow of cash (from a
business to its suppliers) and gives you some idea why, in the 21st
Century, it is not always obvious as to ‘Who Pays Whom’. Read more on
this topic at: https://www.eqjournalblog.com/?p=1481.

But we are not finished with overhauling the business model for Best Homes 4 U. Let’s add:

-Allow lawyers access for e-closings
-Allow lenders access for e-funding
-Now if the site attracts tens or hundreds of thousands of visitors, you
can get your suppliers and your suppliers’ suppliers to pay for ads or
sponsorship and now more people will have access to a broader range of
goods and services and so might buy more higher-end products
(chandeliers, beveled mirrors, granite counter tops, home theatre
systems,…) improving margins for Best Homes 4 U
-more options => more people => more options => more people…

-In a virtuous, self-reinforcing cycle (Google is also an
example of this: it’s called Network Effects)
-30+ hours for a salesperson in the Design Centre with clients can become just 60 minutes
-Imagine the productivity increase for homebuilder sales staff, lawyers,
mortgage lenders, the GC, the foreman (Worst problem? Homebuyer
questions about when this or that happens..), suppliers, trades,
sub-contrctors, …

Also, customer satisfaction increases since:

a. they get EXACTLY what they want,
b. they will feel they had a hand-in its creation (like Aunt Jemima Pancake Mix: just add eggs and milk*).

(* The folks who bring you this pancake mix famously had an erroneous
insight years ago—they thought that by adding powdered eggs and milk to
their mix and eliminating the instructions “Just add eggs and milk”,
they could save the busy consumer time and sell more product. It turned
out that homemakers liked adding ‘real’ eggs and milk: first, they
thought it was healthier that powdered eggs and milk and, second, they
wanted to be involved in ‘making’ their kids’ breakfasts.

For most kids, you are what you do for them. By taking this away,
sales went down not up. Best Homes 4 U, by involving the consumer in the
design of their own home are catering to a deep seated need in humans
to ‘buy-in’.

This is a powerful lesson for tech—giving consumers the power to
customize products and services is big business. For example, Dell is
currently using Threadless.com’s platform to allow artists to submit and
prospective customers to select winning designs for laptop covers.)

Here is a complete business model for a Virtual Home Builder. In essence, Best Homes 4 U has become a website operator:

Virtual Home Builder: Complete Ecosystem

At the core of this model is the physics engine and CPM schedule. The
latter will help the foreman on the job answer the most frustrating
question he or she will get from future homeowners: when will the
roof/windows/electrical/plumbing/drywall/painting/flooring/kitchen/bathrooms/etc.
be finished?

If they do it right, the CPM will allow the homeowner to check on
this for themselves, allow the suppliers to self-organize (as to when
they need to be on-site to do their work), permit the lawyers to get
ready for an e-closing, to alert the lender when flow of funds for
mortgage financing will be needed and so forth.

Best Homes 4 U can also extend the functionality of their site by
adding— a bidding section where suppliers can bid on sub-contract work
and allowing sub-trades to update the CPM when their tasks are completed
thereby triggering payment, again using EFT.

In sales, you want customer involvement and buy-in early on in the
process. You should get this in spades as potential homebuyers ‘build’
their own homes online.

Once a person takes ownership of a ‘thing’ or a process as they are
likely to do after they have created their own unique home, their fear
of loss is a bigger motivator than their desire for gain. (For more
about this, see: https://www.eqjournalblog.com/?p=1665). Consequently, your probability of concluding a sale is likely to increase significantly.

Now another thing that is possible today is to become a ‘meta
provider’. Facebook is trying that with its messaging service which
promises to find you no matter what type of service you use or where you
are. It never made any sense to meet that Instant Messaging programs
could not cross-communicate from, say, AOL IM to Yahoo’s platform or
MSN.

Services that become meta providers have a great opportunity to be
successful; they are, in effect, providing a standard and standards have
always created wealth (see: https://www.eqjournalblog.com/?p=1366).

If you have a service that is smart enough to send a message to
someone by IM/SMS/Twitter/FB/vm or email, you will probably have a
winner on your hands.

Now back to Virtual Homebuilder. Why not make this a meta service
provider? Why not create this system for existing homebuilders; in
effect, you are providing them with a platform and co-opting them in the
process? You could aggregate their traffic. Or, if they won’t agree to
that, you could white label your service to them.

I feel that the former would be a stronger business model than the
latter, not only for Best Homes 4 U but also for the existing industry.
Why? For the same reason why in RL (Real Life), homebuilders enter into a
form of co-opetition. They often hunt in packs; they buy property
together and offer two, three or four different options for homebuyers.
So if a consumer doesn’t like stucco models by Cardel they can go across
the street and buy a brick finish from Richcraft or vice versa.

This could be the model for the virtual world too; a physics engine
that let’s you try and buy from a number of Vendors would probably be
more popular than a single-Vendor site or even dozens of separate sites.
It’s like the person who wants to marry a virgin: maybe they fear
comparison.

But homebuilders should have nothing to fear from comparisons;
consumers are already doing that. By making it easier, consumer worry
that they ‘are missing out*’ or that they are ‘not getting a fair deal*’
will be allayed which results in faster and more sales not less.

(* These are two of the major reasons why amateur buyers (and
practically all homebuyers are amateurs since they do it so few times in
their lives) baulk when they get near the finish line; they worry they
are being taking advantage of and don’t complete the Agreement. A
professional knows his or her industry and is willing to take calculated
risks because they know the parameters so well.)

(For more on co-opetition, please see: https://www.eqjournalblog.com/?p=104 and https://www.eqjournalblog.com/?p=66.)

You can take Best Homes 4 U one further step: why not introduce a
social element to the model? If you allow people to save their designs
why not allow others to view their work and learn from it? This is one
of the reasons that I like Twitter: it is an outward facing platform
that allows its users to communicate with the world in an unfettered,
public way. It evolved around the idea that ideas want to be free and
should be. Anyone can see what I write on www.Twitter.com/ProfBruce
and can communicate with me through the @ProfBruce mentions service. It
is not a gated community like most of the self-contained SM ecosystems
that exist today.

A consumer who does innovative things with the physics engine (and
this is the beauty of making a platform like this, they will) could
develop many fans, followers and friends amongst the community. Users
could comment on each other’s designs and choices of finishings, even
suppliers could make discrete suggestions as long as they aren’t
spamming the user group.

A community that allows cross-communication amongst its users and
allows a user to develop bragging rights about how many friends, fans
and followers they have is likely to be one with staying power; in
effect, Best Homes 4 U will have created a site with its own ‘franchise’
or ‘concession’ (i.e., a fairly homogeneous group of homebuyers with
common interests) that is quite hard to knock off. It may be fairly
straightforward to create a competing website that has all the
functionality of Best Homes 4 U but not so easy to convince their
entrenched community to drop them.

A community that learns from each other will also be a more confident
group; confident that they are on the right track. This will help
overcome buyer reluctance to commit. People like to buy from people they
like and trust and it won’t hurt to have other community members tell
each other that–by providing testimonials about their experiences with
Best Homes 4 U.

Now here it is 2010, Best Homes 4 U still doesn’t exist but I never
give up hope that someone will build it. Great increases in productivity
beckon; imagine if you could, in fact, reduce 30 or 40 hours in a
homebuilder’s design centre to just one hour because consumers arrive
with all their specs pre-determined because they had unlimited access to
the Builder’s online physics engine… This would be like me challenging
Usain Bolt to a 100 metre race in London in 2012. I know I can beat him
as long as we agree, in advance, that I can start at the 85 metre mark.
If you have that kind of advantage in the house building industry, you
could win too.

Prof Bruce

Postscript: For more on business models. please see: https://www.eqjournalblog.com/?p=1626, https://www.eqjournalblog.com/?p=692 and https://www.eqjournalblog.com/?p=1609.

Prof Bruce @ 9:29 am

Filed under:

Development Economics and Entrepreneurship

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Affordable Housing

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Asymmetric Information

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Home Building

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Internet– the Internet is Eating a Hole in the Global

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and

Political Economy

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Pre-selling, Finding New Clients, Keeping Existing Ones

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Product Management

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Productivity

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User Experience

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Posted on
Sunday 5 December 2010

Creativity Borne of Necessity

In my experience, there are at least three different types (or orders) of thinking. Here is how I categorize them:

First Order Thinking: The Bureaucrat

It’s linear. And circular. And leads us to repeat things and do
things the same way, over and over again. Why? Well, here’s how its
rationale goes:

We do what we do because we have always done it this way. It will
always be done this way because that’s the way we do it and because
that’s the way it’s always been done.

Arena designers and stadium owners responded this way when asked: “Why do the people who pay the most (for suite leases) sit furthest away from the rink, floor or field?”

Suites were always developed as ‘skyboxes’ because that was the way
arenas were always built until Gino Rosetti challenged this shiboleth
with some second or third order thinking and created the more intimate
and more financially viable modern arena design, starting with the home
of the Detroit Pistons, the Palace, in Auburn Hills, Michigan.

Rosetti applied European opera house design (multi-tiered levels of
suites) to the arena and revitalized the construction and revolutionized
the (private) financing of new buildings in North America in the late
1980s.

When he designed Scotiabank Place in Ottawa, he put in three
concentric rings of suites. There were 144 of them and they not only
changed the look and feel of the place, they made it a viable private
sector project because, if you pre-lease 144 suites for, say, an average
$100k per yr each for five or ten year terms, then the developer has a
committed revenue stream of more than $14 million per year which they
can take to the Bank for a construction loan and then a takeout
mortgage.

Prior to Rossetti’s innovation, revenues were mostly from individual
ticket sales and most of these are spot-sales, not pre-committed dollars
and, hence, cannot be securitized for a lender.

These rings of suites also changed the overall form of these
buildings: they brought regular seating closer to the action by creating
balconies over top of each ring, which also made the volume of these
buildings smaller. This not only reduces cost but makes these arenas
more intimate and, therefore, more exciting places to view professional
sports or arena events.

Second Order Thinking: The Entrepreneur, the Designer and the (Successful) General

It’s curvillinear and non-linear.

It looks around corners. It sees advantages in problems. It is
lateral. It turns problems into opportunities- it is fluid and changes
direction, unexpectedly and surprisingly.

Ego does not get in the way of a change. The not-invented-here syndrome is absent.

Lawyers, journalists, politicians and chess masters all think this
way as do successful entrepreneurs and Generals (at least those that
realize that the best business or military stratagem and plan are those
that are flexible in the face of unanticipated developments in the
marketplace or enemy counteraction.)

Here is an excerpt from Shogun, by James Clavell, published
by Dell Publishing, New York, 1975, p. 548. This is an exchange between
Lord Toranaga and Mariko concerning her report to Toranaga on Yabu,
Overlord of Izu Province in 15th century Nippon:

“What’s your opinion of Yabu?”

“Yabu-san’s a violent man with no scruples whatsoever. He honors
nothing but his own interests. Duty, loyalty, tradition, mean nothing to
him. His mind has flashes of great cunning, even brilliance. He’s
equally dangerous as ally or enemy.”

“All commendable virtues. What’s to be said against him?”

“A bad administrator. His peasants would revolt if they had weapons.”

“Why?”

“Extortionate taxes. Illegal taxes. He takes seventy-five parts from
every hundred of all rice, fish, and produce. He’s begun a head tax,
land tax, boat tax- every sale, every barrel of saké, everything’s taxed
in Izu.”

“Perhaps I should employ him or his quartermaster for the Kwanto.
Well, what he does here’s his own business, his peasants ‘ll never get
weapons so we’ve nothing to worry about. I could still use this as a
base if need be.”

“But Sire, sixty parts is the legal limit.”

“It was the legal limit. The Taiko (supreme ruler of Japan, Ed.) made it legal but he’s dead.”

Question: can you spot second order thinking here? There are three
examples in this exchange. The point here is not to adopt the morals and
mores of 15th century Japan but to understand that, for example,
sometimes your competitors (your enemies in the case of Lord Toranaga)
can be your strongest allies. Why do the Exxons of the world locate next
to the Shells or the Burger Kings next to the McDonaldses? When I was a
developer, I found that when a competitor developed a new office
building ‘for lease’ near one of ours, it was good for your business: at
least some of the prospective Tenants that came to view their property
would cross the street to take a look at ours and we both ended up
creating a new office node with a higher market share than if either of
us had occupied the neighborhood alone.

Apple Looks at the 3-D Problem from the Screen out to the Viewer not from the Viewer to the Screen

Apple was recently granted a patent for a 3-D screen that will not
require those rather clunky stereoscopic glasses. How do they do it? By
projecting slightly different images to each eye by detecting where each
of your eyes is using a Microsoft Kinect-like device. I am not sure if
this is 2nd or 3rd order thinking but it is pretty far out.

Apple 3-D Patent

(Source: https://www.thoughtgadgets.com/2010/12/what-to-think-of-apples-coming-3-d.html)

Ethical, Legal and Design Challenge

Problem: X Development Company (XDC) would like to build executive
travel apartments targeted for use by the tech sector but City of
Anywhere’s By-laws state a single dwelling with two kitchens is not
considered a regular dwelling unit; instead it will be subject to
several sanctions with respect to building code, building permit and
zoning.

XDC would rather not incur the extra cost and time it will take to
comply with all regulations but, at the same time, they do not want to
break the law. XDC is trying to optimize rental revenue and NOI from its
travel apartment business but they know that if they follow all City of
Anywhere regulations, it won’t be able to.

Possible Solutions: It appears XDC’s options are 1. Break the rules,
2. Spend the time and pay the higher costs (for a rezoning) and greater
taxes (two development charges instead of one) in order to meet
regulations, 3. Not build in the City of Anywhere, 4. Just build a
single (larger) unit with higher total costs and lower revenues.

But wait, there is a 2nd Order Solution: Understand the rules and
work with them and around them (legally). Some further thought and some
innovative design yielded another option: build one building with three
suites that share one front door and a single kitchen but give each
micro-apartment its own private, secure areas. Now XDC can build a
standard single family housing unit with separate bathrooms, living and
sleeping quarters but with shared kitchen quarters that will fit into
any single family zone in the City of Anywhere.

Result: compliance with City of Anywhere By-laws, lower costs than
first anticipated (only one kitchen and one laundry room required for
the three units), higher revenues (three units generating at least 50%
more total dollars than one larger unit) and increasing profitability
for XDC.

Here is what my former architecture student, Brian Saumure, came up
with. See below. He designed a single family home that could be legally
used for executive apartments or by a group of people who wanted to use a
single-family residence for co-operative-style living.

Private areas are shaded brown while shared zones have no shading:

Ground Floor: Coop Single Family Home

Lower Level: Coop Single Family Home

Second Floor: Coop Single Family Home

This coop-style residence shares a single entrance, kitchen, powder room and laundry room. Everything else is private.

Third Order Thinking- Quantum Effects in the Human Brain,
Quantum Leaps, Breakthroughs: the Scientist, the Social Scientist, the
Teacher, the Business Person (Genius can be anywhere)

Imagine telling anyone (that is, before Einstein’s discovery) that
matter is simply a form of energy and that the two are related by the
square of the speed of light, which is, itself, a constant, fixed and
the same everywhere in the Universe and the ultimate speed past which
nothing can go? Then you add that as you approach the speed of light,
time itself dilates, i.e., slows down, and that, if you were to
accelerate yourself to something approaching the speed of light, you
would age much less quickly than your children left here on Planet
Earth?

e = mc**2, Albert Einstein.

Archimedes solved the problem on how to determine the purity of gold
in an irregularly shaped object. His focus was improved by the threat of
death if he failed.

“Eureka, I have found it!” Archimedes exclaimed when he finally
discovered how to measure the specific gravity of an irregularily shaped
object. He observed how the level of the public bathwater changed as
humans immersed themselves or decanted themselves and realized its
applicability to his problem.

Priceline.com discovered a revolutionary pricing model: consumers
could name the price they are willing to pay for businesses to accept or
not rather than businesses setting their prices for consumers to accept
or not.

Quantum thinking is completely different from linear or curvilinear
thinking. Humans have the ability to make mental (quantum) leaps, to
distill the essence of a thing from the thinest vapours of prior
thought. The sub-conscious mind is undoubtedly involved; many of these
discoveries appear to be serendipitous and certainly unplanned.

But they do not come out of a vacuum. They come from training and
focus on a problem, sometimes over an extended period of time with
respites in between. Then, one day, the idea pops fully formed into our
heads.

Leonard Cohen was found one night in his hotel room banging his head
on the floor saying: “I’ll never be able to finish it.” He was referring
to the words for his anthem, Hallelujah. This is not the preferred way
to resolve a creative dilemma.

The good news is you can train yourself to become more creative (see, for example, https://www.eqjournalblog.com/?p=1967).
Also, you can, through your awareness of different types of thinking,
try not to be limited by your past or by past ways of thinking or doing
things.

Prof Bruce

Prof Bruce @ 8:31 am

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Thought Experiment

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Theoretical v Practical Education

Posted on
Saturday 4 December 2010

Plus Ways You can Become More Creative

I teach business modeling but essentially I am teaching the theory of
business modeling. Knowledge of the underlying theory allows a student
to construct new models to answer new questions.

A practical education involves giving students the ability to choose
from a list of standard solutions. This has the advantage of being quick
and efficient but not terribly creative.

Students often find it frustrating; some of them feel that a
Professor’s job is to tell them what is expected of them then teach them
the material so they can successfully complete their assignments and
pass their exams. These are the students for whom efficiently producing
top marks with the least amount of effort is their highest priority.
These are also the students least attracted to and suited for a
theoretical education and the drive to become more creative.

Understanding yourself—do you want to be a technician or a
theorist—is part of the path to greater wisdom. If you understand
yourself better, you will probably be a happier person, first, because
your expectations of yourself more closely match your abilities and,
second, because you can look inside yourself and work on the things you
wish to change/improve because you know what needs changing/improving.

Students often ask how to become more creative and can they be more creative? My answer to both questions is: yes.

Here are some steps you can take to become more creative:

1. Creativity comes from an overarching need to be creative; a
financial crisis, for example, or a war can cause an explosion in
creativity;

2. Creativity comes from a total mind and body focus on a problem, sometimes over an extended period of time;

3. An extended period of time also allows your sub-conscious to work on the problem;

4. I believe that there are at least three kinds of thinking— linear, lateral and quantum thinking: (https://www.eqjournalblog.com/?p=1973) only the latter two lead to ‘creative’ insights;

5. People need to avoid alcohol and drugs and get regular exercise to realize their maximum creative potential;

6. People need to open themselves up to new experiences and embrace
lifetime learning— a lot of creativity comes from observing how others
are doing things and then realizing that something you learned in a
completely different field of endeavour could be applied in a
unconventional way to a seemingly unrelated task at hand;

7. Creativity comes from a deeply felt human need to be creative— it
is intrinsic to the species and is a powerful drive just like sex and
money and ambition and power and greed and fear;

8. Creativity comes from SEEING and QUESTIONING— it is a way of
training yourself not to accept what everyone else does simply because
that is the way it is done and the way it has always been done and the
way it will always be done—you have to be a bit of a rebel;

9. Creativity comes from being able to reduce problems to their basic
building blocks— creativity comes from simplicity and clarity not
complexity—even Einstein’s theory of general relativity reduces to a
simple proposition (when explained by Einstein);

10. Creativity is contagious and is inspired by contact with others who are upbeat, positive, creative types;

11. However, creativity should not be confused with enthusiasm— truly creative ideas are not full of holes;

12. Creativity is often enhanced by verbalization even if that verbalization takes the form that it did in the film Castaway
where Tom Hanks has to verbalize his ideas to his ‘doll’, the
volleyball he named ‘Wilson’—Tom starts making better and more creative
decisions after he invents ‘someone’ to talk to;

13. Put things down in a written form— that can take the form of a
flow chart, a written description, a spreadsheet, whatever— the
discipline of writing something down and the formality of it helps
complete your ideas;

14. Read a lot;

15. Creativity has two dimensions—creativity that changes the
technology used in a product or service and creativity that affects the
technical processes of making or delivering a product or service (its
business model and ecosystem)—most of us think only about technological
changes but changes to business processes are probably at least as
important*;

16. Remember that ideas are (relatively) cheap— there are around 35
million clever Americans in their basements and millions more clever
Chinese and Indians at any one time thinking up cool new ideas— so while
creativity is important, so is execution.

This is not an argument for or against a practical education. It’s
just, if you are going to come study with me, expect the unexpected,
prepare for a challenge, be flexible in your approach and be committed
to developing your creativity.

Prof Bruce

* For example, an entrepreneur I know in the moving and packing
supplies industry (a pretty humdrum sector most people would agree)
built the number one firm in his city in just six years by being
creative in an industry not known for creativity. He did seemingly
simple things like offering to deliver packing supplies to the customers
of all the moving companies who were his clients rather than delivering
it to them.

In that way, sales people for moving companies (who were previously
re-delivering boxes, wrapping paper, tape, bubble wrap, etc. to their
clients) could spend more time selling moves and less time delivering
boxes to people who had purchased moves from them. As a result of this
innovation, 97% of all local movers became clients within his first two
years. His market share is better than Microsoft’s in PC OS. He
understood his business model not only in terms of what his clients want
but also what the clients of his clients want; he knows that his
business exists in a networked ecosystem. So creativity applies at least
as much to the processes of business as it does to technology.

Prof Bruce @ 8:43 am

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Creativity and Value

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Differentiated Value

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Product Management

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Advertising Agencies and Web 3.0

6 Comments

Posted on
Sunday 28 November 2010

A Charitable Foundation’s Website Revamp

So, first of all, what does a web 3.0 website look like and do?

Well, it is almost certainly going to incorporate some or all of the functionality that I described in Nine Things that You Can Do for the First Time In Recorded History Because of the Internet (https://www.eqjournalblog.com/?p=1609) but, undoubtedly, clever young people are going to invent new ways of harnessing the Internet that are unimaginable right now.

One of the things I can tell you is that just because you have pretty
pictures on your site and some advertising agency says it will give you
the latest ‘content management system’, you are not web 3.0.

A local, charity recently received a $25k proposal to ‘reinvent’ its
ws. The proposal really sucked for two reasons: a) the agency pretended
to know stuff they actually have no clue about and b) for $25,000, the
Foundation should get much more value from the project.

My advice was to spend less: just $3,500 with their current developer
to do a few, simple things that would provide much greater benefit to
their stakeholder group including:

1. They already have a YouTube Channel and a Twitter account: integrate these into their current site.
2. Add a free blog from WordPress or someone else, integrate it into the
site and invite stakeholders to submit guest blogs (hey, reverse out
the work, remember).
3. The Foundation likes to do some polling; integrate services like Poll Daddy into their site to accomplish this.
4. Add a store hosted by Shopify (or another outfit) where they can sell
some Foundation merchandise and feature their award winners and their
stuff (for sale) too.
5. Give every one of their award winners an email address for life so
that they can be reached forever using, for example,
mary.smith@recipient.foundation.org. One day, those people may be donors
and patrons and sponsors giving back to the next generation of award
winners and this is a cheap way to keep track of them. It is also a nice
benefit for the award winners since these awards are rare and
financially lucrative; they will be recognized for life by their email
addresses.
6. Get their developer to allow sponsors, patrons and donors to be
featured in their newsletters as well as alongside their blog and
YouTube Channel. It will open up opportunities for sponsorship at lower
levels of funding and will give the Foundation some recurring revenue.

This revamp isn’t like putting a human on Mars but it’s a good start
for these folks: practical, doable and much more engaging than having a
content management system, most of which are like wearing a straight jacket, blindfold and potato sack, all at the same time.
They allow you to update your own ws and not rely on a developer to do
it for you but only for repeatable, predictable content. It is the exact
opposite of reversing out the work: you get to do all the work instead.
Heaven help you if you have something that doesn’t fit their
pre-developed mould.

Here is a photo of the two principals from the advertising agency who
made the pitch to the Foundation; they look a bit phony to me:

Phony-looking Advertising Agency Principals

You want to build the functionality into your site that you need and
no more. If you’re a household plumber, maybe all you need is a one page
ws with your good looking, smiling face on it plus a telephone number,
fax number and email address together with a few testimonials from happy
customers (with photos of their smiling faces too–people relate better
to faces than words) plus a list of services you provide and their
associated prices. And you want the site to be totally transparent to
search engines so you don’t need any fancy coding either.

Here are Bruce’s 10 Steps to a Great Website: https://www.eqjournalblog.com/?p=50.

Bottom line: less is more.

Prof Bruce

Prof Bruce @ 11:05 am

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Web Design

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Valuing Your Business?

Posted on
Wednesday 24 November 2010

Selling Your Business?

Introduction

Many entrepreneurs are very good at building their businesses. They
know how to grow a business often with limited access to financing. They
know how to persevere in difficult circumstances and how to push the
right buttons in their industry to make their business profitable.
However, many business owners fail to optimize the value of their
businesses when it comes time to sell it.

You’ll note I didn’t say ‘maximize’. I often see owners trying to
maximize the price on their sale. First of all, this almost never works.
It’ll take too long to sell because the market will perceive the price
as too high. People who might want to make an Offer will be discouraged
from doing so, in part, because they don’t want to bring in an Offer
that is ‘insulting’ to the owner so they will look elsewhere. The
listing will get stale. Eventually, it will get stigmatized and they
will be forced to reduce the price below what the FMV, Fair Value Market
Value, is to remove the stigma and sell it. So pricing and valuation
are really important.

There is another reason why you don’t go for the max: you have to
leave something on the table for the other person. It would seem obvious
but, from experience, I know it isn’t. If you try to take all the value
from a transaction, why would anyone ever buy anything?

One local Ottawa based company experienced 15 consecutive years of
growth and profitability before running into heavy weather in a
recessionary period. The ownership group looked at selling a minority
interest in their company to a major competitor for $500,000. At the
rate that the company was then losing money, this would have forestalled
the inevitable for about three months. Nothing would have been resolved
on an operational basis and none of the money injected into the company
would have gone to the founders and shareholders.

Their advisors suggested instead that they re-analyze the business
with a view to: a) identifying and selling unprofitable operations, b)
downsizing their head office staff and overheads, c) introducing other
operational efficiencies. The result of this work was that the company
identified a number of locations that were unprofitable. These outlets
were closed and the inventory and leases were sold. Indeed, market
conditions were so receptive that the company recaptured a huge
proportion of its investment in these losing operations. Head office
costs were also dramatically cut. The slimmed down, more focused
operation went from seven figure cash losses to seven figure earnings
(true cash earnings) within two years. Several years later, the business
was successfully sold at a handsome price in an all cash deal. These
monies went to the founding shareholders of the company.

Steps

This paper is about the steps that need to be taken by business
owners when they are in the process of selling their business. It is
about the Do’s and Don’ts of the process.

The first step in the process is deciding whether to sell or not.
Business owners, like many homeowners, sometimes conclude that they
‘will just test the waters’. This can lead to trouble, not a sale.

Selling your business is a serious step requiring a significant
commitment of the owner’s time and resources. It is a step that can lead
to a crisis in confidence on the part of employees, suppliers, Banks,
clients and customers if it is not handled in an appropriate manner. The
decision to sell and the selling process needs to move forward in a
timely manner to obtain the desired result.

Don’t make the same mistake that a friend of mine made. He had a
dandy small business that employed himself, his wife and his uncle. He
had an offer to buy his sign company for “a million dollars”. He was in
his early 40s and had started with nothing so this sounded great. I
asked him what he would do if he sold the company. “I dunno,” he
replied.

“Well,” I said, “if you take that whole million and invest it
securely in say T-bills, you’ll get maybe 3.5% today. That’s $35k per
year. What are you and your family currently taking out of the
business?”

“I get $80k and my wife takes home $60k for doing the books. Then we
have a couple of cars paid for by the business and the firm still makes
another $200k in cash earnings every year which we re-invest in the
business.”

So he was exchanging a family income stream of around $140k per year
plus giving up a business that still made north of $200k per year for
$35,000 before tax! Not a very good deal.

What was his business really worth? Well, to have the same living
standard afterward as before, he probably needed to sell the business
for closer to $4m. Was it worth $4m? Well, only the market can determine
this—a price is what a willing buyer and willing seller agree to.

Once the decision to sell is made, the owner will want to have a
notion of the fair market value for the business. The true measure of
the value of a business or, indeed, any product or service, is the price
that a willing buyer and willing seller agree to. This assumes that
both the buyer and seller have access to the same (good
quality/accurate) information, that neither party is subject to undue
pressure to either sell or buy and that the business or property is
widely exposed to the market for a sufficiently long period of time.

We intuitively understand why someone might be forced to sell for
reasons of, say, ill health or because of pressure from a lender,
shareholder, former spouse, partner, what have you. But there can also
be undue pressure on sellers to buy: fear of being outflanked by a
competitor, fear of a competitor buying a strategic supplier or, in the
case of pension funds, being forced by national governments to
over-invest in local markets or one specific sector of a domestic
market.

If we look at Internet IPOs in the late 90s, we can find evidence
that share prices are sometimes not related to past results, book value,
earnings, cashflow, profitability, EBITDA, inventory or any other
variable that can be measured. Prices may be based on expectations.
Outrageous prices may be related to outrageous expectations. Businesses
with a negative equity position and negative cashflow can sell for hard
dollar amounts because the purchaser’s perception of value was based on
what they could do with the business not what the previous owners had
done to that point.

Valuing a business, then, requires both a careful, fact-based
analysis and an application of knowledge and feel for what the markets
may accept. Business valuation is both an art and a science.

Valuations may be based on multiples of cashflow or revenues,
earnings before interest, taxes, depreciation and amortization (EBITDA),
net income, profit, gross margin, book value, sales, revenues,
capitalization rates (mainly a real estate industry tool for sale of
income properties), sunk costs, total investment, replacement cost,
number of clients, customers and subscribers, expectations about the
future, comparisons to what other similar businesses or properties have
sold for, market share, mind share, brand value and so on. Each industry
may use different conventions to measure value. If you own a valuable
concession or franchise, an oligopoly or monopoly, you might also be
able to command prices higher than FMV.

Governments often hand out concessions at below market rates for
services as widely different as cable TV, radio spectrum, water taking
rights, National Parks services, airport landing slots, casino and
lottery licenses, etc. sometimes without meaning to or by
miscalculation. Decades ago, cities in North America missed an historic
opportunity to address some of their fiscal problems when they first
allowed cable companies, telcos and others to access municipal roads
with no on-going monthly or annual rent. What other property owner would
allow for-profit firms to benefit from their lands without
compensation?

Many consulting businesses, for example, may sell for 1/3 to ½ x
annual revenues or the next three years of estimated EBITDA from already
booked business. Or residential income properties might sell with cap
rates of 5.5% (NOI/SP, Net Operating Income divided by Selling Price)
while industrial portfolios might sell at 7.5% to 8.5% today. So if an
industrial income property had NOI (before interest, taxes, depreciation
and amortization) of $80,000/yr and a cap rate of 8%, the fair market
value would be around $800,000.

The third step is to market the business and conclude an agreement of
purchase and sale. The structuring of the deal involves issues
including price, terms, security and timing; it also involves efficient
structuring for tax purposes.

The fourth and last step in the process is investing and protecting
the proceeds of the sale to meet the owner’s future goals and
requirements. Business owners are known for taking good care of their
businesses but paying inadequate attention to their personal affairs—it
is an example of the shoeless shoemaker’s son or medical doctors who
treat themselves or attorneys who represent themselves. A significant
amount of effort and focus on personal investing is needed.

Simple but clever strategies for investing can make all the
difference to present and future lifestyle. As smart as most business
owners are, they are, for the most part, much like the rest of
humanity—they behave like the grasshopper in the fable, fiddling the
summer away while the ant is preparing for winter. Some care and
attention will prevent the proceeds of the sale going the way of monies
won by $5 million+ lottery winners in the USA where, within five years, a
surprisingly high percentage of the winners are worse off than before
they won the prize.

1. Valuing Your Business

This is an absolute must before you sell your business. You need a
professionally done, thorough-going analysis that can stand the test of
prospective purchasers’ advisors’ review. You will set up a ‘data room’
where pre-qualified leads can view confidential company data. Persons
who are allowed to examine the data are required to sign a NDA (non
disclosure agreement) and they are pre-qualified. You don’t want your
competitors to view your information unless they have been pre-qualified
and they have agreed to treat the material as confidential and
proprietary.

The penalties for not doing so (see the famous lawsuit of Volkswagen
by GM for IP theft) are so stupendous that most persons who sign NDAs,
take that very seriously.

Having said this, remember that once you have decided to sell, it
won’t be long before pretty much everyone in your industry, your
employees, your Bank, your suppliers and your customers will know. The
media will know too so you need a pro-active PR stance here. “No
comment” is not an acceptable media strategy. You need to disclose but
you need to be smart in how you do it.

Companies that are publicly traded have their share price set every
day. The liquidity they provide their shareholders is one of the major
reasons why public companies generally have higher multiples than
private ones.

Exceptions do occur. Privately held companies with exceptional
franchises can have significantly higher multiples. Government awarded
franchises or licenses such as cable company monopolies or spectrum
leases (like, say, television stations) or the fur trade monopoly
granted by the Crown to the Hudsons Bay Company circa 350+ years ago can
attract huge bids. Companies with specialized proprietary (patent
protected or trade secret) technical expertise or technology may also
qualify for exceptionally high multiples.

Most privately held firms are family owned, operated by
entrepreneurs. Valuing these firms is done using a variety of
approaches: a) replacement value, b) breakup value, c) earnings
multiple, d) comparables.

Replacement value simply asks, “If a competitor came into the
business, what would it cost them to establish this business from the
ground up?”

Breakup value looks at the market value of individual
assets—essentially, the value of the components on a stand-alone basis.
For example, what is the stand-alone value of the underlying real
estate? Is it more valuable separately in a sale or combined with the
operating business? What is the value of the operating business? What is
the value of individual lines of business? What is the value of the
machinery and equipment in, say, another use? What is the value of the
inventory if sold off?

Sometimes, the breakup value is the highest value for a business.

Earnings are very important in every business. Profitability is
necessary not just to ensure that the business survives or that
ownership has a nice lifestyle, but also because profits can be
reinvested in the business so that it can employ the latest in technique
and technology, so that it will grow and so that employees and
suppliers, all stakeholders, in fact, are more secure.

So, generally, when selling your business, you add back into earnings
all the benefits derived by ownership together with cash items such as
interest, amortization and taxes as well as non-cash items such as
depreciation and, presto, you have a ‘true’ measure of cashflow—EBITDA
(earnings before interest, taxes, depreciation and amortization). This
is, perhaps, the most important measure of the underlying earnings
potential of a business. To a prospective purchaser, it allows them to
put in place their own capital structure and measure its efficacy
against the EBITDA numbers of the acquisition.

Multiples vary from industry to industry and even within industry.

Lastly, you want to compare what other people in your industry have
sold similar businesses for. Afterall, ultimately the value you obtain
depends to a large degree on intangibles like the perception of your
business in the marketplace. You will need to employ a third party who
can provide an arms length analysis as to value and can give prospective
purchasers a level of comfort with the overall arrangement—they provide
third party testimony as to value. They will also have to ensure that
they make the market aware of the opportunity and that the information
about your business is disseminated in an appropriate way to the right
audience, some of whom will be your competitors.

2. Marketing Your Business

Business owners and management usually need outside assistance when
they are planning a significant change in direction. This may involve
selling a division, some assets, subsidiaries or the whole company.
Mergers and Acquisitions firms, consulting businesses, real estate
agents and Merchant Banks provide strategic and independent advice.
Large firms regularly avail themselves of these type of experts. Medium
size and smaller firms rarely do, which can result in much lower values
being realized in the process.

For on-going operations, one of the keys to profitability is the
ability to identify what is and is not a core operation. Then the
challenge is to realize the optimal value for the discontinuing or
contracted out operations. Some professional sports teams are very good
at this. They realize that the core competency of their franchise is
putting a good product on the field, ice, court. They manage internally
their most valuable assets—their season ticket base and key
relationships with the corporate community and sponsors. Beyond that,
they do a lot of contracting out—for parking services, cleaning
services, food and beverage, catering, security, arena management,
merchandise, television rights and other media properties. Many
technology companies do the same type of thing.

By drawing ‘lines’ and ‘circles’ within a business, value is optimized.

An insurance company realized that they had a very valuable real
estate asset on their books at its depreciated value. Ownership and
management came to the conclusion that they should sell the real estate
and focus on their core business—selling insurance and servicing their
clients. The substantial proceeds of the sale went to strengthen the
company’s technology and the balance was taken out by the owners for
retirement planning purposes.

Business owners who are preparing to sell their businesses will want
to improve the bottom line performance to enhance sale value. Timing is
critical.

Owners can fall in love with their business when times are good. When
the business is not performing as well, owners may want to sell. They
may lose interest. They may lack the energy and enthusiasm to implement
needed changes including downsizing and other tough options. This is the worst time to sell.

One private radio station climbed to the top of its market in terms
of ratings and profitability after 15 years of arduous effort. The
owner, near retirement, was advised to sell at that point. The owner
declined. Within two years, competition in that marketplace intensified
with better capitalized, national firms moving in. The result was a
tumble in ratings and profitability and a ten year wait before another
opportunity arose to sell the station.

How long does it take to sell a business? Longer than most people
would like. Yet it is imprudent to expect to sell a business in a hurry
with a quick closing. This is not realistic and results in most if not
all of the value of the business being given away.

Allow sufficient time for the process to work its way through: a)
three weeks to three months to put together a due diligence package, a
data ‘room’ and a marketing package together with time spent on
strategic issues and valuation, b) two to nine months actively marketing
the business, c) due diligence period of two weeks to one month, d)
closing within 30 to 60 days. This process assures that the widest
possible net is cast to bring competitive bids or offers to the table
and optimize the value received.

Care must be taken in deciding to whom the business is sold. No
matter how well drafted the closing documents are, disputes can arise. A
purchaser who is reputable greatly decreases the likelihood of
litigation and increases the probability that all the terms and
conditions of the agreement of purchase and sale are lived up to.

Earnouts and consulting contracts for previous ownership and management require careful drafting and good security.

Bringing in a minority partner or 50/50 partner or new majority
partner are options that can be troublesome. There are, after all, still
two vacant chairs in heaven waiting for the first partners to get there
and still like each other. One industrial real estate company that
brought in a 50/50 managing partner experienced a jump in vacancy rates
over the following two years. The new operating partner was, as it turns
out, enticing existing tenants to move into buildings that were 100%
owned by them. The result for the original owner was near vacant
structures and a subsequent distress sale of his part interest.

Where does one find a buyer? Some likely places to look include: a)
existing partners, employees or shareholders, b) management, c)
competitors, d) narrowcasting advertising, e) data bases and email
newsletters, f) personal contacts, g) recent graduates, h) golden
parachutes or persons affected by downsizing with severance packages, i)
outplacement agencies, j) real estate agents, business brokers,
accounting firms, legal firms, merchant banks, banks, k) word of mouth,
l) serendipity, m) customers, n) suppliers, o) strategic partners
(others in a closely related, but not the same, business) p) free
services like kijiji or craigslist and Twitter.

Hiring a consultant will allow the business owner to probe some of
these areas (such as competitors) with some degree of anonymity; a
description of the business on a generic basis and a third party to
handle responses and pre-qualify them, can be helpful in this regard.

However, it is unrealistic to expect that a business or any part of
it can be sold without employees, customers, suppliers, banks and the
media coming to a realization that this is occurring. Therefore, the
company and its advisors need to have a media strategy and a strategy
for handling the concerns of other stakeholders beforehand.

The company also needs to be comfortable with full disclosure of all
opportunities and problems that it is experiencing. Lack of disclosure
leads to failure either during the due diligence period or after
closing. That does not prevent the company and its advisors from casting
problems in the form of opportunities; what is a problem for existing
ownership (eg., a failure to penetrate a certain market) is an
opportunity to the purchaser.

Business owners often are too close to a business to see its upside
potential. They know all the problems and they are immersed in fixing
them day to day. What the buyer needs to see are the opportunities. A
third party consultant has the advantage of perspective and
impartiality. A third party who can play the role of conciliator
bringing two or more parties together to complete a transaction is key.

The company should take pains not to bid against itself. It is not
necessarily bad strategy for the company to take the initiative and set a
price; it is bad strategy to take the initiative and then revise the
price without feedback from prospective purchasers. This is known as
negotiating against yourself.

3. Investing and Protecting the Proceeds

Get a professional advisor and put at least half of the proceeds in very tame and safe investments.

4. Get a (New) Life

Nothing is worse for the entrepreneur that inaction. My father told
me: “Never retire.” What he meant was plan ahead and do something,
different perhaps, but do something.

People aren’t meant to be idle and it damages your mental and
physical health. Often, entrepreneurs will return to their original
businesses because they are comfortable with it. So don’t sign
non-compete agreements longer than one or, at most, two years.

I asked an acquaintance of mine: “Why is the ______________ Teachers
Fund so wealthy? They seem to buying up the whole country.” He replied:
“Heck, the average male teacher only collects for about 36 months.” “How
come?” “Because they die that soon.”

This should reinforce for you how important it is to keep active, stay plugged in and engaged.

One of my early mentors took early retirement at 55 and moved to FLA.
He was cut off from his lifelong friends, much of his family, his place
in his community—his roots, if you will. His Florida day consisted of a
walk in the am, lunch, nap, second walk on the beach, cocktails, an
evening of television and bedtime. Within six months, he was dead of a
massive heart attack—he was dead before he hit the floor with his oldest
son sitting six feet away. You get the message. Find a new mission in
your life.

Prof Bruce

Prof Bruce @ 8:01 am

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