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Posted on
Sunday 14 March 2010
(This is an essay I wrote in March 2010 before the BP
oil spill in the Gulf of Mexico occurred. It seems even more important
today. For example, if you are an engineer on the Deepwater Horizon rig
and someone gives you an order to keep drilling even though the blowout
preventer’s battery is dead, what do you do? Obviously, engineering
ethics tells you that you have to disobey that order.
While Canadian engineers wear their iron rings proudly and swear an
enduring oath to protect public safety, other nations do not require
that of their graduates. It is time that they did.
MBA programs in Canada are thinking of introducing a MBA oath which I
believe is a strong idea especially given what has happened in
financial markets where, apparently, some of them sold products to
unsuspecting clients at the same time they sold those products short.
Heads they win, tails you lose.
Persons who have the benefit of a great education and a long
head-start in life can expect to earn above average wages and wield
significant economic and possibly political power. The least they can do
is not abuse it.)
There are some things you never forget—like the iron ring ceremony
held in Canada where graduating engineers receive their iron rings.
While the ceremony is secret, I can tell you that part of it is about
ethics, engineering ethics. I went to McGill to get my civil engineering
degree. I was 15 entering that University and 20 when I got my iron
ring (the program was five years in those days.) That ceremony marked me
for life.
In all the years since then (38!), I have only met two engineers that
breached their covenant with the profession and transgressed against
its code of ethics. One left the profession soon after (he became a
lawyer, figures!), the other is retired. May he stay retired forever.
Let me tell you the latter’s story.
He was an Engineer for the City and he came to me with an issue—the
City was installing a trunk sewer line and to deke around a property
that I owned at the time was going to cost the City an additional
$500,000. Instead, he proposed that we would deed an easement to the
City so they could proceed directly across the lands, save the money and
some time.
The property in question was fully developed and I felt, as a good
corporate citizen, that it was the right thing to do. Afterall, I’m a
taxpayer too.
Now easements are typically valued at ~ 50% times FMV, where FMV
stands for Fair Market Value. The lands were worth about $90 per sq. m.
and the proposed easement was ~ 10 m x 120 m. So the FMV of the easement
could be calculated this way: 50% x $90 x 10 m x 120 m = $54,000.00.
The reason easements are roughly 50% of the FMV of the lands if sold
at a market price is that there is (usually) some type of use that the
original owner can still put these lands to. In this case, even with an
easement in place, the lands could continue in use as part of a larger
parking lot. However, the lands are impaired in value because they can
never be used for a structure. So 50% seems a reasonable compromise.
Having said this, we decided not to charge the City anything. They
could have the easement for free provided they agreed to reinstate our
parking lot and do the legal work including registering the easement on
title. They happily agreed.
The works went ahead that Fall and before Winter came, the City had finished including its reinstatement of the parking lot.
But the next Spring, overnight, a huge sump hole appeared in our parking lot—big enough to swallow two cars.
Our property management folks put safety gates around it and I called
the City’s Engineer. Let’s call him Roger (not his real name).
Roger came out, looked at the sump hole, made sympathetic noises and left.
A few days later, I noticed a small crew on site. When I went out to
talk to them, I found that they were not a work crew—they had been
called by the City to come out and do a survey. A survey, I wondered?
Now why in the world would they need that?
It turned out that the sump hole had appeared just outside of the
registered boundaries of the easement and that’s why they were there—to
prove that the collapse in the parking lot was not technically within
the boundaries of the easement.
I was flabbergasted. Any fool could see, just by looking into this
gigantic hole with the naked eye, that the sump led directly to the pipe
and that improper installation of the trunk line had allowed water to
infiltrate and flow along the pipe leading to massive erosion under our
parking lot.
This is a lot that had been in place for > 15 years with never so much as a pot hole appearing.
When I talked to Roger this is what he had to say:
“Firstly, if you look at the survey provided to you, you can clearly
see that the sump hole is outside the boundaries of the easement.
Secondly, the easement Agreement clearly states that the City is only
required to fix anything within the boundaries of the easement.
So even if you could prove that the City’s installation was
negligent, our legal Agreement would not require us to fix your
property.”
As Roger was reading the legal Agreement, we were more concerned
about public safety plus the ability of our tenants to continue in the
normal course of business for the benefit of themselves, their employees
and their visitors. So I ordered our GC (General Contractor) on the
site (it was a fine firm called Bulwark Construction) the next day to
fix the problem: $50,000 and three weeks later, the parking lot was
fixed for good. They found the source of water infiltration too (within
the easement’s boundaries!) and fixed that as well.
Now I can tell you that litigation is a soul destroying, negative
energy, costly endeavour. I believe it would have cost us about $120,000
and two to three years to litigate with the City to recover a $50,000
bill. And you can’t leave the problem for years while some court tries
to figure out who should do what. Engineers are supposed to know that
without help from the courts—we fix stuff, right?
That’s the difference between a bureaucrat who is mostly concerned
with CYA—covering his backside and an engineer who deals with things in
RL, Real Life where consequences from errors are very real and can have
dire results.
Without ethics and a duty of care, an engineer is useless. Engineers
are responsible for the marvelous safety of modern cars, the functioning
of the Internet, the incredible smart phone in your pocket or purse,
the laptop, the PC, modern jets, putting men and women into space and
(for the most part) their safe return to earth, enormous luxury liners
that ply the oceans, a functioning food chain, life saving drugs,
electricity, high speed trains, 3-D film cameras, you name it, an
engineer had a hand in creating it.
We expect engineers to be truthful, competent, meritorious, curious,
resourceful and unsatisfied with anything less than exemplary results.
We expect them to use the scientific method to demonstrate and prove in a
repeatable way that their designs work as intended as well as being
efficient, safe, effective and sustainable both in economic terms and
environmental ones.
We expect engineers to continue to learn throughout their careers and
be current with best practices in their field. We expect them to avoid
conflict of interest and when one develops, to disclose it.
But above all, we expect that: “Engineers shall issue public
statements only in an objective and truthful manner.” (American Society
of Civil Engineers, 2006.) In many regards, Roger failed dismally to
uphold the precepts of the good engineer but especially his oath to be
truthful and objective.
In any event, we had forgone a payment from the City of $54,000 for
the deeding of the easement in the first place and we had paid $50,000
to fix the problem—a loss to our firm of $104,000. If we had sued, we
could probably have tried to recover all of that plus business
interruption as well. Let’s say, we could have gone after another
$30,000 in damages. Tenants in Ontario have the right to ‘quiet
enjoyment’ of their premises during the term of their leases and this
definitely would qualify as a breach of that in my view.
So perhaps we could have recovered $134,000 by spending $120,000 on
legal fees. But there are two more factors you have to
consider—management time lost in the lawsuit and the probability of
success. No matter how good you feel your case is, in my experience,
there is no such thing as a sure thing in the courtroom. And here is the
crux of it—there is a wide gap between what is legal and what is
ethical and engineers know something (or should know something) about
the latter but they know practically nothing about the former.
Lawyers eat people like us for breakfast, lunch and dinner. They can
think around corners you don’t even know exist. To read more about the
difference, read: What’s Legal versus What’s Right (https://www.eqjournalblog.com/?p=603).
In this matter, there was a significant probability that while the
judge might have been somewhat sympathetic, he or she could well have
found that the legal language of the easement Agreement was binding on
the parties and that while the City did, in fact, cause the problem, the
legal wording in the Agreement absolved them. This raises the question
as to whether our lawyer should have insisted we change the Agreement to
include indirect damage. Perhaps so but I was not about to sue our own
law firm.
So let’s say our chances of winning the lawsuit were 50%. Then the value, V, of our expected outcome was:
V = 50% x $134,000 – $120,000 or -$53,000.
There is no rational scenario where the investment in a lawsuit makes economic sense.
Instead, you may want to sue someone to teach them a lesson but,
frankly, I am not sure you ever want to do that. I talked above about
negative energy and the older I get the more sure I am that litigation
is just that—a soul destroying endeavour. I prefer Jack Dawson’s more
positive view (from the film Titanic by Director James Cameron): “Make
each day count!”
If you want to know how your life can be destroyed by litigation, read Tom Wolfe’s excellent Bonfire of the Vanities.
I don’t think I am afraid of anything—I nearly died twice—once as a
very sick little kid and once flying my hang glider. Neither time was I
scared of dying. I just wanted to figure out what I needed to do right
away to get better or to not crash and die. But I am scared of lawyers.
They can depose and cross examine your life away.
Anyway, I did call Roger a few weeks later. People who know me know I
have a bad temper, something that has bedeviled me since I was a young
teen. I work on this every day. But Roger was beyond the pale. I told
him: “You know, Roger, my family has done a lot for the City—we gave our
Group of Seven Art Collection to this City, we brought back the Ottawa
Senators, we even gave our family home in Rockcliffe Park to the City as
a home for the collection. But I will tell you this, I will never, ever
give another thing for free to the City. You are a disgrace to the
engineering profession, you never learned the difference between what’s
legal and what’s ethical and you don’t deserve to wear the iron ring of
an engineer.”
Engineer Bruce
ps. I have another story for you. We built some storage units in the
rural area of Ottawa a few years ago. We got into a dispute with the
City of Ottawa’s plans inspector who wouldn’t release our building
permit until we moved the fire hydrant from its proposed location, 9
metres from any building, to 1 metre from a building. He explained: “The
OBC (Ontario Building Code) required that hydrants be within a certain
minimum distance of the entire perimeter of the building which when
calculated out required a location as indicated.”
I told him that we had consulted with the Fire Marshall, the person
in charge of actually putting out fires in the rural area, and he wanted
it a minimum 9 metres from any building. His argument was that if the
hydrant was too close to a building which is actually on fire, it will
be engulfed in flame and useless*.
Nevertheless, the plans inspector stuck to his guns and wouldn’t
release the permit. We were stuck too: should you knuckle under, hold
your nose and just agree? What does your engineering ethics tell you to
do?
We told him that the OBC is a good document but not perfect, it
requires updating all the time and this was a great opportunity for the
City, for him and for us, to make a change in the OBC to improve public
safety. “The OBC isn’t the Ten Commandment you know. It can be changed!”
He declined.
So we did not get our building permit at that time but we did a
thorough engineering study of the issue, submitted it to Ontario, got it
approved by the Province and then got our permit.
(* When a fire breaks out in a rural area, the fire trucks either put
out the fire in the first few minutes or the place just burns to the
ground in most cases. This is because there are no piped services and no
hydrants in much of the rural area. So whatever water the firetrucks
bring with them is all the water they will have to put out the fire.
That’s it, that’s all.
For a commercial installation, the OBC requires either that there is a
large enough and deep enough (to prevent freezing in the winter by
getting under the ice) source of water nearby (i.e., a pond or lake or
river) where a dry hydrant (one with no standing water in it) can be
installed or the proponent must build water tanks on site.
The way they actually fight a rural fire is a bit different: they
come in and drop a 5,000 or 10,000 imperial gallon ‘balloon’ next to the
dry hydrant, hook that up and fill the balloon. The pumper trucks park
themselves in the most advantageous location to douse the fire and they
hook up to the balloon not the hydrant. So you can understand why having
a hydrant right next to a burning building just isn’t going to work.)
Prof Bruce @ 9:29 am
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Don’t Trade in Your Old Suit (Yet)
Posted on
Thursday 11 March 2010
“The world is a tough, competitive place,” said Jerry
McGuire in the film of the same name. When I was a boy, there were
about 3 billion people on this planet. Now there are nearly 7 billion.
If you are a young person today entering the workforce or starting a new
enterprise, you not only have to compete with more people in your own
nation but all those clever, hard-working folks overseas too. I would
guess, in an inter-connected, Internet-savvy world, it isn’t twice as
hard today; it’s probably more like a factor ten times tougher.
If Ottawa-Gatineau is going to have a seat at the table, it will be
because we produce tough, competitive entrepreneurs. To that end, we
need to provide far more intensive education for all ages and stages of
life. We also need unconventional mentoring for startups as well as much
more effective promotion and sales of their products and services.
Plus, when warranted, let’s celebrate their achievements.
You’ll note that I didn’t say they need more bank financing or more
VC funding. That’s because I think that early-stage companies should
focus on and rely on building real cash flow—finding real launch clients
and holding onto real customers.
I have been doing work in this area since 1999 and it proves that, if
you wear an old suit long enough, it will eventually come back in
style. And that has happened here—the world has come to share this view.
Not only is it better for new enterprises to self-capitalize (since
the Founder(s) retain ownership and control over their companies instead
of losing it to VCs), it is better for VCs (they should be looking for
the ‘tall poppies’, i.e., investing in more mature/profitable companies
and more mature entrepreneurs who have built real businesses) and it is
better for Canada as well since the nation will see more employment from
more startups that are more sustainable and it will serve to ration a
scarce commodity—capital.
Most people can not really grasp the idea of bootstrapping a new
business. I have found through more than a decade of research and nearly
three decades of practice that I can give a three hour lecture on the
subject and a dozen examples but, the following week, I’ll be asked a
question by a student entrepreneur: “Sure, that worked for Eseri.com but
I still need $3 million to start my business, don’t I?”
Eseri.com, started by PhD entrepreneur, Bill Stewart, provides
lightweight Internet-based (actually cloud-based) desktops that use
widely-available and proven freeware. Eseri is based in Ottawa and
Montreal and was started with nothing—Bill still gives $1,000 per day
seminars on project management software so that he can fund his real
passion—building a great business of his own. He also uses stock options
to keep his core group of developers on the job. Plus he leverages what
money he puts in with GOC (Government of Canada) IRAP grants.
In the Great Depression of the 1930s, King Clancy built the old Maple
Leaf Gardens the same way. He paid his workers with script—if the
‘Carleton Street Cash Box’ had failed that script would have been
worthless. Fortunately, for their workers and Toronto Maple Leaf fans,
it wasn’t and they were able to redeem it for more familiar currency and
feed themselves and their families.
In the US, the number one source of finance for SMEEs in 2009 was
supplier credit. Sometimes called Trade Credit (TC), it amounted to
$2.15 trillion and dwarfed bank lending to SMEEs of just $1.5 trillion.
As entrepreneurs well know, Canadian Banks have a habit of lending money
only to people or businesses that don’t need it; i.e., they only lend
when they have adequate collateral. Loan to value ratios typically are
in the 50% range for commercial lending—entirely useless to
entrepreneurs who, by definition, start with almost nothing.
Suppliers, on the other hand, want a new enterprise to be
successful—that way they will have helped create a new client for
themselves. If you are going to start, say, a new fencing and deck
company, the way you bootstrap it is: you arrange supplier credit from a
friendly lumber store and you get funding from your clients too.
For example, you get an order for a new deck for $8,000. You ask your
client for a deposit of 50% when you get the order with the other 50%
paid when you finish. You then order $5,000 worth of materials from a
supplier who has extended credit to you. Perhaps, for example, they have
given you 45 days to pay for what you just purchased. Now you’ve got
$4,000 in cash in the bank and $5,000 worth of supplies on site—so you
have enough cash to pay your workers and yourself until the job is
complete and then, with the balance in hand, you’ll have enough to pay
your supplier…
Two former students of mine, Fred Carmosino, a Sprott School of
Business grad, and Brian Saumure, a Carleton University SOA (School of
Architecture) grad started their successful firm, Maple Leaf Design and
Construction exactly this way—with launch client money and supplier
credit.
What is cheaper—debt or equity? Many people think equity is free. Not
so. VCs want to see at least a 20% p.a. ROI and Vulture Funds are
aiming for a ROE of ~ $40%. But today you can get a variable rate home
LOC for just 2.15% so now you know, debt is much less expensive. Even if
you use 2nd mortgage type debt, you may pay 8% to 12%, still cheaper
than equity.
But what is cheaper than debt? It’s supplier credit and launch client
money! They usually charge you nothing for it. Clients give you their
money in the form of deposits, retainers and progress payments for free
because they want to buy your products and services, they want you to
survive and they trust you.
If you build your business this way, it will have a Cash Conversion
Cycle (basically, Accounts Receivable + Inventory – Accounts Payable)
that is very short or, better yet, negative. This means that as your
sales grow, you generate cash instead of needing to raise more
cash—crucial to entrepreneurial, bootstrapped startups.
Lastly, bootstrap capital is much faster than going the VC-route.
VCs, if they will even consider funding you, take 6 to 12 months to make
up their minds. Banks take… well forever.
So instead of just talking about doing it, go out there and start
your new enterprise and, once you’ve built it, hold onto to it.
“Startups often think that giving up equity to employees,
partners, angels and VCs is a cheap way to finance their companies. If
you are successful, it’s the most expensive,” Prof Bruce.
Professor Bruce M. Firestone, Entrepreneur-in-Residence, Telfer
School of Management, University of Ottawa, Founder, Ottawa Senators,
Executive Director, Exploriem.org, Broker, Partners Advantage GMAC.
Prof Bruce @ 1:16 pm
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Hangman: Fast Selection of a Winner in a Public Space
Posted on
Friday 26 February 2010
I sometimes bring Sens tickets and other giveaways to class
or to speeches I give—people love FS (free stuff) and I love giving it
away. Students work hard and don’t get much of a break. Plus they may
not have a lot of surplus income so FS is welcome indeed.
Last week, Ted Wagstaff from Algonquin College and I gave a joint
speech on Entrepreneurship and the Sports Business covering off six
local cases: the Ottawa 67s, Mont Cascades and Pro Slide, Wilderness
Tours and Mount Pakenham (done by moi) and Combat Sports (formerly
Ballistik Hockey), Greco Lean and Fit and Ottawa Marathon done by Ted.
My notes in PPT format are at: https://dramatispersonae.org/EntrepreneurshipAndTheSportsBusiness.ppt and Ted’s (in PDF format) are at: https://dramatispersonae.org/EntrepreneurshipAndTheSportsBusinessTedWagstaff.pdf).
To kick things off on the right note, I wanted to give away four
tickets and a parking pass to Alicia Keys (actually performing tonight
in Ottawa as I write this). How to do that in a public setting in an
entertaining fashion but fast so as not to waste lecture time, allow us
to finish on time and get everyone home to see the Canada Men’s Hockey
team play arch rival, Russia (which Canada won 7-3).
In a smaller crowd, we usually just cut up pieces of paper, have the
students write their names on them, put them in a hat and draw for a
winner. That wasn’t going to work in this setting (a large hall in the
beautiful and relatively new Desmarais building, part of the Telfer
School of Management at the University of Ottawa.)
So here is the concept I developed about a ½ hour before the lecture:
1. Let’s play public hangman!
2. I drafted a student (Bailey) to play the role of Vanna.
3. Vanna drew the scaffold on the board and then this—
__ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ __
4. We explained the rules: you put up one hand, you get to guess a letter.
5. You put up two hands, you get to guess a letter and then the actual words.
6. The catch is, if you guess wrong, you’re out.
7. I was the MC selecting students and prompting them.
8. Bailey drew in the letters as they were correctly chosen or she drew a
face, body, legs, etc. as the wrong guesses piled up. (This was really
irrelevant since we intended to play until there was a winner so we
would have added eyelashes, fingernails, etc. if necessary.)
But it wasn’t needed at all. The wisdom of the crowd soon solved the
puzzle—we took perhaps six or seven guesses before the first person to
raise both hands correctly guessed the answer: EASTERN CONFERENCE.
The whole exercise was done in less than two minutes, pretty
efficient I think. We didn’t give any hints about category (despite
being asked to do so) and we were right not to—if we had, the problem
would have been solved in less than 45 seconds I am sure.
I don’t know if there is anything original about what we did, but it
was fun, fast and somewhat relevant to the topic since I am a former
hockey guy and I thought I would share the methodology with you. I think
it would work even if you had 500 or 1,000 people in a room instead of
125.
Prof Bruce
Prof Bruce @ 8:15 pm
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The Impeccable Warrior and the Life of an Entrepreneur
Posted on
Thursday 25 February 2010
The wonderful spectacle of the Vancouver Olympics inspired
me this morning to return to a subject that has been a focus of mine
since I read Carlos Casteneda’s The Yaqui Way of Knowledge in
the 1970s—how to become an impeccable warrior. It’s not easy yet it is
essential if you want to be a successful entrepreneur—most of whom bring
incredible passion, focus and effort to their life’s work.
Here is a list of 20 elements that I put together in 2002 that can help you become an impeccable warrior.
1. Become an entrepreneur for the right reasons. Not to be your own
boss but because you can: a) create more interesting things for you to
do than other people can create for you to do, b) be a responsible
person and take ownership over your own life and become an impeccable
warrior, c) make more money than if you just had a JOB, d) help others
as well.
2. Get the Business Model Right (https://www.eqjournalblog.com/?p=692) so the harder you work, the more money you make. Work smarter and harder.
3. Be someone other people can have trust in. We all make mistakes
but make sure yours are errors of omission not errors of commission. One
of the greatest compliments a person can receive is that: ‘he (or she)
is the same person at home and in public.’ Atticus Finch, played by
Gregory Peck in the 1962 film To Kill a Mockingbird, was that type of person.
4. Expect to work at least 60 hours each week. Personal success and professional success are hard work.
5. There is no such thing as overnight success—it takes at least 7 to 12
years to found a great enterprise. Reading about persons who have been
successful in months is like reading about lottery winners: you can’t
plan on winning the lottery so plan on taking years or perhaps decades
to achieve success.
6. The world is a tough, competitive place and entrenched interests will not want you to succeed. So be ready to compete.
7. Commitment is important. So is focus. Don’t be a dilettante and flit from idea to idea—you’ll achieve nothing.
8. There is always some luck involved in success but the harder you work, the luckier you get.
9. Know when to quit/when something isn’t working, change to something new.
10. Lead by example and nurture your colleagues but never tolerate those who make the same mistake twice.
11. Entrepreneurship is an exercise in positivist thinking—if your partner or employees are negativists, dump them.
12. Entrepreneurship can be a lonely life. Embrace spirituality. Reach
out to other entrepreneurs—there is comfort in knowing you are not alone
in facing the challenges you do.
13. Find the right coach/mentor.
14. Manage your time efficiently so you can have some time with your family and friends too.
15. Don’t drink and think/don’t consume or use other substances.
16. Get regular exercise and watch your diet: less starches, less sugar, limited fruits, more green vegetables, more protein.
17. Complete your education. It is something you will always take with you.
18. Beware your fear of success**.
19. Surround yourself with positive people at home and at work.
20. The moral underpinnings of entrepreneurship are based on Adam
Smith’s principal that your first duty to society is to ensure that you
and your family do not become a burden on your fellow humans. So take
care of your business so it can take care of your family and your family
can take care of you.
Prof Bruce
**Fear of success is:
Most people have heard of fear of failure but fear of success, what
is that? It’s counter intuitive and illogical but very real. Don’t let
this happen to you.
Here is how it works:
1. “I won’t really work too hard on this project just in case it fails.” (The project then fails.)
2. “I wasn’t successful because I really didn’t work hard at it.”
3. “If I had worked hard at it, it would have been successful.”
This approach guarantees that: a) your ego is protected and b) that
your project fails. Since it must result in failure, it must be that,
logically, you sought failure not success in the first place. Therefore,
you must have been more afraid of success than failure. Q.E.D.
To read more about What is Business Success and How to Achieve It?, please see: https://www.eqjournalblog.com/?p=630.
Prof Bruce @ 8:08 am
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Test your entrepreneurship skills – online quizzes
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Ten Reasons People Stay (or Come Back) to Ottawa
Posted on
Sunday 21 February 2010
A lot of my students over the years have told me, as they
get closer to graduation, that they’re going to leave our cold-weather
city as soon as they get their degrees. Then they head to better weather
places like Phoenix, South Florida, LA, San Jose, even TO and
Vancouver. A few years later, I’ll hear a voice on the Sparks Street
Mall or wherever and, sure enough, they’re back! Many foreign diplomats I
have known over the years, after they retire, also tend to settle in
this town and some of them hail from beautiful, exotic (warm) places.
Why is that?
Here are the top ten reasons why I think Ottawa puts a ‘rubber band’ on people:
1. Ottawa is a (mostly) peaceful place. When I was campaigning to
Bring Back the Senators, Mike Ilitch (owner of the Detroit Red Wings,
Little Caesars and the Detroit Tigers and a good guy) asked me: “What’s
the murder rate in Ottawa like?” I said: “About 8 to 12 people, Mike.”
He asked: “A day?” “No Mike, that’s a year.” “We get that a day!”
2. We have a stable economy with lots of job opportunities in sectors
as divergent as government/technology/health/services/tourism/real
estate/education. Ottawa is a ‘get rich, slow’ type of place. Our
economy doesn’t shoot up like some others but then again, it doesn’t
often crater either. Even with disasters like the (unforgivable)
meltdown of Nortel, companies like RIM have been hiring 5 software
developers a day in Ottawa since November 2009. Why? RIM found that
Ottawa was the place where they got the highest percentage of turndowns
on offers they had extended to move away (to Waterloo) so they opened up
shop here to take advantage of our skilled labour force.
3. You can live different lifestyles in Ottawa. Want to live in a
mostly French-speaking community? Lots to choose from. Want to live an
urban existence, sure, choose Westboro or the Glebe or the Byward Market
or Centrepointe or … Want to live close to water? We have three
enormous rivers running right through Ottawa-Gatineau and hundreds of
lakes within 90 minutes. Want to live on the land and be independent? No
problemo, there is an amazing amount of broad acres within the City
limits: geographically, Ottawa is huge (way bigger than TO). Ottawa also
has a clean environment, lots of providers of organic produce and a
stake in green tech that is likely to get a lot bigger. If you like the
outdoors, snow boarding, camping, hiking, canoeing, kite surfing,
biking, sailing, it’s minutes away from your front door.
4. Ottawa doesn’t measure up in all areas of Richard Florida’s
creativity index but it does enough. As a G8 capital, we have fabulous
national institutions like the Canadian Museum of Civilization, the NAC,
the War Museum and the recently revamped Canadian Museum of Nature. We
have several privately-run theatre groups and dozens of festivals each
year that are among the best in the world including Winterlude which is
completing another mega successful year today as I write this. There is
even the Ottawa Art Gallery where they house my family’s Group of Seven
art collection.
5. Ottawa is an old (for North America) northern shelf city with some
great architecture (and, of course, some crappy stuff too). When
friends visit me from Australia, Europe or the US, they visit the
Parliamentary Precinct, the Byward Market and artifacts like world
heritage site, the Rideau Canal; they can’t believe what a fantastic
place this is, compared to, say, Atlanta.
6. People miss friends and family when they move away. So they come
back. Plus it’s a great place to bring up a family and the kids can go
to cool schools like Canterbury High School for the Arts (where 4 of my 5
kids went.)
7. People miss the four seasons. If you’ve never experienced a tough
Canadian winter, you can’t understand how much Ottawans treasure a warm,
sunny summer day. They’re like plants: they stand there and face the
sun as it goes down and photosynthesize the very last light beams with
their eyes…
8. Ottawa is one of the most affordable places to live while still
enjoying most of the creature comforts and creative enterprises that
exist here. It’s affordable for first time homebuyers (try to buy a
house in Vancouver, for example). It’s affordable for corporations too;
they can hire great workers who are loyal and don’t job hop every two
years.
9. Ottawa-Gatineau has a population of > 1.2 million people and
when urban agglomerations get to that point, their city-state economies
start to be self-generative. Add to that four great higher education
institutions (U of O, Carleton, Algonquin and Université du Québec en
Outaouais) and young people can now stay here and create world-class
enterprises. We have 100s of not-for-profits in this City, more than
30,000 private corporations and more being created every week. You can
become part of something bigger than yourself, part of a team that does
great things. That will create powerful feelings of well being in a
person. It’s addictive (people feel special just for having toughed out
an Ottawa winter) and will bring you back if you ever leave. It did that
for me (I spent seven years in Oz which I also loved.)
10. It’s home to the Ottawa Senators.
Prof Bruce
ps. to see how your city measures up, see how many urban catalysts (and anti-catalysts) are active in the community: https://www.dramatispersonae.org/Catalysts.htm.
pps. to better understand how the Sens helped build Ottawa, refer to: https://www.eqjournalblog.com/?p=35.
ppps. lastly, in 2003 in a speech for the Kiwanis Club, I wrote about 21 conditions for economic takeoff; read more at: https://www.dramatispersonae.org/KiwanisEntrepreneurshipAndSustainability.pdf.
Prof Bruce @ 10:35 am
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Posted on
Tuesday 16 February 2010
I recently gave a training seminar at Scotiabank Place with Trevor Wilkins (of Holis.ca) on this subject. We covered:
• Do you want to learn how to really make people want to buy from you?
• Do you want to learn negative cost selling?
• Are you in the solution selling business?
• Do you know how to get on the ‘same side of the table’ as your customers and clients?
• Do you know how to think in terms of 2-D and 3-D business models so
that you can not only take care of your clients but your clients’
clients too?
The reason we did a seminar outside of (say) the Telfer School of
Management (where I work as the Entrepreneur-in-Residence) is that most
universities (maybe all of them) are not ready for a course in HOW TO
SELL. But the point was, if you can’t sell your ideas, your employees,
your BOD, your suppliers and, of course, your clients and customers, you
can’t be a Founder, entrepreneur or CEO.
Selling is a very creative process (or it can be) involving many
different disciplines plus it can be a huge source of change and
innovation since your salespeople are on the front lines (where your CEO
should be too) and will pick up all kinds of hints from your
stakeholder group on features they want to see in your products and
services. Product Managers should be deeply involved in the sales
process: they will find inspiration from client contact that is not
available anywhere else.
The objectives of our seminar were to understand:
1. The power of the brand: how marketing leads to greater brand recognition which leads to greater trust which leads to sales.
2. ‘Intricate’ your clients: create a business ecosystem and secure your place in it on a sustainable basis for the long term.
3. Solution selling: learn how to ‘sit on the same side of the table
as your clients’ and provide solutions, not problems, for them.
4. Negative cost selling: understand your clients’ businesses almost
as well as they do. Demonstrate your value proposition by showing your
clients (using a spreadsheet) how your product or service will either
lower their costs or raise their revenues (or do both) by more than the
cost of your services so that they are, in effect, experiencing a
negative cost. That is, you can show your clients ‘how you will pay them
to hire you!’*
(* Note that your suppliers should be doing this for you: persuading
you to buy from them because, by doing so, your enterprise will
experience negative costs.)
You can download my lecture notes as a Word Doc using the following link to read up further on the above: https://dramatispersonae.org/TurnSellingIntoBuyingTakeaway.doc.
If you don’t think that sales is a sine qua non in any
enterprise, just think about this for a minute. Say, you are a Product
Manager at Cisco. You wake up at 3 am with a super idea and you write a
few notes so you won’t forget your brainstorm. The next day you go in to
see your boss and tell her: “I have this great idea for a new product
or service… It’ll take two years of R&D at a cost of $10 million but
the potential market is huge.”
Your boss says: “That’s really interesting. Build a business model,
do a biz plan, work up some revenue numbers, get some market research
done and then come back and see me. If I still like it, I will take to
the Director. If he likes, we can take it to the Vice President and if
it passes that test, we get to take it to the CTO. After that, we still
have to tackle our CEO and BOD.”
Your shoulders hunched, you walk away thinking this is going to take a long time before you get the green light.
Meanwhile, one of your peers has also approached your boss. She said:
“I have this great idea for a new product or service… It’ll take two
years of R&D at a cost of $10 million but I got four strategic
partners to each pitch in $2.5 million and they are willing to be our
launch clients too and take the first 18 months of production plus the
potential market is huge.”
She is using a negative cost selling model on her boss and she is an
intrapreneur. She has the full skill set* of an entrepreneur but she is
applying them within a large established organization.
(* Do you want an employee who has the skill set of an entrepreneur?
Do you want someone who can: take initiative, doesn’t need a lot of
direction, is innovative, can do everything in parallel, will find
launch clients, knows how to build cashflow, understands the value of a
client and customer, will use bootstrap capital, can sell/sell/sell,
knows how to use guerrilla marketing and social marketing to build the
brand and capture market share at a reasonable cost, is not afraid to
try new things, understands negative cost selling, knows how to build a
sustainable business model with a lot of ‘pixie dust’ in it, can set
goals and achieve them, is dynamic and has high energy, can create a
business plan and be ready to change it when the market moves in sudden
and unexpected directions? For a more complete description of the
entrepreneur’s skill set, A to Z, see: https://www.eqjournal.org/?p=1274.)
Now whose project is more likely to get the go ahead, which project
is going to launch first and which person is going to be promoted first?
There is nothing more rewarding in your professional life than
working on a project you had a hand in initiating and creating. To be
there at the first glimmer of an idea, to help it grow and develop, to
see it launched into the world, to see it successful and meeting real
needs and helping people to achieve their goals—that’s what I mean by
being a self-actualized human being. And a self-actualized person is a
highly-motivated, serene, confident person who is terrific to have
around.
I have hung out with NHL coaches and they are all, to a man,
self-actualized people. They make everyone around them feel special;
they make everyone around them feel like they are part of something
bigger than themselves. They make everyone around them better at what
they do. They put round pegs in round holes and square pegs in square
holes and they tell you it’s OK if you are a square peg—they have a
place and role for you.
That is the essence of leadership* and it is an ingredient missing in
many working lives. Here is hoping that you will have people like this
in your life and that you will be one of those people too.
(* For more about leadership, please refer to: https://www.eqjournal.org/?p=1155.)
Prof Bruce
Postscript: A closely allied subject is negative cost marketing:
getting other people to pay your marketing costs, in effect, turning
your marketing function from a cost centre to a profit centre.
NCM is a specific form of Guerrilla Marketing. The 1964 Tribute Band
(Beatles) does this with an ingenious promotion during concerts. They
encourage their audience to get out their cell phones to call a friend
to let them listen to their next tune. I estimated that their cost for
reaching out to 31,500 people during a typical year for them is a
negative $6 million. (For more info, see: 1964 The Tribute Band and
Guerrilla Marketing, https://www.eqjournal.org/?p=383.)
Disney is doing something similar with their 22 ESL (English as a
Second Language) schools in China. Essentially, Chinese parents are paying
Disney to market Disney products and services (Shanghai Disney Resort
opens in about five years) to their kids. No doubt they are also
learning some English along the way too.
Disney does not break out results for Disney English in China but they do say it’s profitable (Bloomberg BW, June 19, 2011).
Another example closer to home is the manner in which Tony Greco and
Greco Lean and Fit Centres use their charitable foundation (The
Foundation to Fight Obesity in Children) as a stalking horse for their
fitness centres.
Involvement in the Foundation by kids and their parents to fight
childhood obesity is almost certainly leads to more adult participation
in Greco fitness programs—either by the kids when they grow up or by
their parents dealing with fitness issues themselves. The amount of
earned media Tony receives for his Foundation is remarkable.
So if you are going into marketing as a career or, as an
Intrapreneur, you are responsible for building a new division at an
existing firm or, as an entrepreneur, you are launching a new
enterprise, your job security/your next promotion/your business success
could be enhanced if you can turn your marketing costs neutral or, quite
possibly, negative.
Prof Bruce @ 9:29 am
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Deal Structure, Deal Flow and Bootstrapping It
Posted on
Sunday 14 February 2010
Recently, I had a chance to sit down with a former student
and look at the deal structure he was planning to put in place with two
partners to open a new restaurant franchise in Baltimore. They needed to
raise $1.8 million, part of it debt, part of it equity. They wanted to
start with a LTV (Loan to Value) ratio of 50/50 so that meant they
needed to raise $900k in equity. They had already secured (via a long
term lease) an excellent downtown location and a bank loan for $900,000,
contingent on raising the balance in the form of equity.
Each of the other two wealthy partners were prepared to put in
$400,000 and Bill (not his real name—other facts have also been changed
to protect the identity of the individuals involved) had saved $70,000
of his own money and secured a soft capital loan from his aunt for the
remaining $30k.
This would give each outside partner 44.4% of the business and Bill,
11.1%. The trouble was Bill, although still young (just 29), was the
only partner with experience actually managing a pub. So he was
expecting to put in the most hours operating the new franchise and yet
he had a tiny share in the enterprise. To assist him, the other partners
were willing to enter into a shareholder agreement that would let Bill
buy more equity over time (to get him to a 20% share eventually) using a
complicated formula based on the FMV of the shares less a certain
percentage.
What I suggested instead was that they all go in as equal
partners—1/3 each right, from the get go. Bill’s concern was, of course:
“Where will I get $300,000? I put everything I own on the table just to
get to $100k.”
The answer is that you can often capitalize a business (or your share
in it in this case) right from the deal flow itself. It’s easy!
I told Bill: “What you’re going to do is ask your partners to each
loan you $100,000 for seven years and you’ll agree to pay them interest
at 6.5% p.a. But for the first two years, while you’re building the
business, there won’t be any principal or interest payments—interest
will be capitalized. Then over the last five years, you’ll pay monthly
principal and interest to them.”
Bill’s next question was: “Why would they agree to that?” Here’s why:
1. Bill is in possession of asymmetric information—he is the only
skilled operator amongst the group and they need him. His partners
should not even think about going into this business with no
experience—they’ll get eaten alive by the competition. Bill has leverage
he didn’t even realize.
2. In many ways, his partners are better off by lending Bill their money
to become an equal partner. A happy managing partner is a productive
one. Plus they will have a Bill deeply ‘intricated’ into the business—he
is on the hook personally for one third of the loan from the Bank and
he owes them personally $100k each. That means, if the business goes
broke, their risk capital has been reduced by $100,000 each—because Bill
still has to pay it back using his own resources, which means he’ll
have to go get a JOB to repay the loans.
3. They are making a return on their capital (6.5%) which isn’t
particularly great but for two middle aged investors, it’s still better
than most of their IRAs and other investments are paying (from 3.15% to
6%).
From Bill’s point of view, this solution is elegant because, based on
his cashflow projections, he will never actually have to pay these
loans back himself. Huh? That’s because Bill estimates, based on his
experience, that the franchise will produce a reliable stream of free
cashflow of ~ $325,000 annually from year 3 to year 7. Bill’s share of
free cashflow is one third or $108,333 less what he has to repay to his
partners over the five years from year 3 to 7 ($54,383 annually). So his
actual distribution is a net of $53,949 per year. So the business is
actually repaying his partners, not Bill.
During that period, Bill is still seeing a great ROE: he is receiving
nearly $54,000 a year from the biz on his actual out of pocket
investment of $100k or nearly a 54% p.a. rate of return. After he pays
off his two partner loans, his ROE (in year eight) jumps to over 108%
p.a.
So Bill has, in part, bootstrapped himself to a one third ownership
position in a valuable concession by looking for capital in the deal
flow itself. He is on his way to becoming wealthy—he will have created
an ‘annuity’ for himself—reliable, reproducible, recurring cashflow
produced by an asset he owns or controls.
Prof Bruce
Postscript 1: Many student entrepreneurs, when they are building
their PBSs (Personal Balance Sheets), forget to add their equity and
sweat equity. Just as Bill should not forget that he has leverage based
on him being the only partner to actually have experience in this
business, he should also show on his PBS (in addition to his cash
investment of $100,000), the SE (Sweat Equity) he has created. To do
that is easy. If we use a capitalization rate of 9% (a pretty typical
rate for this type of franchise and location), Bill’s share of the
business can be valued at $1.2 million after year 7 (when he has retired
the partner loans). After deducting the initial $100k outlay, Bill will
have created about $1.1 million in value through his own efforts after
just seven years. It’s hard to save your way to wealth (hardly anyone
can actually do that) but you can invest your way there as Bill plans to
do.
Postscript 2: I was involved in a transaction like this at about the
same age. I had no money but wanted to buy a 62 acre piece of industrial
land in Kanata (a western suburb of Ottawa).
The Canadian economy was in a tough recession and, as a famous
Frenchman once said (Baron Rothschild in 1871): “Buy (real estate) when
there’s blood in the streets.” This is easier to say than do because: a)
people tend to run in herds*—there is tremendous psychological pressure
to sell when everyone else is selling and buy whenever everyone else is
buying, b) Banks won’t lend you any money when times are tough—they too
are subject to herd pressures—so financing dries up. The answer?
Bootstrap it!
(* Professor René Girard coined the term ‘mimetic desire’ to refer to
the concept that people tend to want what they believe other people
want. This is a powerful, self-reinforcing and self-perpetuating force
that propels irrational exuberance (or the reverse) in many areas
resulting in bubbles and crashes in almost all parts of a modern
economy.)
I had the opportunity to buy the property for just 15 cents per sq.
ft.—a price that hadn’t been seen in Ottawa since the Great Depression.
The landowner, who was in trouble, was willing to finance half of the
transaction for a period of three years. The balance I would have to
find in cash. That meant I needed more than $200k to close.
I managed to find two wealthy investors, each willing to put up one
third and to lend me one sixth. They wanted 8.5% interest on their loans
but were willing to capitalize their interest for three years. Again,
they were willing to help me because they needed me—I was in possession
of asymmetric information and skills. They need me to find the land,
negotiate its purchase, put Seller Take Back financing in place and then
find a Buyer when the markets and the economy came back a few years
later.
We bought the land for just over $400k and, luckily for us, less than
three years later both tech and the land markets bounced back, we sold
the property for about 90 cents per sq. ft. or ~ $2.43 million. Each
partner received their one third share (plus principal and interest in
the case of my two outside partners and one third less principal and
interest, in my case).
This example demonstrates a few things about deal structure, deal flow and bootstrapping yourself:
1. Bootstrapping often involves an early stage of trading—where you
trade in whatever markets you have some knowledge and expertise, gaining
advantage from asymmetry. You need to generate ‘table stakes’ and many
entrepreneurs start this way. You have to watch it—if you keep flipping
assets, you eventually will “flip ‘til you flop” so you have to know
when to stop and build and hold instead.
2. Bootstrapping also involves looking for finance in the deal flow—in
this example, I used two sources—the original owner loaned us half the
purchase price and my partners financed me.
3. I was able to use a form of NCS (Negative Cost Selling) on the
partners by showing them what I thought the deal would look like. I used
a spreadsheet much like the one below except I felt a seven year period
was more appropriate—land cycles tend to be five to seven years in
Ottawa and I just felt more comfortable showing a lower return and a
longer payout. The fact that there was a payout in just under three
years was a bonus. The original pitch was that they by investing $100k
each, they would see a return of $650,000 after seven years, an IRR of
30.7% p.a. Their cost of investing? A negative $550,000! I also realized
you can bootstrap finance this way: NCS is the basis upon which they
could borrow from their future earnings to finance me today. They
agreed.
4. Lastly, don’t cry for the original owner—he inherited the land for
free from his family. Don’t shed any tears for the tech company who
bought the land—in the years since they bought it from us, it has gone
from 90 cents per sq. ft. to $8.00! And think how well the two
co-investors did. They each put up about $100k (including the amount
they loaned me to buy my share). Less than three years later, they got
each got a cheque for $785,000. This represents an IRR (Internal Rate of
Return) of 97.9% p.a., a heck of a lot better than a GIC from their
Bank which today pays around 3.15%. Of course, my IRR is infinite since I
had no money at all invested. Still I can’t gloat—all that money (and a
lot more) went into the Ottawa Senators, where it remains to this
day—only problem is, the team is owned by someone else!
Spreadsheet:
Feb. 14, 2010 Deal Structure: Bill and the Restaurant Franchise
Deal A
Capital Required $1,800,000
LTV Ratio 50%
Debt $900,000
Equity $900,000
Partner A $400,000 44.444%
Partner B $400,000 44.444%
Bill $100,000 11.111%
100.000%
Deal B
Capital Required $1,800,000
LTV Ratio 50%
Debt $900,000
Equity $900,000
Partner A $300,000.000 33.333%
Partner B $300,000.000 33.333%
Bill $300,000.000 33.333%
100.000%
Loan from Partner A $100,000.00
Loan from Partner B $100,000.00
Bill Borrows from A and B $200,000.00
Term 7 years
Interest Capitalized 2 years
Balance of Term 5 years
Interest rate 6.50%
Amount of Interest Capitalized $13,000.00 year 1
$13,000.00 year 2
Principal Owing after Year 2 $226,000.00
Repayment to A and B ($4,531.95) monthly
($54,383.41) annually
Expected Cashflow from Operations $325,000 annually from year 3 to 7
Bill’s Share of Cashflow $108,333.33
less amount paid to A and B ($54,383.41)
Bill’s Net Share of Cashflow $53,949.93
Bill’s Equity $100,000
Bill’s ROE 53.9% p.a. from year 3 to 7
Bill’s ROE 108.3% p.a. after year 7
Capitalization Rate 9.00%
Bill’s Share of the Business Valued at $1,203,703.70 after year 7
Bill’s Sweat Equity Valued at $1,103,703.70 after year 7
Deal Structure: Land Transaction, Kanata ON
Area 62 acres
43,560 sq. ft. per acre
2,700,720 sq. ft.
Price $0.15 per sq. ft.
$405,108.00
Seller Take Back $202,554.00 50%
Term 3 years
Interest 0%
Equity Required $202,554.00
Partner M $67,518.00 33.333%
Partner N $67,518.00 33.333%
BMF $67,518.00 33.333%
100.000%
Loan from Partner M $33,759.00
loan from Partner N $33,759.00
Term 3 years
Interest 8.50%
Interest Capitalized $5,739.03 annually
$17,217.09 over 3 years
Sale Price $0.90 per sq. ft.
$2,430,648.00
Less Amount Owing to Original Landowner ($202,554.00)
Net to Partners $2,228,094.00
Distribution to M $785,065.54
Distribution to N $785,065.54
Distribution to BMF $657,962.91 $2,228,094.00 check
IRR (Partner M or N)
0 ($101,277.00)
1 0
2 0
3 $785,065.54
IRR 97.9% p.a.
Prof Bruce @ 9:00 am
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Can You Tell Me the Way to … ?
Posted on
Tuesday 9 February 2010
New initiatives to help our City develop don’t always have
to involve heroic measures like getting major projects such as Lansdowne
Live approved. There are more prosaic things that our City can do that
could have a significant impact on our city-state economy.
A few years ago, I worked in the south end of Ottawa for a successful
local tech company and pretty much each day I would pass this sign on
Prince of Wales:
Not a very impressive welcome for some of the more than 5,000,000
tourists who visit Ottawa each year. This got me thinking about
directional signage.
If you are operating a major tourist destination like Disney World or
Granville Island, you need to be thinking about way-finding signage and
I don’t just mean once you have arrived on site. I think we should be
thinking of Ottawa-Gatineau as one entity that we are marketing to
Canadians and the world.
I remember, before amalgamation of Ottawa’s 11 municipalities and
regional government into one city, being chided by friends from Toronto
who upon leaving Scotiabank Place to return to their downtown hotels
after a Sens-Leafs game would see a west-facing sign on Highway 417 that
said: “Welcome to Ottawa, Population 325,000”. This was at a time when
Ottawa-Gatineau’s population was actually 1.1 million (it’s now about
1.2 million). “Why in the world, Firestone, would you ever put a NHL
team in a town with 325,000 people?” I would be asked.
Now this isn’t just an issue for visitors or media from out of
town—getting the right information out there about Canada’s Capital City
is important to people who live here too.
I recently gave the keynote speech at an entrepreneurship conference
in Halifax. They are in tough—at any one time, 40,000 students (many
from out of Province) are enrolled at colleges and universities in Nova
Scotia (the highest density of tertiary students in Canada) but they
lose 45,000 young people to other jurisdictions over a four year period.
Exporting talented, well-educated people is a huge drain on Nova
Scotia—as a result they have the oldest demographics in Canada and it is
aging fast.
My thought was that it was very important for people who live here to
know that we have a metro population in excess of one million and that,
partly as a result, you can stay in Ottawa and create world-class
enterprises. I would guess if you did a poll of young people between 15
and 25, who live in Ottawa-Gatineau, fewer than a third of them could
correctly guess how big our urban agglomeration has become.
I want young entrepreneurs that I teach and others like them to stay
here after they graduate and not move down the road to TO or other
larger cities.
There are seven main engines for growth in Ottawa (Government,
Technology, Tourism, Health, Education, Real Estate and
Entrepreneurship) of which four appear to be doing fine and three
(Technology, Tourism and Entrepreneurship) could stand to see some
improvement. I proposed a number of years ago, that we erect large scale
signs like that shown below at key nodes 50 km and 100 km from Ottawa
as well as inside the city. This would help tourism but also
entrepreneurship and tech.
Some locations I had in mind included:
1. Scotiabank Place.
2. East end—Highways 417 and 174.
4. South end—Highways 416 and 16.
6. Intersection of Highway 416 and 401—east bound.
7. Intersection of Highway 416 and 401—west bound.
8. Interstate Highway 81.
9. South end—Highway 31.
10. Sparks Street.
11. By-ward market.
12. Quebec Highways (174, 50 and 5).
13. Highway 7 towards Carleton Place.
14. West end of Highway 417 towards Arnprior.
15. Ottawa International Airport.
16. Ottawa Convention Centre.
Some of the locations are in-town like the Sparks Street Mall. This is obviously for educational purposes not way-finding…
My hope was to create something really striking featuring: a red
maple leaf, NRC time, Environment Canada weather and a Stats Canada
population counter for Ottawa-Gatineau and for Canada. As a former
Vice-Chair of CIRA (the Canadian Internet Registry Authority), I thought
to maybe add a real time dot-CA counter too—Canada’s land grab on the
Internet is an important way of building Canada’s brand in virtual
space. This would be another way to get more people to at least think
about using the dot-CA as opposed to a US-based dot-COM.
Now these 10 to 15 metre-high signs are not inexpensive so I also
added an activision component that could support the whole enterprise
without government funding. Sponsors would appear on the signs and pay
for that time but the signs could also be used to promote festivals like
Winterlude, the Dragon Boat Festival, Hope Beach Volleyball … Events
and attractions at the NAC, Canadian Museum of Civilization, War Museum,
Canadian Art Gallery, the OAG, SBP and so forth could also be featured.
We have organizations here in Ottawa that have access to sponsors who
could sustain an effort like this. We also have other organizations
whose responsibility it is to get initiatives like this off the ground.
Carpe Diem.
Professor Bruce M. Firestone, Entrepreneur-in-Residence, Telfer
School of Management, University of Ottawa, Founder, Ottawa Senators,
Executive Director, Exploriem.org, Broker, Partners Advantage GMAC.
Prof Bruce @ 11:47 am
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Posted on
Saturday 6 February 2010
Guest Blog by Scott Annan of mercurygrove.com
In early 2000, just recently out of school, I was recruited by a
fortune-500 manufacturing company and worked for them for six years.
During that time, I progressed from a business analyst role in the
European e-business group to a leadership role in the corporate
headquarters as Global Director of sales and marketing systems with over
50 people reporting to me, a $15 million budget, reporting to the CIO
and the EVP of worldwide marketing with frequent presentations to the
Board of Directors, in the executive development program plus I was
earning well over a 6-figure income. I was 28 at the time.
In retrospect, there were three core principles that I applied to become a successful intrapreneur:
1. Vision: constantly presenting new opportunities to management and volunteering to lead new projects;
2. Execution: putting value creation ahead of cost reduction;
3. Passion: upholding the core belief that “we can do and achieve more”.
I’m not sure if people at in the company would have described me as a
“visionary” or as a “zealot”. When I had convinced myself about a new
project or opportunity, I would spend days putting together a workable
plan that outlined my vision, its ROI and a plan to show how it could be
executed.
I ensured that I covered all the information that was necessary to
get the project off the ground including case studies, financial models,
potential concerns and how we could solve those. I would anticipate
questions management would have and be prepared to with answers.
Then I would mount a campaign to get in front of the right people
whose endorsement or support the project would need. I never thought:
“This isn’t really in my department or responsibility or beyond my
current scope”. If it was a good idea that had great potential, I would
work hard at developing it and seeing it come to life – sometimes
without the approval of management. It was my belief (and it still is)
that nobody gets fired for working hard to do the right thing for the
company.
I would also volunteer to lead these projects. This was important to
me and I was able to accept both praise if things went well and
criticism if things didn’t work out. As one colleague once put it to
me: “Management is constantly give you just enough rope – to either make
a success of or hang yourself.”
Many of my colleagues focused a great deal of their time on the cost
side of projects (which I have found is a typical corporate focus) but
what I learned was that a big corporation shouldn’t care about their
costs, they should care about creating value – and, of course, adding to
their bottom line.
There is a big difference between cost controls and investing and I
always looked to ensure that the money being spent on my projects was an
investment, not a cost. Several times I overspent my budget, but I was
able to demonstrate a great return on the investment and a much better
outcome for the company so I ‘got away with it.’
I always believed in trying to achieve the best outcome for the
corporation. In every meeting, I would question whether the current
direction was the absolute best decision – no matter whose idea it was.
This is a difficult and often unpopular thing to do.
Corporations rely on hierarchy and well-orchestrated teamwork. Many
employees and managers feel threatened when people ‘push back’ on
entrenched business methods and it is hard for people not to take
criticism personally. It does not take long for co-workers or managers
to start labeling you as a troublemaker and disruptive to the team.
Still, I always questioned and promoted what I thought was the best
idea. For me it wasn’t a matter of pride but it was part of generating
enthusiasm and commitment to the work we were doing. I couldn’t accept
working for a company that wasn’t trying to achieve great things.
I wasn’t working for money or promotions but these were byproducts of
the intrapreneurial approach I took. I thought of the business as if it
were my own and management could tell.
I also wanted to learn new skills. After working in five different
departments and two countries, I ultimately left because my pace of
learning had slowed. Much like being an entrepreneur, an intrapreneur is
constantly searching for new opportunities, often working against the
‘status quo’ and is potentially a difficult to fit inside a corporation
unless they have a culture that tolerates and encourages innovation and
change. Still, intrapreneurs are highly sought after and rewarded by
corporate executives who realize that companies run on passion,
creativity and hard work.
Scott Annan
mercurygrove.com
613-680-1458
Blog: mercurygrove.com/blog
Twitter: scottannan
Postscript: To read a bit more about the entrepreneur’s skill set and
the subject ‘Can you hire an entrepreneur to work within your
corporation’, refer to: https://www.eqjournalblog.com/?p=408. Prof Bruce
Prof Bruce @ 5:25 pm
Filed under:
Intrapreneurs and Intrapreneurship
Posted on
Saturday 6 February 2010
Many people feel today that you have integrated social media
into your Biz Model because you happen to have a Facebook group or you
are on Twitter or you have a blog. To me, this is outbound social media
and it is a bit hum drum today. After all, anybody can do it. The air of
novelty quickly wore off.
Now it’s true that Facebook et al are ways to (perhaps) get your
message out quickly and inexpensively (disclosure: I use all three tools
and like them) but the use of the relational data base which was the
precursor of social media is, in many ways, far more meaningful for an
enterprise and its business model.
For example, Jeff Bezos, Founder of Amazon.com, said one of their
most important innovations and one that helped Amazon finally become
profitable was the introduction of a seemingly simple question: “Would
you like to see what other people who bought this (book, CD, DVD, etc.)
also bought?” As a result, the average order size increased
substantially for Amazon and the utility of the site increased
significantly for users.
Any researcher, say, wanting to build a bibliography, could easily go
to the Amazon.com site and see (for free) what other texts were bought
by people who had bought books that already appear in his or her
bibliography. In effect, the researcher could borrow the brain power of
Amazon users to extend his or her own—they were exploiting the wisdom of
the crowd.
Who would have thought that a simple URL shortener like www.bit.ly
could integrate social media (as I am using the term here) into their
biz model—and they do it in two ways. First, any user (you don’t even
have to create a user account— bit.ly automatically recognizes your IP
address) can see how many clicks have taken place on each link they have
created, including individual ones used for, say, an individual client
(perhaps even to check on whether the client actually bothered to click
on a link you previously sent to them. Thanks to a student of mine for
pointing this devious application out.)
Plus you can see what links are being created on bit.ly that are the
most popular—i.e., you can find out what the latest trends are before
practically anyone else just by looking at what links are being created,
how many people are clicking on them and where they will take you.
And by keeping track of all the links that you personally have ever
created on bit.ly (you can see them all at a glance—where they link to
and how many people have clicked on them since their creation by you),
bit.ly keeps their users locked in to a site that otherwise could be
easily knocked-off by a competitor.
Can you see a way to integrate the wisdom of the crowd/social media
aspects into the core of your biz model; that is, can you harness the
data you are generating from your website and your operations to extend
your firm’s utility for clients and suppliers as well as for your
enterprise?
Let me give you another example. Users of Multiple Listing Services
in the US and Canada find these websites difficult to navigate and
understand—their user experience is somewhat lacking to be sure. But can
you imagine the increase in utility that would be possible if we simply
asked Jeff Bezo’s question on MLS.com or MLS.ca: “Would you like to see
what other listings people who have looked at this one have also looked
at?”
Prof Bruce
Prof Bruce @ 11:00 am
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Value Differentiation and ‘Pixie Dust’
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Negative Cost Selling and the Pro Sports Team
Posted on
Sunday 31 January 2010
Earlier this season, the Ottawa Senators were having some
trouble filling their building after years of sell-outs and near
sellouts. The causes? Well, the performance of the team (missing the
playoffs the previous season and being swept in the first round the year
before by the Pens) is obviously a factor. The downturn in the national
economy and US economy as well as relentless bad news on CNN also had
an effect even though the Ottawa economy itself is isolated in part by
the large presence of the national government here. Another factor
influencing attendance is the on-going issue of civil servants not being
able to accept complimentary tickets—the concern is that they might be
unduly influenced by such largesse.
As a result, the Ottawa market (of 1.2 million people in
Ottawa-Gatineau and 1.7 million within 60 minutes drive time of
Scotiabank Place) is actually quite a bit smaller than the numbers would
suggest because you can deduct more than 100,000 people employed in
government.
Having said all this, only one team can win the Stanley Cup each year
and if Ottawa were to win it on a pro rata basis, the team would only
be a winner once every 30 years. Meanwhile, you still have to fill your
building.
How do you do that? Negative cost selling can help.
Most pro teams sell their tickets on the basis of it being some type
of beauty contest. “Look at our great players!” “How about our beautiful
building!” “Did you know you can escape our parking lot in just 25
minutes!” “What a great logo we have and our merchandise, my, my!”
Or they try to guilt or bully you into buying a ticket: “If you don’t
buy a ticket, the team will move!” “What kind of a person are you, don’t
you have any civic pride?”
But remember, negative cost selling is about understanding your
clients business almost as well as they do. Actually, what you want is
to understand that plus your clients’ clients’ business almost as well
as they do. And you want to be able to put all of that down in black and
white, preferably in a spreadsheet that proves you can make money for
your clients (by increasing their revenues or reducing their costs or
doing both such that higher revenues and lower costs more than offset
the cost of buying your product, in this case, tickets, sponsorship,
suites or signage…)
I did a sketch (see below) of some examples of negative cost selling that the Sens (or any pro team) could use.
Let’s say Jay is a salesperson for the Sens and he is going to drop
in on the woman (Dilys) who sourced the mortgage for the home he bought
last year. This is a warm call—he already has a business relationship
with Dilys and her firm. In fact, this will be a form of reverse
selling—why shouldn’t the people you buy from, buy from you?
The answer is NOT that they should buy from you because they sold to
you; the correct answer is that they should buy from you because you
have a compelling value proposition and you can demonstrate it. The fact
that you already have a relationship with them is a plus as is the fact
that you know and have learned a great deal about their business (and
their clients too). These factors help you get in the door but they
don’t close the deal for you—negative cost selling does that.
I show what a negative cost selling approach looks like below and I
also provide a link so you can download the spreadsheet. Based on this
analysis, Jay, would be able to say to Dilys:
a. “I want you to think about investing in Sens tickets this year and
next and making it an integral part of your marketing program.
b. Every homeowner that sources a mortgage through you, is going to get a pair of tickets to a Sens game!
c. The cost to you for two tickets to every regular season home game
will be $55 less a 15% discount since you are making a 2-year
commitment. [Note: Jay really wants at least a 2-year commitment. He
knows that if he only gets a 1-year term on this deal, he’ll forever be
doomed to the role of a baseball player—he will have to hit 40 homeruns
each season and be subject to the ‘what have you done for me lately’
syndrome from the team. Instead, getting 2-year commitment from his
clients (or longer if he can) means that Jay can really build a
sustainable business for the long term. And like all good salespeople,
he thinks of his sales efforts as his own business since he is earning a
commission on top of his salary. He views the team as one of his
suppliers!]
d. You are currently spending about $2,945 per year on marketing—if you
divert 40% of that to the Sens, your marketing budget is going to
increase by about $2,655 but here’s the good news. If you get just two
more clients per year, you’ll break even and most of my other clients in
this industry are finding that they are generating five or more clients
per annum.
e. That means for an extra investment of $2,655 in each of the next two
years, you’ll make an additional $6,695 per year or a total of $13,385.
f. Your net cash gain will be nearly $8,075 over that period. This
represents a ROI of 152% per annum—a lot better than what you get from
your Bank these days on your GICs (about 3.15% p.a.), wouldn’t you
agree?
g. I guess what I am basically saying is that your cost to buy your Sens
tickets is a negative $8,076.70. I am essentially paying you to buy the
tickets from me… [As a student of mine once said: “I’ll pay you to hire
me” when he used the negative cost selling technique on a future
employer.]
h. In fact, I prepared a spreadsheet for you to go over with me. Notice
that I took the Brokerage’s share of your commissions out before I
calculated your rate or return. [This shows that Jay really gets his
clients’ businesses.]
i. Hey, that reminds me: isn’t it true that if you do more than $10
million a year in mortgage biz, you’ll get a volume bonus from Mortgage
Alliance? Well then, it looks like the investment in Sens tickets is
just the ticket, so to speak—you’re at $9 million right now and the
spreadsheet shows you at $10.125 million at the end of the year so your
actual ROI will be even higher and the cost will be even more negative
after you nab one of those year-end bonuses. How about that.
j. You just have to initial here, here and here, sign and date there.
k. Thanks. See you soon.
l. Oh, by the way, can I call you at the end of the season for a testimonial for my personal website?”
Sens and Mortgage Broker: Negative Cost Selling
Sens Tickets 41 regular season home games
Number of Tickets per Game 2
Total Number of Tickets 82
Cost per Ticket $55 posted prices
Discount for two year commitment 15%
Actual Cost per Ticket $ 46.75
Annual Cost $ 3,833.50
Typical Mortgage $225,000
Typical Fee $1,912.50 0.85%
Mortgage Agent Share $1,338.75 70%
Number of Mortgage per Annum 40 $9,000,000
Mortgage Agent Revenues $53,550.00 per annum
Mortgage Agent Current Marketing Budget $2,945.25 6%
Percent of Current Marketing Budget Diverted to Sens ($1,178.10) 40.00%
New Marketing Budget including Sens $5,600.65
Increase in Marketing Costs $2,655.40
Number of New Mortgages Needed to Breakeven 1.98
Number of Actual New Mortgages Written 5 $10,125,000
Increased Revenues due to Investment in Sens -ve Cost Marketing Program $6,693.75
ROI on Marginal Increase in Marketing Costs due to Investment in Sens (IRR) 152% per annum
Cashflow Profile
0 ($2,655.40)
1 $4,038.35
2 $6,693.75 $13,387.50
Cash Gain over Period $8,076.70
Note: this example is for demonstration and learning purposes only.
[You can download this as a spreadsheet from our server in .xls format: https://www.eqjournalblog.com/SensMortgageBrokerNegativeCostSelling.xls]There’s no reason why Jay can’t extend this analysis to all of his
clients. In fact, because he understands business modeling, he can take
it one step further (we call this 2-D or 3-D biz modeling).
Say, Jay drops in on a restaurant owner. Her name is Shelly. Shelly
has told him that the two weeks preceding Fathers’ Day have become more
important over the years, coming closer in volume to Mother’s Day
bookings but she would like to find a way to drive that volume higher.
Jay knows that most of Shelly’s clients during that time are women
calling and making reservations. Who are Shelly’s clients’ clients?
During that period, they are, of course, men. What do men want? Well, a
lot of men like pro sports. So Jay sells Shelly some Sens tickets that
she can bundle with restaurant meals. If she breaks even on the Sens
tickets but drives her restaurant’s utilization rate higher, it would be
a pretty simple job for Jay to show Shelly how the purchase of these
tickets was a negative cost.
You can extrapolate from these examples for florists, Banks, auto
dealerships, spas, REALTORS, Accountants,… Once you understand the
concept, the rest is just ‘making license plates’ (to borrow a phrase
from Neal Stephenson’s Cryptonomicon.)
I did another sketch below on how this approach might work for
REALTORS and Accountants (actually tax preparers). In the latter case,
Jay would want to give his client (the tax preparer) something that
would appeal to his clients—the answer again, Sens tickets! Now Jay’s
clients’ clients’ client is CRA (Canada Revenue Agency) so he should
stop at 2-D. CRA auditors won’t want (and obviously can’t accept) Sens
tickets! But you get the picture—look at least 2-dimensions deep and
sometimes 3 or more will be appropriate and useful and new ideas and
ways of using negative cost selling will occur to you.
The Ultimate Negative Cost: Free
In the summer of 2003, Rob Hall, a brilliant Internet guy and owner
of Momentous.ca (Internic.ca, Zip.ca, etc.) came to see me with a new
business model. He wanted to enter the domain name backorder business
which at that time was dominated by Snap Names. Rob had this idea of
giving the product away for free and I had heard a lot of pitches for
giving things away for free on the Internet many of which had come to
grief so I wasn’t too keen at first.
But Rob hit another home run with Pool.com. He launched it later that
summer and it was a runaway success. Here’s why Pool.com was a “heads
Rob wins, tails Rob wins”, revolutionary business model:
1. SnapNames.com was the recognized leader in backordering deleting
domain names. So say you owned the domain name MyGreatCompany.ca or .de
or .uk or .ne or .com.au, and you wanted the dot-COM TLD (Top Level
Domain) equivalent but someone else had it.
2. With Snap Names, clients had to pay $60 USD per year for each
domain name they wanted to backorder and if the name you want was
deleted by the dot-COM domain name registry (Verisign), then they would
try to get it for you (but there are no guarantees).
3. So along comes Pool.com.
4. Now you can register any domain name that you want to back order
for free with Pool.com. Hundreds of thousands promptly do. You only pay
if Pool.com is successful at getting your backordered domain name.
5. More than 20,000 dot-COM names are deleted each day. (There are
about 80 million dot-COM domain names registered as of Q1 2009 (Source:
Versign Domain Name Industry Brief). Pool.com is bound to have many
names on its list that drop every day.
6. If there is more than one client that has backordered the same domain name, then here is what they do:
“You pay only when we successfully secure a domain for you. We charge
a low US$60 fee which includes a 1 year domain registration. In the
case of a domain backordered by multiple users, a short auction will
take place and the winning bid replaces our standard fee.” Pool.com,
December 2003.
7. They are currently doing over 3,000 deleted names a day (at $60+
USD each), 7 days a week. Note that almost 60% of backordered names are
wanted by more than one client so mini-auctions are happening all the
time, with an average price exceeding $200 USD, so do the math. This
became a significant business from nothing in just a few months. Gross
margins are in excess of 80%.
8. The $60 USD also includes a one year registration so they are
automatically locked in to their domain name registrars and Rob can sell
them many other things like email, hosting, etc.
9. Having millions of domain names backordered through Pool.com gives
Pool.com a chance to sell them other things even if their backordered
domains never come up.
10. Rob has developed a good algorithm for attacking registry sites
with multiple channels (as of November 2005, he had over 120 registrar
channels to the registry) so his success rate at getting deleted names
was more than 60%. (Snap Names at that time was less than 50 %.)
Pool.com’s goal is 80 % with maybe 70+ % actually do-able.
11. Many IP lawyers, domain name speculators and sophisticated Internet users moved over to Pool.com in just a few months.
12. This business went through an intense geometric growth period.
So basically if you are an Intellectual Property law firm that had
backordered 40 domains with Snap Names at $60 each, Rob’s company can
come to you and say for a -$2,400.00, you can back order the next 40
domains with us. Now that is a compelling sales proposition.
Pool.com Negative Cost Selling
Domains Backordered with Snap Names 40
Cost of Backorder with Snap Names $2,400 $60 per backorder
Cost to Backorder with Pool.com $0
Negative Cost of Backorder with Pool.com ($2,400)
Conclusion
Negative cost selling is a technique that finds many applications.
Whether you are a former student of mine telling a would-be employer:
“I’ll pay you to hire me” or a top-flight HR recruiter showing a CEO how
by paying your firm $30,000, they can save and make an additional
$390,000, you’ll be much further ahead if you master this technique in
many ways.
You and your firm will make more money, not only by selling more but
by selling more to each client (the average order size will increase) and
your batting average will rise too. That is, you will close a higher
percentage of the pitches you make. If you are closing 2 out of every 10
potential clients and you can move that up to 3 or 4, think what that
will do to your income and how it will change your place in your
company.
I use these techniques and I have been able to improve my closing rate to 7 or 8 out of 10. No one closes every deal but I try.
It also takes a lot of the fear out of selling—you go into each
meeting knowing almost as much about your clients’ businesses and their
clients as they do. This gives you confidence and confidence is the sine
qua non of moving your closing rate upwards. But it isn’t artificial
confidence—it’s real, the best kind and its authenticity will shine
through—your clients will pick up on it just as they can pick up on the
reverse.
Humans are incredibly good at picking up signals that say ‘this person is lying to me.’
Why don’t more people do this?
Some don’t know about it or don’t know how to do it but I find a lot
of salespeople are just plain lazy. They figure the beauty contest
approach is easy and simpler and will work often enough that they don’t
have to put themselves out to learn much if anything about their
clients’ business ecosystems. This is not sustainable—in a tough,
competitive world, a negative cost selling master will eat their lunch.
If you can’t sell, you can’t be a CEO, Entrepreneur, Founder or a
Self Actualizing Human Being. If you can’t sell your ideas, your
suppliers, your clients, your bosses, your colleagues, your Bank, your
Board of Directors, your Faculty, your sponsors, your patrons, then you
can’t be a researcher, a supply chain manager, a sales executive, an
upwardly mobile hot-shot product manager, a middle manager, a CFO, a
CEO, a Dean, an Executive Director of a Charity or Not-For-Profit or an
Architect or Artist. That’s a lot of ‘can’ts’.
If you don’t believe me just think about this for a minute. You are a
Product Manager at Cisco. You wake up at 3 am with a super idea and you
write a few notes so you won’t forget your brainstorm. The next day you
go in to see your boss and tell her: “I have this great idea for a new
product or service… It’ll take two years of R&D at a cost of $10
million but the potential market is huge.”
Your boss says: “That’s really interesting. Build a business model,
do a biz plan, work up some revenue numbers, get some market research
done and then come back and see me. If I still like it, I will take to
the Director. If he likes, we can take it to the Vice President and if
it passes that test, we get to take it to the CTO. After that, we still
have to tackle our CEO and BOD.”
Your shoulders hunched, you walk away thinking this is going to take a long time before you get the green light.
Meanwhile, one of your peers has also approached your boss. She said:
“I have this great idea for a new product or service… It’ll take two
years of R&D at a cost of $10 million but I got four strategic
partners to each pitch in $2.5 million and they are willing to be our
launch clients too and take the first 18 months of production plus the
potential market is huge.”
She is using the negative cost selling model on her boss and she is
an intrapreneur. She has the full skill set* of an entrepreneur but she
is applying them within a large established organization.
(* Do you want an employee who has the skill set of an entrepreneur?
Do you want someone who can: take initiative, doesn’t need a lot of
direction, is innovative, can do everything in parallel, will find
launch clients, knows how to build cashflow, understands the value of a
client and customer, will use bootstrap capital, can sell/sell/sell,
knows how to use guerrilla marketing and social marketing to build the
brand and capture market share at a reasonable cost, is not afraid to
try new things, understands negative cost selling, knows how to build a
sustainable business model with a lot of ‘pixie dust’ in it, can set
goals and achieve them, is dynamic and has high energy, can create a
business plan and be ready to change it when the market moves in sudden
and unexpected directions?)
Now whose project is more likely to get the go ahead, which project
is going to launch first and which person is going to be promoted first?
There is nothing more rewarding in your professional life than
working on a project you had a hand in initiating and creating. To be
there at the first glimmer of an idea, to help it grow and develop, to
see it launched into the world, to see it successful and meeting real
needs and helping people to achieve their goals—that’s what I mean by
being a self-actualized human being. And a self-actualized person is a
highly-motivated, serene, confident person who is terrific to have
around.
I have hung out with NHL coaches and they are all, to a man,
self-actualized people. They make everyone around them feel special;
they make everyone around them feel like they are part of something
bigger than themselves. They make everyone around them better at what
they do. They put round pegs in round holes and square pegs in square
holes and they tell you it’s OK if you are a square peg—they have a
place and role for you.
That is the essence of leadership and it is an ingredient missing in
many working lives. Here is hoping that you will have people like this
in your life and that you will be one of those people too.
Prof Bruce
Prof Bruce @ 2:18 pm
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Putting Your Website On The Map
Posted on
Wednesday 20 January 2010
Optimizing for Google and Google Maps
By Steve Hampton, Guest Contributor, Search Marketing Specialist – BIGLocal.ca
Introduction
Search engine optimization (SEO) is perhaps one of the fastest growing buzz terms in the business community.
Slowly (and I do mean slowly), Canadian businesses are realizing that
consumers have, in general, replaced that notorious, bulky 1,000 page
yellow directory with a much more efficient search engine when they are
researching a product, service or business.
While SEO is a specialized area of expertise, there is a major
distinction you need to be aware of if you are looking to “put your
business on the map”.
That distinction is that Google has VERY different algorithms for
their organic results (their main search engine product) and their
local/maps results (“Local Business Results”).
Depending on your business goals, you will need to adapt different
strategies to achieve a page-one result on either of Google’s search
engines (SERP’s).
Organic SEO Factors
The first distinction is that there are “On-Site SEO” and “Off-Site SEO”.
While there’s no accurate way to tell, experts suggest that
approximately 85% of the weighting Google uses to determine its rankings
is attributed to Off-Site SEO.
Let’s look at some of the main areas of Off-Site SEO…
One-Way Links: A one-way link is a link to your site from another site, where you do NOT link back to their site.
Google’s culture can be summed up in one-word: Democratic. Google’s
algorithm is setup to allow people to decide what’s relevant &
what’s important.
Think of a one-way link as a popularity vote. Every time you go to
their search engine and perform a search, the algorithm goes out and
“asks” the internet to vote on the most relevant sources of information.
But Google doesn’t take every vote at face value. Google also looks
at “Who” is casting the vote – and will give priority to the “most
popular”., in their own right.
This means, if you want to make your one-way links count, you need to
get them from popular websites with high page-rankings (essentially
Google’s “Popularity Meter” – the higher the PM, the more weight that
link gets).
Two-Way Links: The difference between a one-way link and a two-way
link is reciprocation. If you are being linked to by a site in which
your website links back to them, this is a two-way link.
Two-way links are important for SEO. However they do not hold the same weight that a one-way link does.
Anchor Text: Having another website link to you is important. Almost
as important is how that link is worded. The wording of the link is
called “Anchor Text.”
Here’s an example:
Poor Anchor Text: To Visit xyz.com, click here.
Strong Anchor text: If you are in need of a widget, visit xyzwidgets.com – they are the top supplier of widgets.
The difference between the two as you can see is that important
keywords (if your business is selling widgets) are anchoring the link in
our “Strong” example.
Whenever you are setting up links with partners, ensure that the right keywords are strategically placed within that link.
Click-Through-Rate: Staying with Google’s democratic philosophy,
Click-Through-Rate (CTR) percentages are another important factor when
their search engine ranks your webpage’s relevancy.
CTR% measures the percentage of people that click on your link. (For
example, if 100 people see your link, and 10 click through then your
CTR% = 10%.)
Google believes that if a link exists and people click on it at an
aggressive rate, then that information must be relevant information that
people WANT to read. Furthermore, if Google displays 10 results, and
one of them receives significantly more clicks than the rest, then
Google will bump up that particular result.
Online Presence: With the anticipated release of Google Caffeine
(Google’s codename for their improved search algorithm), your businesses
online presence within social media has become an even more important
factor being ranked.
Facebook, Twitter, Yelp and others have become important eco-systems to help your business survive.
Diversity of Links: Google also weights the variety of websites that
are linking to your site/page. Having lots of links, from lots of
different sources is an important off-site SEO factor.
Negative/Spam Techniques: One of the easiest ways to sabotage your
business these days is to try to “scam” your way into results. While
there are a variety of “black-hat” tricks out there, getting caught
doing just one of them (accidental or not) can get your site a lifetime
ban in their search engine.
It’s critically important to only take part in ethical SEO practices.
This is one major reason why organizations have opted to hire SEO
specialists, since it can be easy to have your site barred by accident.
There are several other factors to off-site SEO that have slight
effects on rankings. Typically these factors “take care of themselves”
if you follow best practices described above.
The other side to organic SEO is on-site SEO best practices.
Let’s take a minute to look at the most important on-site SEO tasks you can use to boost your website ‘s ranking in SERP’s.
Keyword In Body Text: In order for search engines to even consider
your web page as relevant, the body of the page (the content) needs to
be relevant to the search term a searcher uses. While there’s no magic
number in terms of how often the keyword appears on the page, experts
agree that 2-3% keyword density is a great place to start.
It has also been shown that content on the top of the page (especially the top-left of the page) is given the most weight.
You can further increase the importance of your keywords by putting
them in bold or italics (but if you go overboard with this, you’ll just
get yourself black-listed – once-twice is plenty.)
Just like in off-site SEO, negative, or black-hat tactics will get
your page penalized instead of ranked, so having the keyword appear 10
or 20% of the time is NOT a best practice.
The best way to ensure your page is relevant is to simply write
passionately about the topic, and allow the keywords to find themselves
in the copy. When reading over what you’ve written, you may find some
practical places to include a keyword, in which case do it. If you
follow this formula, your page will be deemed relevant by Google – which
is the first step in getting on the top of results.
Other Important Places For The Keyword To Appear:
Along with having your targeted keyword in the body of the page,
there are several other places the search engine looks when determining
what your web page is about.
Header Tags: These are the titles and sub-titles within your page.
Title Tag: This is the title to the page (E.g.
www.YourSite.com/Page-Title.html). Noticed I used a dash to separate
each word in the page title. This is the only way you can ensure Google
can read each word. For the most part, the algorithm has a hard time
deciphering things like www.mysite.com/thisismypagetitle.html
Meta Tags (keyword & description tags): At the top of the page
(in your HTML code), there is a spot available for you to include
keywords that sum up what the page is about. Keep in mind that Google
and other search engines have gone on record to say they no longer use
meta tags in ranking pages,. However, many search engines still rely on
meta tags, and there’s still no conclusive evidence that Google doesn’t
use meta tags in some capacity.
Navigation Links: Nav links are the links that allow people to visit
each of the pages on your site. It’s important to at least theme those
link titles to your sites content. For example, consider modifying
“Contact US” to “Contact the Widget Experts”.
Alt-Tags: As you can imagine, a search engine is unable to “read”
pictures/images. That’s why there are alt-tags. An Alt-tag is a
description of the image you are showing on the page. Google relies
pretty heavily on these alt-tags to determine what the page and image is
about. Instead of labelling a picture “Picture of me”, try instead to
label it “XYZ Widgets Expert, John Smith”.
Domain Name: The domain name is still used to weight results by a
search engine. It may not be quite as important as it was, say, in
2003, but it is still used. In some of the longer tail keywords (key
phrases with more than 3 words in it), having the exact key phrase as
your domain name is enough to put you in the number one spot! This is
pretty rare, and I wouldn’t use it as my number one SEO strategy;
however, it is a good thing to do in a well-rounded SEO plan.
The domain name’s age also plays a small role in ranking the site.
On-Site SEO isn’t all about having keywords in the right place.
While keywords are essential to having the search engine consider your
content in the first place, there are several other on-site factors the
search engine algorithm uses to determine your webpage’s ranking in the
SERP’s.
Ensure your SEO strategy addresses these areas as well.
In-Page Links: Having lots of links in your copy is a great way to
boost your rankings. In case you haven’t noticed, Wikipedia has secured
the top spot for literally hundreds of thousands of keywords. If you
look at the elements of a Wikipedia page, you’ll see that throughout the
body of every page are dozens of links offering users further
information on the subject. Try to emulate this best practice in your
own web pages.
Account Structure: It’s important that Google’s spider (the program
that crawls across the web, indexing everything) can actually find all
your pages. This means having a clean, logical account structure
throughout your site. You can also help the search engine by submitting
a site map that includes links to all your sites content.
URL type: Some of you may be using dynamic URL’s (URL’s that change
themselves based on the search term used) in your site. Google’s
crawler (spider) doesn’t index these URL’s as often as they used to,
because many spammers are setting them up in a way that they have
infinite URL’s, which as you can imagine overloads the spider while
indexing. It is much better to have static html URL`s (URL`s that stay
the same all the time).
Site Updates: If you build a site, and then never update it, you
might as well forget about the search engines as a means for generating
customers. Search engines look very heavily at how often the site is
updated, as well as the amount of content/pages within the site.
Daily updates are ideal; however, at a minimum, you should be
updating your site on a weekly basis. This doesn’t necessarily always
have to be new pages (although that is best), it could be that you
update information you previously posted on your site to freshen it up,
or update it based on new developments.
Leaving a site stagnant is the worst thing you can do in SEO (besides getting yourself banned for black-hat tricks).
Web page load time: Speed is an essential part of the “new Internet”.
A large reason for Google’s success has been the speed with which it
has been able to return results. Google founders, Larry Page &
Sergei Brin have been obsessive about load times for their results, and
that philosophy has moved into the algorithm’s ranking strategy. We all
want a fast experience as an Internet user. Ensure your pages load
quickly. Things like java & outside hosted images as well as video
can cause slow load times.
Domain Name Length: Having a domain name like,
www.mywidgetsarethebestwidgetsintheworld.com is an easy way to have your
site ignored (or simply ranked on page 248). Short precise domain names
are looked at as professional by search engines, and will at least get
you a seat at the table during a keyword ranking.
Domain Name Type: .org .edu & .com are among the best weighted
domain names. All things being equal, if a search engine needed to rank
mysite.com, mysite.net & mysite.tv – they would likely be ranked in
that order.
Server Reliability/Uptime: If the crawler finds that the server
returns an error more than 0.2% of the time, your site will be penalized
in the rankings. Ensure you are hosting your site on a reliable server
that guarantees 99.9% up-time.
Content Uniqueness: Google (and other search engines) rely on
engineers who can “cut the fat” out of the indexing process. One way
they have managed to do this is by refusing to index pages that have
duplicate content. If your page includes content that was copied and
pasted from another source, the original source will be indexed as
normal, but your page will not.
Amount of Content: For indexing purposes, the more content the
better. Having said that, it’s been proven in multiple tests I’ve been a
part of, that less content generally means more sales. This means, you
have a decision to make when creating a page on your site, which is; do
you want to design a page that will sell products/services, or do you
want to design a page that is ideal for researching a product or
service, for a later purchase.
Mis-Spellings & Grammatical Errors: If your page includes
multiple spelling errors, or sentences that don’t make sense, the
algorithm will identify them, and penalize your ranking.
Use of “Robot.txt File”: A Robot.txt file is a simple text file that
tells the spider what pages you don’t want indexed. While this file may
not always be necessary, having the page there shows the search engine
you know a thing or two about web site creation, and therefore they will
give your site a slight bump in rankings.
Age of site: The age of the site is used in determining the rankings.
The reason behind this is that the majority of websites created are
abandoned by their owners within the first 6-months. To weed out
abandoned sites, Google typically ranks older sites first.
Trust Factors: There are several things Google looks for when
determining the trustworthiness of your site. Things such as a privacy
policy, terms of service, and badges from eTrust/Hackersafe are
important factors for the area of trust.
Popularity of Website: Things such as number of unique visitors,
length of time on site, and bounce rate are looked at when determining
your site’s popularity.
While this list may look like a pretty exhaustive one, there are a
reported 200+ main factors in the Google algorithm! Obviously, when you
look at all the sub-sets of those 200 factors, you can be looking at
tens of thousands of factors that go into ranking the world’s webpages
for each individual keyword searched in search engines.
Having said that, if you can focus on the areas listed above you will have a clear advantage in your market.
Local Business Listing SEO
The algorithms used to determine organic results and the “Local Business Listing” are very different.
Most of the organic results best practices I’ve listed above will go
80% of the way to helping your business being ranked on page one of the
Local Business Listing search results (i.e., in Google Maps). Simply by
adding the geographic region you want to target in your keyword (e.g.
Organic Keyword: Widgets – LBL Keyword: Widgets Ottawa, Ontario), you
are there.
But there are several additional, VERY important factors in getting
your results ranked on the first page of a Google Map search.
Again, there are both off-site & on-site factors used in determining your LBL ranking.
Off-site factors – Local:
Local Directories: Possibly the single most important factor for
being ranked at the top of local results is having a strong presence in
local directories. For Canadian businesses, look to be included in the
Internet Yellow Pages, Canada411.ca, wcities.com, where.ca, ziplocal.com
and yelp.ca. Speculation is that directories published by the Better
Business Bureau and your local Chamber of Commerce are also used by
Google’s local algorithm; however, there’s no conclusive evidence.
Restaurants, hotels & other tourist related businesses should
also look to be included in TripAdvisor, VirtualTourist, IgoUgo &
restaurant.ca.
Google Local Business Center: Google has begun creating “Place Pages”
where information about your business is listed in a webpage format for
users of local business listings. These pages exist for most
businesses whether you do anything or not. Business owners are able to
claim their place page, and include all the important information about
their businesses. An essential first step in optimizing for local
results is to claim your company’s places page, and update it until the
status shows 100% updated. This means adding images, hours of
operation, videos, etc.
Google Local Business Center Reviews: The user reviews section of the
Place pages has proven to be a very important factor in ranking local
results. There’s some great ways to get customers to review your
business through Google including running a contest, or asking them to
review it on your in-store computer immediately after helping them with
something. You can also give away a free gift if they print off their
review and bring it in.
Geographic Location: The dynamic part of local results is that Google
will boost or drop your rank based on where you are relative to the
searcher’s location (and yes – Google knows where you are when you
search on their search engine – at least for most of you).
Local News: Having your business mentioned in a local news story is a
great way to boost your local business ranking. A very well known local
blog mention can also help.
Paid Search: This is perhaps one of the most controversial subjects;
whether or not advertising in paid search (using local keywords) affects
your rankings in the LBLs. My own personal research has shown than it
does help, but if you search around, you’ll find there`s as much
evidence to suggest it does not.
Local Groups & Social Media: The Internet has turned social.
Twitter, Facebook, Yelp, Digg & other sites/services are looked at
very heavily by search engines when determining local results. They
look at where your circle lives geographically, how many people
reference your business locally, and several other factors that suggest
your local presence is prominent. Make sure to put your business in ALL
of these social eco-systems, and remain active within them.
Updated WHOIS Information: If your WHOIS information is from a
different geographic region than you are trying to rank for, it will
have a negative impact on your LBL. If, however, the owner of your
domain name is local to the area you are targeting, make sure the
information is not hidden, and is fully updated to correspond to the
contact info on your site and on your outside directory listings.
You can use the on-site SEO list for organic ranking to boost your
local business listing by simply adding the geographic region to the
keywords you’re looking to rank for. Local rankings also include
several other important factors that would not be factored into organic
rankings.
Here’s a list of the most important on-site SEO factors for local business listings:
Address & Phone Number: If you want to rank well for your
geographic region you can’t simply have your contact information on a
single page in your web site. It’s essential to have your phone number
& address prominently displayed on every page on your site. The
most traditional place for your phone number is on the right hand side
of your header. Your address can be placed on the bottom of each page.
Also – 800 numbers have been proven to negatively affect your local ranking! Ensure that you have a local number listed.
Keywords to Match LBC Categories: When claiming your Google Local
Business Listing, you are able to place your business in up to 5
categories. To boost your ranking within those categories, ensure the
name of each category is within your site (without being “spammy”).
Google Map-Widget: Google has an easy to place map widget that allows
you to place a map on your site with your address pinned to it. For
best results, place this map on every page of your site (typically in
the left or right column).
Links to Local Information: If you have the opportunity, place links
to local sources of information within the content of your page(s). For
example, if you’re talking about widgets and your local newspaper has a
great article on the subject, reference & link to it in your page
copy.
HCard: Many of you are familiar with VCard’s (Microsoft Outlook’s
Virtual Business Card File Format). Perhaps less well known is the HTML
version of these, called “HCard’s”. This helps the search engine’s
spider find your contact information, as it is formatted in a clear,
concise way that the spider recognizes right away.
KML File: A KML file is basically an XML file that is formatted for
Google Maps/Earth. It allows you to place custom information in Google
Maps/Earth where your business is. You can submit this file as well as
include it in the structure of your website.
Conclusion
Canadian businesses, in general, have a lot of work to do to get up
to speed in the area of Internet marketing. With a majority of people
professing to using search engines exclusively to make purchasing
decisions in virtually every vertical, there’s no excuse for
prioritizing things like flyer delivery, and telemarketing above search
engine marketing.
If while looking over this list you begin to feel overwhelmed, just
remember that you don’t need to do everything all at once, and you don’t
need to be perfect every time. Keep at it, and if you ever feel
overwhelmed just remember that what you are actually doing is improving
your customer service. They rely on search engines as their primary
source of information, and it’s up to you to ensure they get the
information they want.
To Your Success!
By Steve Hampton, search marketing specialist – BIGLocal.ca
BIGLocal is a full service search engine marketing agency based in
Canada’s Capital, Ottawa, Ontario. BIGLocal specializes in pay per
click search marketing, and guarantees to place your business on the
front page of Google & every other major search engine every time a
potential customer searches for your product, your service or your
business. You can reach BIGLocal by calling (613) 424-3867 or visiting biglocal.ca.
Prof Bruce @ 2:59 pm
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