EQ Journal Archive 24

By Bruce Firestone | Uncategorized

May 15


         The Complete Business Model        

   Posted on
       Saturday 16 January 2010  

Bruce M. Firestone, Telfer School of Management, University of Ottawa, January 2010.


The Business Model (BM) has come a long way in the last few years
from a one page pictogram (or flowchart) of the ‘engine of your
business’ to a many faceted model that fully describes the ‘engine room’
of the enterprise.

Let’s recall what the basic BM is: your clients are usually on the
RHS (Right Hand Side) of the page, your business is in the middle and
your suppliers are on the LHS. Typically, products and services flow
from left to right—from your suppliers to you where you add some type of
value and then through you to your clients and customers. Usually,
money flows in the opposite direction: from clients to you and then from
you to your suppliers when you pay them.

There is an orthogonal dimension in the model—a marketing dimension,
which is where you demonstrate that you can (hopefully) acquire clients
and customers in a cost effective manner.

We have also learned that a fuller picture of the enterprise can be
formed when you look at least two dimensions deep on either side (and
sometimes more). That is, you also look at who the clients of your
clients are and who the suppliers to your suppliers are. In this way you
may discover new relationships amongst the players and stakeholders and
creative new ways to enhance your business. You are now looking at your
enterprise as part of an overall business ecosystem and when you cement
your place as a trusted part of that ecosystem, your business longevity
is likely to increase.

The Complete Model

The complete Business Model is today made of the following dozen elements:

1. A one page pictogram (flowchart) showing the whole business ecosystem
(your enterprise embedded in a network of relationships with clients,
clients’ clients, suppliers and  suppliers’ suppliers with an orthogonal
marketing dimension showing how the enterprise will acquire customer
and clients in a cost effective manner.) The business model shown below
demonstrates the evolution of business models over the period 2000 to

From a simple Barber Shop that uses a revolving ‘barber pole’ as its
only means of marketing and where all customers want basically the same
things at the same price (a hair cut and a shave for $15) to a spa with
diverse services and products that mass customizes its offerings and
markets through c-list to a-list celebrities, this model has evolved to
the point where for the first time in recorded history, a service
business can become scalable.

2. A spreadsheet that shows the value proposition
for a single customer or client. That is, you understand and can
demonstrate in a clear and concise way how your new
enterprise/product/service/division creates either lower costs or higher
revenues (or hopefully some combination of both) for one customer. (For
an example of how to demonstrate your value proposition, go to: https://www.eqjournalblog.com/?p=73. I did this to help a number of residential REALTORS I work with. The spreadsheet is at: https://www.ottawarealestatenews.com/ValuePropositionFSBOVersusAgency.xls.)
 Essentially, negative cost selling happens when you understand your
customer’s business almost as well as they do. (For more about negative
cost selling, refer to: https://www.eqjournalblog.com/?p=425).

The corollary here is that you should insist that your suppliers
provide you with their value proposition too. Why should you expect less
of your suppliers than you do of yourself?  

Your pricing model is a key component of your overall value
proposition. Mark McCormack, Founder of super successful sports
management company, IMG, advised his agents: ‘Don’t be afraid to name
big numbers.’ Donald Trump says much the same thing: ‘If you are going
to think, you might as well think BIG.’

Price says a lot about you and your enterprise. An apartment hotel in
Ottawa in the last recession noted that, the more they cut their
prices, the more their occupancy rate dropped. Tech facilities managers
and travel managers, especially US-based ones, associated low price with
low quality and lack of security. Raising prices had the
counter-intuitive impact of raising their occupancy rate.

Many startups make the mistake of setting their prices too low.
What’s wrong, if, say, your competition charges $10, with you charging
$9 instead of $5 or, worse, $2? With the differentiated value you bring
to the party and the efficiencies you feel you can create, there is
nothing wrong with being a bit lower than your competition (or perhaps
higher if your quality or level of service is better). You want to make a
profit not just to have a better car, nicer home and cool trips abroad
but also so you can reinvest in the best technology and the greatest

Pricing models are going through a revolution as the Internet changes everything. LooseButton.com, for example. is a pioneer of social commerce (or collaborative commerce). They will lower
the price of an item if a customer of theirs can get their friends to
‘Like’ it. They will ‘pay’ 15 cents for each Like. So if a product is
priced at $30, 20 Likes will drop the price by 10 percent.

In essence, LooseButton.com is paying $150 per 1,000 views (this is
their CPM or Cost per Thousand) which in the advertising world is quite
high: typical CPMs for, say, a high end magazine like Vanity Fair might
by $15 per 1,000 but they feel a Like recommendation on Facebook is more
personal and more relevant, in fact, ten times more impactful.

Recently, I spoke with Amy Yee, Founder of EventBots.
I suggested that she reinvent her business model: instead of marketing
one to seven billion people (after all, pretty much every person on the
planet will go to at least one event in their lives if only to graduate
from High School or get married), she should consider marketing one to a
few: basically she should talk to marketing agencies and event planners
about licensing one or more of her EventBots (which record and upload
video of attendees to sites like YouTube) for use by their clients at
their events.

Her pricing model might look like this:

p(EventBots) = $499/mth + .45 cents x no. of views + 5 cents per Like

From the POV (Point of View) of a marketing agency or event planner
or wedding planner, their pricing model might look like this:

p(Agency) = $499 per event + 1.5 cents x no. of views + 15 cents per Like

So if an Agency booked just three events per month and, on average,
they generated 10,000 views and 100 Likes per event, they would receive
$1,992 monthly from their clients while paying EventBots $654.
Therefore, the Agency would have a negative monthly cost of licensing an EventBot of $1,338.

3. A second spreadsheet is required that provides you with a financial model
of your enterprise. Having done quite a bit of work in the field of
urban economics, it has always amazed me that most cities, for example,
don’t have a financial model that can tell them what the fiscal
implications are of one more resident or, for that matter, one more firm
locating in their town. Most cities have budget processes that are a
mess. I produced a financial model for a backorder domain name service
that you can safely download from our server at: https://public.sheet.zoho.com/public/profbruce/backorderdomaincorpfinancialmodel.
From this model, the firm can see what impact each additional client
has on the top line of the firm. The firm is also able to test the
sensitivity of its top line to changes in the success rate of backorder
capture, changes in its COGS (Cost of Goods Sold) and other variables.

Your value proposition for your clients and their impact on your
business (which is measured in your financial model) are mirror images
of each other. We complete the business ecosystem when your suppliers
provide you with their value proposition and you also insist that they
have a financial model of how your business impacts them. Why should you
care if your supplier’s have a workable financial model? Well, the long
term viability of your firm depends in part of a stable supply chain
and it won’t be stable if your suppliers are failing on a frequent

4. You should score your business model using our Business Model Scoring Test: https://www.old.dramatispersonae.org/BusinessModels/BusinessModelScoringTest.htm. You can compare your score with some major firms that we ran through the test a few years ago at: https://www.old.dramatispersonae.org/BusinessModels/BusinessModelScoring.htm.

5. One of the themes we return to often is that your
enterprise will not be successful unless it can acquire clients or
customers in a cost effective way. This is just as true of NGOs,
Not-For-Profits or Charities. (It is also true that these types of
enterprises also need to have complete Business Models including a
financial model, its value proposition and the other elements described
here—no one likes to give money to a charity, say, that burns up a lot
of the funds they raise in administration. They need to be efficient
too.)  If your new enterprise requires heroic efforts to land clients,
you won’t be around long and all the good things you planned to do will
just not get done. So Guerrilla Marketing (and now Social Marketing) have to be part of your business model. You can test your GM using another online tool we developed: https://www.old.dramatispersonae.org/GuerrillaMarketingAndFinance/BMGGuerrillaMarketingTest.htm. Your GM Test score should also form part of your BM.

It is useful to align your brand with a matrix of values. Chris
Guillebeau in The $100 Startup puts it this way– traditional
demographics targets clients/customers based on age, location, gender,
race, ethnicity or income. New demographics (called pyschographics)
identifies market niches based on common interests, shared
beliefs/values/passions and skills that are complementary. If you tie
your marketing and indeed your business model to a group of customers
who hold common beliefs it will help you practice invitational marketing
rather than persuasion marketing, viz–

“Most of us like to buy, but we don’t like is to be sold. Old-school
marketing is based on persuasion; new marketing is based on invitation,”
Chris Guiilebeau.

6. Having a great business model without the ability
to execute is not very useful. That is, execution counts/ideas by
themselves, even great ideas, are not enough. Take the online ECQ Test to find out more about your entrepreneurial ability: https://www.dramatispersonae.org/ECQTest/ECQ(ns)TestAuto.htm. Show your score in your overall Business Model too.

7. If you need to run Super Bowl commercials before
you can get your first client, your new enterprise is unlikely to be
successful. Similarly, there are business models that do not easily lend
themselves to entrepreneurial startups. Perhaps they need enormous
amounts of capital that simply can not be raised by entrepreneurs. The
focus here is on enterprises that can be bootstrapped/self-capitalized.
So the business models we are looking for use Bootstrap Capital
to start their new enterprises. VC-funded startups are excluded from
consideration here. Hence, you need to show where the capital is coming
from and how you are going to self-capitalize your business model. Read
more at: https://www.eqjournalblog.com/?p=45.

Here is an example of a home building business that was started for
$500 and is, eight years later, doing about $30 million in volume per
year. Now it’s true, Best Homes 4 U (not the real name of the startup)
got started by doing what is essentially a ‘consulting’ type business:
they built decks, fences, gazebos and did small renovations and
additions to begin with. But even there, the two Founders (Bill and
Josh, not their real names) knew they needed a Bootstrap Capitalization

For example, if they got an order for an $8,000 deck, they would take
a $4,000 deposit upon signing of their Agreement with the homeowner.
Then they would take two progress payments of $2,000 and $1,200 during
construction leaving only $800 to be paid when they completed the job.
Furthermore, they arranged trade credit from a lumber company (with 30
day terms) to give them more room to breathe (so to speak).

Bill and Josh understood the ‘golden rule’: “He (or She) who has the
gold, rules.” They ‘got’ how important it is to have cash in the bank.
[In fact, entrepreneurs and CEOs of much, much bigger enterprises also
understand this. They manage their businesses by basically tracking cash
and cash flow using three simple measures: AR and AP at the beginning
and end of each month as well as their bank balances at the beginning
and end of each month. Cash doesn’t lie while accounting statements
often confound even the most sophisticated analyst.]

When Josh and Bill were ready to tackle bigger things, they optioned a
$2 million piece of property for just $500 from a friendly landowner,
stuck a few signs up, created some great house plans and spent a summer
pre-selling from a trailer on-site. They got supplier credit from Trade
Contractors (drywallers, lumber companies, footing and foundation
installers, truss manufacturers and the other 25 or so trades they
needed to complete their homes).

That summer, they also pre-sold ten homes, collected $40,000 deposits
on each home, signed APSs (Agreements of Purchase and Sale) at an
average price of $550,000 per home and then pledged those APSs to their
Bank for a LOC (with a LTV (Loan to Value) ratio of 50%) to raise
another $2.75 million. They also put a value on their time and effort
(to do the designs/do the marketing/do the sales/manage the project and
construction) of $400,000.

So instead of sitting around and bellyaching that they needed $8
million in financing before they could even start their business, they
went out and used what is essentially ‘free’ capital sourced from the
deal flow: from suppliers (who trusted them; e.g., the landowner got
paid for his lots only when they sold each home), from launch clients’
deposits, from their clients’ strong credit scores and PBSs (Personal
Balance Sheets) which they pledged to their Bank and from their own
sweat equity.

Here is their Bootstrap Capital Model for your perusal:

8. To succeed, a startup does not necessarily have
to find a never-before-tried-idea. Perhaps the reason it has never been
tried is that it is a bad idea. Maybe instead, you decide to
tackle an existing industry. But at a minimum you need to have something
that differentiates you from existing firms—you need some
Differentiated Value or ‘Pixie Dust’. As part of your BM, you need to be able to succinctly explain your value proposition (https://www.eqjournalblog.com/?p=394) and convincingly demonstrate that it contains significant pixie dust (https://www.eqjournalblog.com/?p=9).

To find out if your startup is really going to be any use, take a few
moments to perform an Einsteinian thought experiment. Ask: If my product or service had been around ever since Jan 27, 1756 (Mozart’s DOB), what would it be worth today?

Imagine YouTube, for a moment, having been around circa the latter
half of the 18th Century. Wouldn’t it be cool to have a YouTube video of
Mozart’s last concert or Albert Einstein’s speech when he won his Nobel
prize in physics in 1921.What would that video archive be worth today?

What if Pinterest.com had been around since the 1800s and you could
see what interested James Watt the inventor of the steam engine (other
than mechanical engineering). Or what if you could back even further to
see the interests of Chris Columbus or Leonardo da Vinci. What if Jesus,
Moses, Buddha, Krishna or the Prophet Muhammad had been able to pin
their interests to an electronic bulletin board? What would that mean to
their followers? Quite a bit I would think.

So to know if an enterprise you are creating is likely to be any good, think backwards (as well as forwards).

9. Another aspect of a Business Model that will help
you make sure that ‘the harder you work the more money you will make’,
is the Cash Conversion Cycle. What good is a fast
growing business if you go broke in the process? Don’t think that can
happen to you? Sure it can if your CCC is too long. Basically, this
means that if it takes too long for you to collect your receivables or
you have to pay for your inputs too long before you can deliver your
product or service, your enterprise is doomed.

Entrepreneurs intuitively understand the importance of the old saw:
“Collect early, pay late.” Most SMEEs are bootstrapped and most
bootstrapped SMEEs are chronically short of cash so they know in their
bones how important collecting their receivables is.

What they often don’t understand is the importance of structuring
their business models in the first place to create receivables which are
collectible earlier in the process while at the same time negotiating, in advance, terms with their suppliers that provide them with some breathing room.

The reason you negotiate terms with suppliers in advance is so that
you establish an aura of trust with them. If you tell them that you are
going to pay them in, say, 90-days, then you should do your utmost to
live up to that. Your suppliers are almost as important to your
business’ survival as your clients.

When you also find ways to minimize your inventory, you are now well
on your way to improving your cash conversion cycle even if you don’t
know what that is. In fact, the CCC is one of the most important
attributes of any business model and probably the most overlooked. If
your CCC is negative, it means you have created a model with the happy
outcome that the faster you grow your top line, the more cash you will
have on hand and cash, my friend, is King (or Queen).

Here is the Golden Rule rewritten for entrepreneurs:

“S/he who has the gold, rules.”

Some businesses grew as fast as they did (like Dell for example)
because they took this to heart. Dell didn’t make anything in its early
days unless they were prepaid—they kept practically nothing in
inventory. Consumers and businesses pre-ordered and pre-paid for their
PCs or laptops and, hence, Dell had a CCC that was negative—which meant
the more they sold, the more cash they had on hand which, for a startup,
is absolutely essential.

The CCC is calculated as follows:



ART is Accounts Receivable at Year End multiplied by days of the year divided by Annual Sales,
INVT is Inventory at Year End multiplied by days of the year divided by COGS, Cost of Goods Sold.
APT is Accounts Payable at Year End multiplied by days of year divided by COGS.

You can read more about this at: https://www.eqjournal.org/?p=2257 and at https://www.eqjournalblog.com/?p=610. The actual calculation of CCCs are surprisingly complex and so I put a spreadsheet online to help you with this: https://www.old.dramatispersonae.org/BusinessModels/CashConversionCycleMeasurement.xls.

You may prefer using our CCC calculators in your browser, so we also put them up for you at: https://sheet.zoho.com/public/profbruce/cashconversioncyclemeasurement.

Many entrepreneurs and even some mature businesses do not give enough
thought to this. We had one client of ours, a top notch advergaming
firm, nearly go out of business despite: a. fantastic growth in their
order book, b. a client list to die for (including several Fortune 50
and Fortune 500 companies) and c. having tremendous technology and
creative resources within the business.

Each time they signed a contract, they had to hire more, highly paid
tech developers and build their ‘pipeline’ to deliver the product. They
forgot to get any (or at least not very much) money up front from their
clients and didn’t ask for or receive progress payments when they hit
certain project milestones. For complex projects that lasted a year or
more, they had to wait until delivery plus 30 days to get paid—it was
feast or famine for them.

As a result, they needed huge amounts of capital from their Bank (the
faster they grew, the more cash they needed), which predictably enough
put them in a precarious, in fact, untenable, position. I received a
panic summons from them when their Bank called their loan and they were
threatened with extinction. They had ten days to their next payroll
which they would not have been able to meet.

We got their Bank to agree to a 90-day standstill agreement and then
we asked their client base for help. Practically all of them came to
their assistance.

Today, their biz model calls for 30% deposits up front when
each new contract is signed and then progress payments that always put
the firm out front in terms of their cashflow. They usually collect two
follow-on progress payments from their clients of 30% each and, thus,
just 10% is due upon final delivery plus 30 days. Essentially, they are
like lawyers, paying themselves from ‘retainers’.

Their CCC went from over +300 days to a -40 days and the firm went on to do really great things.

Why did their clients agree to both a change in their billing formula
and provide them with cash advances so they could pay off their bank
line of credit and stay in business? Because the advergaming firm had
some leverage: they have a great brand and are one of the top three
advergaming firms in the world. So if they were to have folded, their
clients would have had to go elsewhere; their projects would in all
likelihood have been delayed  since other top firms in this field all
had bulging order books and quality would have suffered.

When you get in trouble, you can usually go to four places for help:
your shareholders and Directors, your employees, your clients and your
suppliers*. They all have a stake in your survival and will often go to
great lengths to see that you do.

(* You’ll note I didn’t say you can go to your Bank. That’s because
Canadian Banks have a habit of only lending to people who don’t need the

Another advantage from a CCC that is less than 0 is that your IRR,
Internal Rate of Return, on the equity you have invested in your
business (note: this can be cash equity, in-kind equity or sweat equity)
will likely increase significantly. Internal Rates of Return are highly
sensitive to when positive cashflows occur. If you make a significant
up front investment (negative cashflow) and it takes a long time before
you see any return on that, your IRR is likely to be low or possibly
negative even if the ultimate return is, in absolute terms, quite high.

This is the power of leverage and compounded interest rates– they can
work for you or against you. If you can borrow 50% of a project’s cost
at, say, 7% p.a. and your project’s IRR is, say, 14% then your IRR on
your equity will be roughly* 21%.

(* Please don’t calculate IRRs like this. Do them properly. Here is a simple spreadsheet for you to use: https://www.old.dramatispersonae.org/IRR/SampleIRR2.xls.
This is an example of a single family home bought as an investment. In
one scenario, you capitalize the project with equity (your ‘down
payment’) of 25%. In the other, you only put down 5%. You will see that
increasing your leverage (i.e., using more debt and less equity), will
boost the IRR on your equity, at least for this example.

I have some further notes that can help you with these concepts; they are posted at: https://www.old.dramatispersonae.org/IRR/IRRPowerOfLeverageGoalSetting.htm.)

Returning to our simple project above, let’s put some numbers
together. To start, say, your Summer Student Painting Business, you
borrow $1,000 at 7% p.a. interest only and put in $1,000 of your own
money. After paying all your expenses and labour, you are left with a
$280 return on capital. Of that, you have to pay $70 in interest on your
loan which leaves you with a $210 return on the $1,000 of your own
money you put in. So this is where I got the 21% ROE (Return on Equity)

Now suppose you got a $1,500 loan instead? Your interest payments
will jump to $105 leaving you with just a $175 return on your equity.
But hold on, you only had to put in $500 of your own money so your ROE
has actually increased to a whopping 35% p.a.

Once student entrepreneurs figure this out, they soon decide that
starting with zero equity or negative equity (where you end up with more
cash on hand after starting the business than you had before– this is
called accretive financing) is better. Not always.

If, say, your project’s return ends up being 5%, you won’t even have
enough money to pay the interest on the loan you took out (which now
stands at $2,000). Perhaps you decided to finance the loan with a credit
card, enticed by an initial low interest rate offer of 7% from your
card issuer (basically, to get you hooked on debt).

The rates on credit cards can be changed, instantly, by card issuers
acting unilaterally and often without notice to you. Their right to do
that is somewhere in the contract you originally signed, probably in
8-point type. Pretty soon you may be paying 28% or even 35% on your card
and now you are about to enter Creditor H_ll. For more about how to
creditor proof yourself, please read: https://www.eqjournalblog.com/?p=526.

So leverage can work for you or against you.

Archimedes Understood the Power of Leverage

Bootstrap entrepreneurs have to pay attention to when cashflows
occur, they can’t afford to have CCCs that are greater than zero and
need to have project IRRs that are significantly greater than the coupon
rate on their debt. In fact, if you are an intrapreneur or product
manager in a large firm, you’d better pay attention to this same set of
facts. I have found that most large firms are quite disciplined about
these things and they want IRRs on the firm’s cash in the range of 18%
to 22% p.a., at a minimum, and you can’t get those types of returns if,
say, your CCC is out of whack.

I estimated, for example, Apple’s Internal Rate of Return on the
iPhone at a fantastic 288% p.a. By tweaking their business model for
mobile phones, they unleashed perhaps the greatest single profit making
gadget this planet has ever seen. For more on this, please see: https://www.eqjournalblog.com/?p=1714.

I would also guess that Apple knows what its CCC is for the iPhone
and you can be sure it’s negative: they know how to keep inventory to a
minimum as well as how to pre-sell and sell their phones before they
even have to pay their suppliers.

You could also figure out that its CCC is negative just by observing
things from 30,000 feet: Apple’s cash hoard on its balance sheet has
grown from a big pile to a mountain. By the end of February 2010, Apple
had more than $40 billion in cash on its balance sheet just two and a
bit years after the introduction of the iPhone.

Alright, let’s look at a simpler example than the iPhone. Here is
Acme Promotional Products and it only has one product: it sells branded
pens. In fact, it only made one sale during the year and it was for 300

1x sale of $300.00 (Branded Pens)
COGS (Cost of Goods Sold) = $200.00
1/3 is paid to their supplier of Branded Pens when the order is placed -66.67
ACME asks for and receives a 50% down payment or deposit when sale is made.

Therefore, you have:

AR = $150 (50% of $300)
INV = 0
AP = $133.33 ($200 – 66.67)

Calculating the Cash Conversion Cycle

You can see that Acme’s cash position increases as it makes each sale. Another good news story, right?

But this happy state can change in a hurry. What if their supplier
wanted 100% up front with each order and their customer decided to pay
them COD instead?

Now the equation looks quite different:

($300 x 365.25)/$300 + ($0 X 365.25)/$200 – ($0 x 365.25)/$200

= + 365.25 days.

In this scenario, Acme is going to starve and will be oob (out of business) in a hurry.

OK, here’s one last Acme case. Suppose their supplier’s standard
contract allowed for a 10% variation in amount supplied. So Acme ends
its fiscal year with some inventory. If its supplier shipped exactly 10%
more product, then Acme will have $20 worth of goods on hand at year
end and its AP will also be higher since it paid cash for its original
order but not for the overstock. So its CCC gets even worse:

($300 x 365.25)/$300 + ($20 x 365.25)/$200 – ($20 x 365.25)/$200

= + 438.3 days.

You can read more about the Cash Conversion Cycle at: ‘Trade Credit/Supplier Credit’, https://www.eqjournalblog.com/?p=610.

How does Acme’s CCC impact their IRR? It turns out a lot.

In the first case I gave above, where they were collecting a 50%
deposit from their customer but giving their supplier just a 1/3 down
payment, their IRR can be estimated using the following cash flow chart.
Time is measured in days.

0 ($66.67)
1 $150
30 ($133.33)
31 $150

IRR 83%

Obviously, this is a terrific project IRR.

In case 2, where they were paying their supplier 100% up front and
not receiving anything from their client until they delivered COD, their
IRR plummets to just 14%.

0 ($200.00)
1 $0
30 $0.00
31 $300

IRR 14%

For case 3, their IRR drops again (to 12%) because they have taken delivery of and must pay for stock overage.

0 ($200.00)
1 $0
30 ($20.00)
31 $300

IRR 12%

From this simple example, you can begin to see the inverse
relationship that exists between CCC and IRR and its importance to the
overall welfare of any new enterprise.

You can also see how important it is to shorten the time between
order and delivery, between paying your suppliers and receiving payment
and keeping inventory on hand to a minimum.

Businesses also measure inventory turns, the number of times they can
turn over inventory in a given amount of time, usually a quarter or a

If Acme only does one inventory turn per year, even though their IRR
is terrific, it obviously isn’t a viable business since its volume is so
low (one order for $300 worth of pens in a year isn’t going to cut it
even if their IRR is 83% on the deal.)

If the business is a grocery store, inventory turnover is easy to
understand– how many times a year does the enterprise flush its complete
inventory out the door? For a software company, it seems a bit foggier.
But suffice it to say here, if it is taking too long to turn out
finished code and get paid for it (or start creating revenues from it),
your ‘inventory’ of developers, IP, computers, furniture, chattels and
fixtures is not being used productively enough by the firm.

You calculate your turnover rate for any reporting period (usually a quarter or a year) this way:

Inventory Turnover = COGS/Average Dollar Value of Inventory On Hand

COGS is the inventory cost of goods sold during a particular period.

If Acme’s COGS during a one year period is $200 and their inventory
on hand is $200, they obviously have 1 inventory turnover per annum. If
their COGS during a 12-month period was to increase to $2,400 and if
average inventory on hand during the year was $200, they would have been
able  to turn their inventory over 12 times.

This example is trivial but for larger, more complex organizations, the calculations are more subtle*:

COGS = Dollar Value of Inventory at the Beginning of the Reporting
Period + Dollar Value of Purchases During the Reporting Period – Dollar
Value of Inventory at the End of the Reporting Period.

‘Purchases’ refers to materials and supplies bought for producing new outputs.

(* Source: Jacob J. Bierley, Jr., MBA, How to Compute Inventory Turnover, Vital Enterprises, Feb. 2008.)

What if Acme reduced the time it took to deliver its pens from 30
days to 15 or perhaps to 7 or went to overnight delivery? You can test
these scenarios for yourself. Reducing delivery times not only provides
Acme with the opportunity to improve its cash conversion cycle and its
ROE (by increasing its IRR), it also gives them an opening to turn its
inventory over more times in any given reporting period.

Inventory turns is a measure of the ‘velocity’ of a business and acts
in much the same way as the velocity of money in a national economy:
GDP is more influenced by the velocity of money rather than the total
amount of money extant.

Many entrepreneurs and even CEOs of quite large corporations measure their businesses by tracking just three variables:

1. their bank balances at the beginning and end of each month;
2. their AR, Accounts Receivable at the beginning and end of each month; and
3. their AP, Accounts Payable at the beginning and end of each month.

Why these three variables? Because they measure cash and cash does not lie. Accounting statements are usually based on accruals.

Accrual Accounting is:

“An accounting method that measures the performance and position of a
company by recognizing economic events regardless of when cash
transactions occur.” (Investopedia)

So if you do a deal to ship 1,000 widgets, say, in Q1 (Quarter 1) and
you ship them in that quarter but are paid in Q2, accruals accounting
would allow you to recognize the revenue in Q1. Cash accounting would
require you to recognize that sale when payment is received, presumably
in Q2.

These differences are important because they bring interpretation and
opinion into accruals accounting-based financial statements. Revenues
and expenses can be moved from one quarter to the next and clever
accountants can find ways to goose financial statements by, for example,
advancing revenues from the next quarter to this one and delaying
payables from this quarter to the next one.

This can be done quite legally under GAAP (Generally Accepted
Accounting Principles) rules. But many executives are more comfortable
knowing what their cash position is and how it is changing month to
month. For that, you need to track just the three variables shown above.

One owner of a successful chain of pubs told me that he never accept
terms from his suppliers; he always pays COD. Why? “Because when I look
at my Bank balance at month end, I know that every cent in that account
is mine.”

This is a $20 million per year business with 0, zip, de nada, AP.

Let’s see if we can construct a series of plausible scenarios from
changes in these three variables that may help the student entrepreneur
better manage and understand his or her enterprise:

( i = increasing, d = decreasing, s = static)

Case 1
Bank Balance i
AR i
AP i
Sales are probably increasing with AR and AP increasing in proportion

Case 2
Bank Balance i
AR d
AP s
You may be seeing more cash in your Bank Account not due to increasing
sales but from a more aggressive receivables collection effort.

Case 3
Bank Balance i
AR s
AP i
You may be seeing more cash in your Bank Account not due to increasing
sales but from a more aggressive receivables collection effort and  by delaying payments to your suppliers.

Case 4
Bank Balance d
AR i
AP d
You are seeing less cash in your Bank Account perhaps not due to
decreasing sales but from aging of your receivables (you are not paying
enough attention to your collection efforts) while at the same time, you
are continuing to pay your suppliers.

Case 5
Bank Balance d
AR i
AP i
You are seeing less cash in your Bank Account even though your sales may
be increasing because your receivables are aging (you are not paying
enough attention to your collection efforts) and/or your CCC requires
adjustment and you are not paying your suppliers as promptly as in the
past. Trouble ahead.

Case 6
Bank Balance d
AR d
AP i
You are seeing less cash in your Bank Account probably because your
sales are dropping. You have fewer receivables and you are not paying
your suppliers as promptly as in the past. Double trouble ahead.

Case 7
Bank Balance i
AR s
AP d
You are seeing more cash in your Bank Account probably because your
sales are increasing. You are also managing your receivables well while,
at the same time, you are building trust with your supply chain
partners by paying them on time or perhaps even early. Good times ahead.

There are many more scenarios that you can construct from these three
variable but you should now have a bit of a feel for what you can learn
by studying what is, in effect, your cash position, changes in your
cash position and the the velocity of cash in your enterprise.
Successful entrepreneurs get very good at this and often know more about
how the business is really doing than an army of paid accountants who
have many more facts at their fingertips but less knowledge.

I tell my student entrepreneurs that they can’t be dilettantish;
i.e., they have to be experts in their chosen field and they have to be
able to execute expertly and they have to pay attention to detail and by
doing all the little things right, the big things will take care of
themselves. But Michael E. Gerber (The E Myth Revisited: Why Most Small
Businesses Don’t Work and What to Do About It, HarperCollins, NY. 1995)
says it much better than I do:

“Those mundane and tedious little things that, when done exactly
right, with the right kind of attention and intention, form in their
aggregate a distinctive essence, an evanescent quality that
distinguishes every great business you’ve ever done business with from
its more mediocre counterparts whose owners are satisfied to simply get
through the day.”

Erratum: I believe there is an error in the IRR calculations above for Acme.

A trial and error solution for IRR from first principles gives a different result for Case 1:

-$66.67 + $150.00/(1 + 1.25)**1 + (-$133.33)/(1 + 1.25)**30 + $150.00/(1 + 1.25)**31 = $0.00

-$66.67 + $66.67 – $0.00 + $0.00 = $0.00

$0.00 = $0.00, QED

This gives an IRR of 125% instead of the 83% shown above that I got
from my spreadsheet. I am unclear as to why the spreadsheet produced an
unreliable figure but, one thing I am sure of, is that the IRR produced
from first principles is correct.

When I solve Case 2 using first principles, I get:

($200.00) $199.79 ($0.21)

irr 0.0132 1.0132

Which means the IRR for this case is 1.32% not the 14% I showed above.

For the final case, the IRR should be about 1.1% not the 12% shown above, viz:

($200.00) ($14.40) $213.72 ($0.69)

irr 0.011         1.011

The conclusions don’t change from the arguments I put forward above–
the CCC is inversely related to IRR but the absolute values do.

This shows the importance of mastering the theory of any subject not
just the practicum, the software or the app so you can find errors in
your work.

The underlying formula for calculating IRR from first principles is
based on essentially answering this question: What discount rate do you
have to apply to future positive cashflows so that they exactly balance
out your initial investment (negative cashflow)? The higher the discount
rate you have to use, the better your project is from a financial
return point of view. If you make one investment at time 0 of $X and you
have positive cashflows over the next three years of $M, $N and $P and
you sell the business in year four for $Q, you can solve for IRR this
way using trial and error:

-$X/(1 + irr)**0 + $M/(1 + irr)**1 + $N/(1 +irr)**2 + $P/(1 + irr)**3 + $Q/(1 + irr)**4 = 0

Future cashflows can also be negative (say, when you undertake a
major renovation or invest in some new technology). You can adjust the
formula accordingly. Watch your signs and be aware that when cashflows
transition from + to – and back again, you can get more than one IRR
value that will solve the equation.

Over time, you will get a ‘feel’ for the thing and apply a reasonableness test to your results.

10. In an earlier article (https://www.eqjournalblog.com/?p=684),
I wrote that there are five things that the Internet can do for
business models in the 21st Century that were never possible before (and
I have added more since) including:

A. Create custom outputs from standard inputs (https://www.old.dramatispersonae.org/CustomeOutputsFromStandardInputs.htm).
Unlike Henry Ford who said you can have whatever color of car you want
so long as it is black, the Internet allows an enterprise to give you a
nearly unlimited choice by combining standard inputs into a myriad of
customized products or services. Every experience with an
Internet-mediated entity can be wildly varied.

Mass Customize Products and Services

B. Reverse out the work to clients and suppliers (https://www.old.dramatispersonae.org/GTBR/GettingTheBusinessModelRight.htm).
For example, if you run a Spa, you can allow your clients to pick and
choose amongst your services to tailor each visit to their individual
preferences. Since they are doing all the work of customizing their next
visit, you don’t care if they change their minds repeatedly before
hitting the ‘submit’ button.

C. Embed your enterprise in a networked business ecosystem
made up of your clients, your suppliers and yourself plus your clients’
clients and suppliers’ suppliers (https://www.eqjournalblog.com/?p=581).
To show you how it works, ask the question: “Who are the clients of a
Spa’s clients?” Since most of their clients are women, the clients of
the Spa’s clients are likely to be men. And what do men want? They want
to purchase gift certificates from the Spa.

D. Match making—directly connecting your clients to your suppliers making service industries scalable for the first time ever (https://www.old.dramatispersonae.org/TheInternetIsEatingAHoleInTheGlobalEconomy.htm).
 Again returning to our example of the Spa, their employees could be
treated not as employees but as suppliers. In that way, if a client
wants to have a manicure, pedicure, massage and hair colouring, the
Internet allows you to create a back end system that matches them up
much as eHarmony.com or PlentyOfFish.com do.

E. Mass communicate planet-wide through social media and other Internet tools at almost no cost*. (https://www.old.dramatispersonae.org/EntrepreneurialistCulture/FutureVision.htm).
What is interesting is that some of these communication tools which are
free to use like social media powerhouses Twitter and Facebook produce a
powerful, newish form of communication– the viral message. It’s newish
(as opposed to new) because the chain letter permitted something similar
in RL (Real Life). But it’s powerful. If someone ‘Likes’ your website
or status update using Facebook’s toolkit, that goes into their News
Feed and everyone who has been friended by them sees it too. If they
also decide to ‘Like’ it, it goes viral. Twitter provides a bit of this
as well with its ‘Retweets’ but I think FB may have the edge here.

F. Crowd sourcing (using the Internet as intermediary) means
relying on the wisdom of the crowd to, for example, pick and vote on
stories for Digg.com or t-shirt designs for Threadless.com (https://www.eqjournalblog.com/?p=1541).
Google can serve up ads to people who are searching for, say, digital
cameras. Facebook, on the other hand, by mining its d-base, can serve up
digital camera ads to new Moms in New Jersey who have never posted any
photos of their kids.**

G. Relational data base allows you to mine your customer (or
supplier) interactions so you can if you are Amazon (for example) ask
questions such as: “Would you like to see what other people who bought
this book (CD, video, etc.) also bought?” Increases average order size and volume of sales. (See again: https://www.eqjournalblog.com/?p=1541).

H. User generated content, a form of reversing out the work
to customers or suppliers, underpins the business models of YouTube.com,
Digg.com, Threadless.com, Facebook, Twitter and many other Web 3.0
enterprises. (See again: https://www.eqjournalblog.com/?p=1541).

I. Network effects are created when, for example, a virtual
homebuilder’s website becomes the go-to place for design options a
client can choose from. As more visitors use the physics engine
of the site to calculate what the costs are for their new home and all
selected options, more suppliers of household goods (kitchen cabinets,
plumbing fixtures, lighting packages, counter tops, tile, carpet, home
theatre, etc.) will want to be on the site (and pay to be on the site)
which will encourage yet more visitors (i.e., prospective homebuyers) to
use it in a virtuous cycle, each reinforcing the other. Google is an
example of this effect as well. I think it might be possible to build a
Virtual Homebuilder’s website on Facebook Pages and have its message go
viral there.

The more of these elements that you can incorporate in a new or existing model, the more you are likely to prosper.

I will continue to study the impacts of the Internet on business
modeling and will update ‘Nine Things You Can Do for the First Time in
Recorded Because of the Internet’ from time to time so please refer to: https://www.eqjournalblog.com/?p=1609.

(* Interestingly, Arthur C. Clarke predicted in his novel, Childhood’s End,
as far back as 1953 that by the dawn of the 21st Century, ‘long
distance’ charges for communications would be extinct and he was, of
course, right.

** In ‘The Facebook Effect’, David Kirkpatrick points out that
Google’s style of advertising (providing information to people who
already know what they are looking for, at least in general terms) makes
up 20% of all advertising. The rest is brand advertising meant to
target people who have not yet made a buying decision or don’t know what
they are looking for. That is Facebook’s specialty and you can
understand why Kirkpatrick thinks FB will be a huge enterprise.)

I want to elaborate a bit more on the implications of match making
because it is not a widely understood phenomenon. Service industries are
notoriously labor intensive and hard to scale: i.e., more output
requires more input in a more or less linear relationship or, heaven
forbid, you may even find yourself in a position where your ratio of
marginal output to marginal input is less than one. This happens when a
service business is too complex to manage effectively as it grows; that
is, you find that there is an optimum size for the enterprise beyond
which the business should not grow. In consulting, that size is often
one person. As soon as you grow beyond a single practioner, your
effective earnings may actually go down while the time to produce those
earnings goes up. This is not a happy event and explains why you find so
many one person service firms in real estate, management consulting, IT
consulting, accounting, legal, plumbing, electrical, carpentry, Mr. Fix
It industry, roof repair, mechanic, appliance repair, PC repair and
maintenance, Network management and so forth.

But let’s look at one industry—the computer repair industry. If you
are GradeATechs.com, say, and you view you’re your tech repair and
network management specialists as your suppliers (i.e., not employees)
and you can connect them directly to your clients through your website
and call centre, you suddenly start to see your business in a different
light. If clients can come online or phone your call centre to: a) tell
GradeATechs.com what the problem is and b) when they are available for a
site visit by a techie and your techies can log on and see what work is
available for them and what calls they will take, you have reversed out
a lot of the work to both your clients and your suppliers and taken the
first step in making your service business scalable. When we actually
draw up a business model, this match making capability is usually drawn
like a ‘brain’ (since that is what, in effect, it is as these systems
become more capable) over top of the business with lines linking to it
from both clients and suppliers.

(For more on match making and inserting a ‘brain’ as part of every business model, refer to the ADDENDUM below: CROWD SOURCING.)

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

Here is what I had in mind:

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

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

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

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

Best Homes 4 U Simple Model

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

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

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

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

-Allow lawyers access for e-closings
-Allow lenders access for e-funding
-Now if the site attracts tens or hundreds of thousands of visitors, you
can get your suppliers and your suppliers’ suppliers to pay for ads or
sponsorship and now more people will have access to a broader range of
goods and services and so might buy more higher-end products
(chandeliers, beveled mirrors, granite counter tops, home theatre
systems,…) improving margins for Best Homes 4 U
-more options => more people => more options => more people…  
             -In a virtuous, self-reinforcing cycle (Google is also an
example of this: it’s called Network Effects)
-30+ hours for a salesperson in the Design Centre with clients can become just 60 minutes
-Imagine the productivity increase for homebuilder sales staff, lawyers,
mortgage lenders, the GC, the foreman (Worst problem? Homebuyer
questions about when this or that happens..), suppliers, trades,
sub-contrctors, …

Also, customer satisfaction increases since:

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

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

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

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

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

Virtual Home Builder: Complete Ecosystem

At the core of this model is the physics engine and CPM schedule. The
latter will help the foreman on the job answer the most frustrating
question he or she will get from future homeowners: when will the
be finished?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

11.  If you can build leverage into your business
model, a means to multiply the force exerted by your own efforts, time
and brains, you will have a greater opportunity to succeed.

But before we delve a bit more into the subject of leverage, I want
to make sure you understand that being an entrepreneur is an all-consuming, total mind, body and soul effort that requires relentless focus by you over long periods of time.

Recently, I worked with a couple of people who had in front of them,
in my view, a great opportunity to buy a small but terrific food
company, all they needed to do to finalize the deal was sign one last
piece of paper. But when they ‘found out’ that it wasn’t a ‘sure thing’,
they balked.

For an equity investment of ~ $25k between the two of them (plus
assumption of some debt), they were looking at an upside of creating a
biz that might one day (in, say, five to seven years) be worth as much
as $1.2 million.

Now for most people, maybe all people, saving your way to $1.2
million is hard, perahps even impossible. But you might be surprised at
how many people can invest their way to wealth by way of ‘forced
savings’, gaining leverage through finance, sound HR policies and asset
growth. More on this soon.

Of course it’s true that they could lose all or part of their
investment if things don’t work out. But these are all things that fall
under the heading of “what I can control”. So their upside (one that
they could plan their way to) was $1.2 million and their downside
(usually one you can’t and don’t plan your way to) was losing their
initial investment of $25,000.

I estimated that the expected value of their investment was thus:

EV (Investment) = -$25,000 x 1.0 + $1,200,000 x .75 = $875,000 where
the probability of success is around 75% for this type of business.

This seemed like a ‘no brainer’ to me. I was amazed when they
turtled. They were so focused on the possibility of failure (about 25%)
that even a relatively small chance of losing their initial investment
drew an intake of breath and a turn down of a near-perfect setup for

So I drew up a Venn Diagram in their ‘honour’. You can see it at: https://twitpic.com/1dw194/full.

These are folks in their late 30s, each of them have homes that are
fully paid for plus they have cash and near cash assets of more than
$300,000 between them so losing $25k would be bad but not the end of
their world as they know it.

Now let’s look at this in terms of a pure investment scenario: they
invest $25,000 at time zero and it yields an expected value of $875,000
in, say, year six when they sell it. Let’s assume that there are no
cashflows in the intervening years. Thus, we can calculate their IRR
(Internal Rate of Return) as follows:

People Who Think They can be Entrepreneurs: IRR

Initial Investment ($25,000)
Sale Price $1,200,000
Probability of Success 75%
Expected Value of Success $875,000


0 ($25,000)
6 $875,000

IRR 3400% p.a.

This points out, in the clearest terms imaginable, why it is so hard
to save your way to wealth and easier to invest your way there: their
IRR on this investment would have been an incredible 3,400% p.a. Try
that with a savings bond, GIC (Guaranteed Investment Certificate) or
T-bill which typically pay around 3% p.a., circa 2010.

To be an entrepreneur you need to have the entrepreneur’s skill set (see: https://www.eqjournalblog.com/?p=1274) and, above all, the mental stance
of an entrepreneur. Otherwise, you are doomed to a life in a
Dilbertville cubicle working your guts out for someone else in a JOB
(also known as Journey of the Broke).

Fraidy Cat Investors Look Like This on the Inside

Most people think they can be entrepreneurs, if they really wanted
to. Truth is, there aren’t very many people cut out for the life of an
entrepreneur. After all, you need some guts to be one.

To some extent, their failure was mine. If there is one thing I do
best, it is to give would-be entrepreneurs the confidence that they are
on the right track, or not. I have a pretty good ‘map of the way the
world works’ and I can usually tell when a biz model makes sense and
when it is likely to succeed or not. That confidence is transmitted from
me to them and it works: from more than 96 startups out of our program
at Exploriem.org and Telfer (and before that at Sprott), 85% are still

So once again, if you think you want to be an entrepreneur, take our ECQ test: https://old.dramatispersonae.org/ECQTest/ECQ(ns)TestAuto.htm and see if you can meet the standards of becoming an ‘impeccable warrior’: https://www.eqjournalblog.com/?p=742.

Now back to the subject of leverage. Leverage in your business model comes primarily from ten sources:

i. great HR,
ii. using OPM,
iii. forced savings,
iv. innovation,
v. capital equipment,
vi. location,
vii. network effects,
viii. marketing channels that reduce the problem from one to many to one to a few,
ix. branding, co-branding, co-opetition and co-creation,
x. inflation.

Test your biz model: ask yourself do you have great HR, are you using
OPM, benefiting from forced savings, innovating, do you have a great
location or brand, does your enterprise benefit from network effects or
marketing channels that allow you to connect cost effectively with your
clients or customers and reduces that task from one to many to one to a
few and is your capital equipment top notch/best-of-breed & do you
benefit from inflation? If so, you are probably maximizing your

Readers of this blog will know that I think that after your decision
to actually start a new enterprise, your next most important decision
arrives when you hire your first employee.

It’s talented people that produce revenue streams not assets so
always try to hire ‘up’. I look for people with the right set of skills
and experience but I am also looking for people with ‘good hearts’.
These folks won’t quit when the going (inevitably) gets tough. To read
more about this, see: https://www.eqjournalblog.com/?p=96.

Here is what the Oracle of Omaha had to say on the issue. It may take a few seconds for the lesson to become clear.

“In looking for people to hire, you look for three qualities:
integrity, intelligence and energy. And if you don’t have the first, the
other two will kill you. You think about it; it’s true. If you hire
somebody without [integrity], you really want them to be dumb and lazy,” Warren Buffett.

Leverage using OPM is increased when the project’s or business’ rate
of return is higher than money you borrowed. Or when you use bootstrap
capital, say, trade credit, where a supplier gives you credit at low
interest or no interest to buy from them or a customer gives you a
deposit on an order on which you pay no interest, you are then
leveraging your own efforts and capital with theirs.

You also get leverage when other people are paying off your debts.
This happens when, for example, you own rental property. Every time a
tenant pays their monthly rent and you pay off some of the principal
using their rent, you experience a form of forced savings and a wealth

I have spoken to the need to have some type of innovation in your
business model; as we saw above, Steve Jobs proved that you can think
your way to wealth a lot faster than you can work your way there. That’s
big-time leverage…from ideas.

It would also appear self-evident that having top notch capital
equipment provides greater leverage for your employees and means higher

You also get leverage from your location and your brand. In real
estate terms, if you occupy a particular location, it obviously means
that no one else can, so make it a good one. I

Some people think that having a great brand is nice, actually it’s
essential. A strong brand creates trust and trust creates the
opportunity to sell. Think about it? Ever bought anything from someone
you didn’t like and didn’t trust? If you did, it was only once.

But a brand does other things for you. For example, Apple’s
incredible brand, its reputation for building insanely great products,
allowed Steve Jobs to cajole out of AT&T a share of their monthly
subscriber revenues for the launch of the iPhone, something that no
other telecom had ever granted to a cell phone manufacturer before.

Cell phone manufacturers went from selling a ’shrink wrapped’ gadget
for a one-time payment in a brutally competitive market that was racing
to the bottom to an industry with multiple sources of revenues, some of
which are recurring: the holy grail of techdom.

Imagine how much harder Steve Jobs and Apple would have to work and
how much lower their productivity as measured in revenue per employee
would be without recurring revenues from iPhone app sales and revenues,
advertising revenues on their mobile platform, downloads of paid content
from iTunes and a share of their carriers’ subscriber fees.

From a simple question, asked by Steve Jobs, and a tweaking of his
business model flowed great benefits. The harder they work, the more
money they make and, in Apple’s case, this relationship has become

(Jobs has created radical change in industry after industry: personal
computing (the Mac), animation (Pixar), music (iPod), cell phones
(iPhone) and now book/newspaper/magazine publishing (iPad) plus perhaps
television and film (Apple TV). It is truly a remarkable record of

I was almost tempted to add a 11th form of leverage: the power that
comes from co-branding, co-opetition and co-creation. Co-branding is
poorly understood and vastly under-exploited.  Here’s a simple example.
If I was responsible for marketing BMW cars, I would ask my self what
else people who buy BMWs also buy. For guys, maybe it’s a Harry Rosen
suit and a Rolex watch. So perhaps my TV commercials would show men
dressed by Harry Rosen looking at their Rolex watches as they step out
of their BMW before playing Texas Holdem for multi-million stakes. These
four brands might share marketing costs but more importantly, they
leverage off each other. People who like to play Texas Holdem get
introduced to BMWs and vice versa.

If I was marketing say promo products, I would use co-branding a lot.
Suppose you want to sell mouse pads to golf pros to give out to their
clients. Club pros usually don’t have much money but some of their
students such as lawyers and accountants do. So co-brand the mousepads
with all three. The lawyers and accountants will pay for it (because
they want to put their names in front of a golf-playing public and this
is a cost effective way to do that) and golf pros will hand them out
(because it’ll be sitting on someone’s desk basically saying: ‘Wouldn’t
you rather be golfing?’ and ‘Learn from the best! Call me now for your
next lesson at 613.mmm.nnnn!’).

Recently, I was advising S3, Select Start Studios on how to build their newsletter list (see: https://www.eqjournal.org/?p=3052). My advice? Invite third party content.

At Exploriem.org, we get a tonne of stuff from people in our
ecosystem for our monthly newsletter: entrepreneurs with new products or
services, Profs who’ve come up with clever new algorithms or pieces of
research ready for commercialization, providers who cater to our market
(entrepreneurs and intrapreneurs/product managers) with new services to

They not only provide us with more cool content, they become
ambassadors for our newsletter– they have a stake in it and a stake in
getting more readers for it. This is also a form of co-branding and
there absolutely needs to be more of it because it provides big leverage
for both. Basically, it introduces our entire ecosystem to our
suppliers’, clients’ and partners’ separate but overlapping ecosystems
that will almost never be entirely either one or the other.

Another form of co-branding is actually also a form of co-opetition
and a source of leverage. Why do Starbucks, McCafé, Second Cup and local
Bridgehead Coffee all tend to gather near the same geographic
locations? It’s so that: a) that area gets branded as a coffee haven and
when people feel the need, they think of a place where they have a wide
choice, hence overall market grows, b) marketing by any one of these
enterprises benefits the others in the group, c) unsatisfied demand is
reduced (for example, if lineups are too big at Bridgehead, they can go
to Starbucks and vice versa.)

Here’s how it works in the home building biz: two builders construct
model homes across the street from each other and ‘compete’. One is a
stucco builder, the other brick. They both advertise like heck. Someone
comes to see Builder A (the stucco guy). “Ugh,” they say. “I hate
stucco.” So they cross the street and buy a nice brick home. Someone
else comes along and says: “Brick is like so like last century” so they
go buy a stucco home.

Now if Builder A was alone, maybe he sells 1 out of 3 clients. The
other two wonder off to some other part of the city. Builder B is
experiencing the same thing. But if they co-locate and co-brand (even if
it’s really a form of co-opetition), 1 of 2 unsatisfied clients crosses
the road (going both ways) and their success ratios have changed from 1
in 3 to 2 in 3. So the equation 1(3) + 1(3) = 2 sales (read ’1(3)’ as a
success rate, i.e., ‘one of three’) has now changed to 2(3) + 2(3) = 4
sales. THIS IS HUGE LEVERAGE, right?

Co-creation is what happens in the Apple universe when you open up a
platform like the iPhone or iPad to app developers. It turns out that an
active, broadly developed app marketplace is essential to the sale of
iPhones and iPads and one of the reasons for Apple’s wide lead in
smartphones over previous leader RIM and Blackberry. By leveraging the
talents of a huge number of unpaid (by Apple) developers, they extend
their brand and significantly boost the utility and revenues of their
devices sharing some of that bounty with third part app providers.

Microsoft decided (unintentionally) to do just that after launching the Kinect:

“Within weeks of launching Kinect, someone had hacked it and
there was open source code on the Internet. Instead of freaking out,
they decided to run with it and create a software development kit. It’s
thinking like this that will make personalization and co-creation a key
driver for how brands and companies create closer relationships with
their customers,” Sondre Ager-Wick, Head of Design Strategy and Foresight, Nokia, December 14, 2011 (https://nokiaconnects.com/2011/12/14/5-incredible-ways-mobile-design-will-change-in-the-next-5-years/).

Threadless does something along these lines by inviting artists to
submit T-shirt designs for production after a voting process takes place
amongst their community. Biz models are developing or discovering new
and interesting sources of leverage that have never been possible

The most obvious example of network effects is the facsimile machine.
I was actually one of the first people in Ottawa to get a fax machine.
The problem was: what if you had no one to send a fax to? I had to work
hard to get my law firm to install one. They asked me: “Why do we need
it? We have couriers for that?” “But imagine if I could send you to
documents in minutes instead of hours?” I responded. “How cool would
that be.”

Having the only fax machine in a town or having a fax machine that
uses a communications protocol that is different that everyone else’s,
is pretty useless. Having a video player that works with Beta isn’t much
use if all the tapes are VHS.

More recently, network effects are apparent in Apple’s app store,
Google’s search engine algorithm, Skype’s video calling, in fact,
anything that verges on becoming a standard can also create the
potential for network effects to take hold. You can read more about how
standards are creating wealth, please refer to: https://www.eqjournal.org/?p=1366.

Leverage is also generated in Business Models that somehow manage to
reduce the one to many marketing problem to one to a few. This is done,
for example, by developing sales channels that include resellers. We
worked on this for Amy Yee’s EventBots business. You can see our
handwritten notes on this at: https://old.dramatispersonae.org/StartupDNA/event-bots-biz-model-redesign-march-2011-notes.pdf.
Essentially, practically everyone on the planet will have at least one
event in their lives that they will want to record; e.g., their
weddings! So, in theory, EventBots could market to 7 billion people. Not
very practical.

Instead, we worked on a model that would see EventBots selling to
Wedding Planners, Event Managers, Hotels, Convention Centres, Marketing
Agencies and Media Companies, political organizers, anyone who might
want to record in a meaningful way some event they host or organized.
This builds plenty of leverage in Amy’s model.

Your marketing efforts generate leverage for you when you use a non-linear selling model too: https://www.urbandictionary.com/define.php?term=Non-Linear%20Selling.  

Lastly, if you are in an industry that is experiencing price
inflation, you are benefiting from asset value increases without putting
in any effort of your own, i.e., more ‘free’ positive leverage for you.
That is why it is almost always better to enter into buoyant sectors
where ‘all boats are rising’.

12. The biz model discussed below (for
LooseButton.com) adds two new dimensions to the field: first, the need
to overlay a social layer on top of biz models to create a coherent
community around each enterprise and, second, to provide for a separate
way of giving back to society often through a not-for-profit
organization bolted onto the biz model.

Loose Button’s Business Model

Ray Cao and Aditya Shah are both engineers from the University of
Waterloo. Now what can they possibly know about beauty products for a
client base that is about 98% female and growing fast? It turns
out that Ray and Aditya and their small crew of hackers and marketing
mavens know a lot about the industry—they are reshaping the way it
delivers samples to consumers.

Previously, suppliers like L’Oreal, Moroccan Oil, Dermalogica and
dozens of others would employ agencies to go into malls and high end
stores to hand out samples to consumers picked out nearly randomly. How
much data did they collect? Pretty much nothing.

Ray and Aditya are highly analytical and believe in the value of
tracking metrics to help build an enterprise and make it smarter. So
they decided to do something about this part of the industry and, in
doing so, have created one of the most innovative biz models yet.

Their value proposition goes something like this: “We’re the Netflix
of the beauty products industry but with e-Harmony for brains,” says

Every consumer who signs up is asked to complete a profile letting
LooseButton.com know what type of products they are interested in. Then
once a month, a Luxe Box is delivered to their door by CPC (Canada Post
Corporation) with travel-size samplers from suppliers they are
interested in. This is a form of mass customization—every Luxe Box can
contain different products matching individual consumer interests with
the right type of supplier products with a few surprises on the upside
thrown in.

Clients respond well to LB surveys and have independently started to
record YouTube videos of themselves receiving, using and experimenting
with Luxe Box products. Some of these videos are getting a phenomenal
number of views (over 10,000) spreading the word for LB for FREE. Tribes
of makeup evangelists are forming around the strongest influencers in
their ecosystem.

What’s also interesting is that clients are paying $12 per month ($10
if they sign up for a year) to receive their monthly try-before-you-buy
Luxe Box filled with samples that LB’s suppliers provide them for free.
But wait there’s more cleverness here. In addition to providing them
with free  samplers, suppliers like L’Oreal and Moroccan Oil
pay to be included in the Luxe Box which means that LB is in the
enviable position of being paid not only by clients but suppliers too.

Ray and Aditya have also figured out negative cost
marketing—organizations are paying them to market Luxe Box for them… The
Globe and Mail, Chatelaine and other publications, desperately trying
to hold onto their readers, buy Luxe Box subscriptions (at around 80% of
retail price) to give to their most loyal customers vastly extending
LB’s reach and increasing its growth rate as well. The Founders won’t
say exactly how many clients they have but it’s around 10,000 now.

Based in Toronto on Bay Street in shared co-worker space, their
Ottawa tie-in was they wanted to use By-ward market-based Shopify’s
platform but instead had to move to Recurly.com because the former is
not (yet) set up for recurring payments (aka, subscription billing).
Shopify is set up for dozens or hundreds of SKUs, LB has only one.

This is a tough business to knock off in the sense that until the
Internet can download mini portions of makeup and beauty potions and as
long as Canada Post Corporation keeps going, they’re in great shape.

Loose Button Biz Model circa 2011

When asked why they named their company ‘Loose Button’, Ray says:
“Buttons are fasteners that connect two pieces of cloth. We
intelligently connect consumers and brands.”

They started LB right out of University and have an Advisory Board
with luminaries like Harry Rosen and Jagoda Pike (former publisher of
the Toronto Star) sitting on it. “Mentoring helped us a lot,” says
Aditya. “We decided not to go into the apparel space since it was
already saturated. We went into the market research and product
discovery side instead.” Their biz coach comes in once per week and
makes them set goals, track metrics and live up to their word.

They are also part of Impact.org which focuses on fast growing
enterprises. Started out of Waterloo, it is now a national organization.

Both Ray and Aditya were part of the coop program at Waterloo and
they each had six tries to figure out that they wanted to do during
their course of studies. What it taught them was that they didn’t like
working for other people (Ray at a Wall Street firm and Aditya at a
large accounting firm and then various tech companies).

The guys have plans for other Boxes—perhaps another line focused on
Men’s products, possibly a foodie version. They intentionally called
their first Box something different from their company name so they
could conquer other verticals later. It’s what RIM tried to do with
Blackberry and Playbook although maybe not too successfully.

There wasn’t much to change in their biz model other than suggesting
that they might consider adding a social layer over the whole thing—the
follow/follower model is a powerful one which knits the community more
closely together and makes it even tougher to knock off. Perhaps they
could integrate the Twitter API and allow customers and suppliers to
follow top influencers in their ecosystem on a more coherent basis than
just stumbling onto one of their YouTube videos.

Other changes might include adding a Qricket Code to each Luxe Box
(that’s a QR code where you can change the website it resolves to after
printing them) so that, like ET, each Box can call home. Maybe there
will also one day be a LooseButton.org to give back to their community

Business models today are not just about making money—enterprises
that are all about the money seem to have none and those that are about
building insanely great products and services plus make a contribution
to society seem to have it all. This is a Gen Y (and Steve Jobs)
phenomenon. So bolting on to their existing model a standalone
not-for-profit dedicated to say health and fitness and with its own
sources of funding and marketing to their existing biz model would not
only help LB, it would help the wider community cope with issues like
obesity, diet, lifetime fitness, abuse of drugs or alcohol and smoking.

Their biz model as it exists today where they get paid by consumers
and suppliers plus other organizations pay them to market their product
for them while forming an intelligent community that is hard to knock
off is, frankly, amazing.

13. Lastly, we developed an online tool, the BMG (Business Model Generator) to help you get started. The landing page is at: https://www.old.dramatispersonae.org/BusinessModels/BusinessModelGeneratorLandingPage.htm and the actual Generator is at: https://www.old.dramatispersonae.org/bmg/.
It seems to work best using IE (Internet Explorer) and, even though I
use Chrome for almost everything, I use IE when accessing the BMG. This
tool is something to help you get started but I expect that you will
take what you have learned by using it and what you have learned here
and develop something much better.

“Business modeling is a powerful tool for understanding and
driving business growth. By carefully working through iPricedit.com’s
business model with our Exploriem.org mentor, we were able to uncover
new revenue sources, make significant cost reductions and strengthen our
go-to-market strategy. These improvements to our model have profoundly
impacted not only iPricedit.com’s profitability and the value we create
for our clients but also made it more feasible to build a successful,
sustainable enterprise because it took complexity out and replaced it
with simpler ways of achieving our ends. Thanks Prof Bruce,” Mike Matheson, Founder, iPricedit.com, Ottawa, Canada January 2012.


Business modeling is a relatively new field of research and practice
and will undoubtedly evolve extensively in just a few years.

I think business modeling is superseding business planning in many
ways. Successful Generals know that the best battle plan ever created
changes the instant it comes into contact with the enemy. The unofficial
motto of the US Marine Corps is: ‘show some adaptability.’ Business
models change too when they come into contact with the marketplace and
they evolve over time as you come to know and understand better the
relationships implicit in your business ecosystem. But business models
are much harder to copy than any one product or service and, if you get
them right, you can create amazing new (sustainable) enterprises.

As former student, Daniel Beauchamp of Avitu.com, told me: “Your
competitors can perhaps copy what you are doing now but what they can’t
know and can’t copy is what you are going to do next.”

Business plans that span 30 or more pages of standard bumf with
spreadsheets that show hockey stick revenue curves are often never
referred to again by their creators after presenting them to their
Bank/shareholders/angel investors/VCs. They sit in a file drawer,
forever. I predict that Business Models will all but supersede business
plans in the decade ahead.

“Plans are worthless, but planning is everything,” Dwight D. Eisenhower.

Entrepreneurs, intrapreneurs and product managers with a solid
business model know that their implementation and execution of it will
test their entrepreneurial skill set (see: https://www.eqjournal.org/?p=1274)
and, while they will set goals each day and plan out each day and
create To Do lists each day, they also know they will have to be
flexible each day as circumstances change and new opportunities multiply
around them.

The Internet is having a profound impact on the way we design
business models and the way we execute them. This will continue for a
long time yet—the Internet is just a baby and will subsume everything in
its path—perhaps even including RL (Real Life) as we are already
starting to see technologies that overlay information on the reality we
perceive around us. However, if you are able to ‘get’ what we are
driving at above, you will be way ahead of the curve as it exists today.
I believe that business modeling is the key to decoding the DNA of
successful startups.

Prof Bruce

Stalking Horse Marketing

Jack Nickell and Jacob DeHart started Threadless in 2006 with a
clever business model that is more sophisticated that it might at first

As discussed above, business models must describe the complete
business ecology in which the enterprise competes. They have to include
an ‘orthogonal’ marketing dimension which makes it possible for the new
enterprise to acquire customers and clients in a cost effective manner.

In the case of Threadless, their marketing from Day One has been confined to a limited repertoire including:

a. Some paid ads on Facebook, Digg and Twitter,
b. A voting system that their community uses to select winning designs for Tees submitted by independent artists,
c. Using unpaid models for their Tees drawn from their employees and
consumers, many of whom have friends that blog, Tweet, FB and vote on
the matter,
d. Extensive social comment on the whole process,
e. More recently, other companies such as Dell and Alpargatas use (and
pay to use) Threadless’ voting system and community to select winning
entries for the design of PC covers and sandals.

Here is Threadless’ Biz Model, circa 2010:

The cost for each design they produce is quite low: they pay the
successful, independent artist $2,000. But they test many designs at the
same time by way of their voting system so the cost per design is much
lower than this and, happily, they can be quite sure that designs that
are approved by their customers for production will also likely be
bought by them.

This year, other companies such as Dell and Alpargatas are paying
the company to use their crowd sourcing system to select winning
designs for PC covers and sandals. This obviously helps Dell sell more
computers and Alpargatas sell more shoes but it also helps Threadless:
a) spread the word about what they do and b) turn their crowd sourcing
business model into a platform which can be widely applied to other industries.

Amazon has also successfully transitioned their model to a platform
for other enterprises to use for e-tailing, data warehousing, cloud
computing and much more.

Threadless has not only reversed out design work to their suppliers
(aka, their artist community) but have also managed to reverse out their
marketing to their clients using their voting system and the buzz it
creates through the blogosphere as a kind of stalking horse.

This is a highly efficient, early 21st Century Business Model. It
shows that you can put a ‘marketing engine’ in front of your business
that works, in a highly energetic way, independently of your enterprise.

Another example of this 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 the fitness centres.
Involvement in the Foundation by kids and their parents to fight
childhood obesity is almost certainly going to lead to adult
participation in Greco fitness programs—either by the kids when they
grow up or by their parents dealing with fitness issues themselves.

The Threadless and Greco examples show how the marketing dimension of
a business can itself be a ‘profit centre’ or, at least, cost neutral.
For Threadless, other companies will pay to use it and their stakeholder
group will do much of their marketing work for free. For Tony Greco,
the amount of earned media he receives for his Foundation is remarkable.

If you are planning on going into marketing as a career or you are
thinking, as an Intrapreneur, of building a new division for an existing
firm or you are an entrepreneur, your job security/your next
promotion/your business success will be mightily enhanced if you can
turn your marketing costs neutral or negative.

Prof Bruce

Postscript: Threadless might even be able to turn part of their supply chain (the design side) into a profit centre.

Artists and corporations might pay them to have their designs
featured and voted upon in a sponsored process much as Digg and Twitter
allow sponsored links and tweets, which, for authenticity sake, are
clearly identified as sponsored links and tweets.

For a budding artist, what is it worth to them to see one of their
designs voted on and (hopefully) chosen by the Threadless audience?
Could be quite a career-booster.

Turning your supply chain into a profit centre?  Harry Houdini would be proud of today’s biz modelers.

Postscript 2: In the above biz model, I show the business in a square
in the middle of the ecosystem and above it, a brain. The brain is a
crucial part of a modern business model. It is the part that matches
customers and suppliers, in this case, to vote on designs. In other
models, the brain matches suppliers and clients as, for example, in a
spa where suppliers are hairstylists, massage therapists, manicurists,
pedicurists etc. Clients can pick out which services they want and which
suppliers they would like to book with and suppliers can book which
clients they want and how busy they would like to be.

In both cases, the model allows the enterprise to reverse out much of the work to their suppliers and customers.


In the modern economy, the answer to this question isn’t always obvious.

Should a cable company pay ABC because ABC has the content, shows
like Diane Sawyer and Primetime News, or should ABC pay the cable
company because it has the feed and access into millions of homes?

Steve Jobs figured this out before he launched the iPhone when he
insisted that AT&T give him a share of its subscriber revenues and
he might give them a share of app revenues. With that, he revolutionized
yet another industry’s biz model*.

(* Already having revolutionized personal computers, animation and
music, Jobs has added cell phones and, quite possibly, book and magazine
publishing as well as newspapers to the list.)

Cell phone manufacturers went from selling a ’shrink wrapped’ gadget
for a one-time payment in a brutally competitive market that was racing
to the bottom to an industry with multiple sources of revenues, some of
which are recurring: the holy grail of techdom.

Imagine how much harder Steve Jobs and Apple would have to work and
how much lower their productivity as measured in revenue per employee
would be without recurring revenues from iPhone app sales and revenues,
advertising revenues on their mobile platform, downloads of paid content
from iTunes and a share of their carriers’ subscriber fees? From a
simple question and a tweaking of their business model flow great
benefits. The harder they work, the more money they make and, in Apple’s
case, this relationship has become geometric.

You can see why Sam Palmisano (CEO of IBM) has said he spends a great deal of his time tweaking IBM business models.

I felt a long time ago that Nortel missed a great opportunity to add
more services (and more stable revenue streams) to their hardware sales
by changing its business model to include operating and maintaining the
complex switches they sold to their clients. After all, who knew these
machines better than NT?

NT leadership focused more on high margin tech sales than the less
glamorous business of fixing and maintaining stuff. Meanwhile IBM and
later HP recognized that by selling more services not only would they
enjoy counter-cyclical revenues streams but they would have a huge leg
up on the next round of hardware sales. By providing outsourcing, they
became trusted advisors to their clients, sat on the ’same side of the
table’ as their clients and could spec their own equipment to fix or
augment client networks that they now knew better than their own clients

They missed it and now they are dead. It’s a shame for all their
stakeholders including Canada and the blame lies squarely on the
shoulders of their leadership.

Even with the simplest businesses, tweaking your business model can
lead to important changes and much higher levels of profitability.

As we saw above in the matter of the operation of a spa, it is not
always obvious that clients must pay for service.  You might, in fact,
incent certain celebrity clients to come to your spa. Having celebrities
come to your spa is a sure fire way of: a) building your brand, b)
attracting more paying clients and c) getting higher prices for your

What this shows is that you can think your way to wealth a lot faster than you can work your way there.


Dr Bruce M Firestone, B Eng (Civil), M Eng-Sci, PhD; Founder, Ottawa
Senators; Executive Director, Exploriem.org/LearnByDoing.ca; Author,
Quantum Entity Trilogy, Entrepreneurs Handbook II, Urban Nirvana and the
Peradventures of Maddy Henderson; Entrepreneurship Ambassador, Telfer
School of Management, University of Ottawa; Real Estate Broker, Century
21 Explorer Realty Inc, 900 Morrison Drive, Suite 206, Ottawa, Canada
K2H 8K7 Tel.: 613.566.3436 x 200 Fax: 613.566.3442

Follow Prof Bruce on Twitter @ProfBruce and @Quantum_Entity and read his blogs at www.EQJournal.org and www.dramatispersonae.org.

You can find his works at www.brucemfirestone.com and also at LearnByDoing.ca.

You can engage with him on Facebook via https://www.facebook.com/QuantumEntityTrilogy and https://www.facebook.com/Exploriem as well as via LinkedIn at https://www.linkedin.com/in/profbruce.

His real estate interests are summarized at www.ottawarealestatenews.com and www.thelandstore.org.

YouTube channels include https://www.youtube.com/user/ProfBruce and https://www.youtube.com/user/quantumentitytrilogy.

You can also send the first four chapters of Quantum Entity Trilogy to your friends for free from: https://www.eqjournal.org/?p=3993

Prof Bruce’s current motto is: “Making Each Day Count”

     Prof Bruce @ 11:16 am

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         The Project Wonderful Launch        

   Posted on
       Friday 15 January 2010  

How to Populate a Site

Many people believe that marketing for the launch of a new product or
service is a mysterious process. Not so. There is no ‘secret’ to
marketing success. There is no magic button that you push and then sit
back, relax and watch the traffic counter on your website suddenly go to
warp speed. You still need to use ‘shoe leather’, that is, stop trying
to push on a string. Sometimes, all you need to do is to ask
people (either in person, by phone, by email or through your network of
friends on the Internet) to support you and they will. It also helps if
you have the endorsement of some influential people in your industry.

I recently asked Ryan North how he launched his democratic and transparent advertising engine, ProjectWonderful.com (which has become terrifically successful) and this is what he answered:

a) Qwantz.com was the main thing. It taught me the value of a
“celebrity” endorsement. (The celebrity Ryan is talking about is
himself, a well known writer of the daily dinosaur comic strip found at
Qwnatz.com, Ed.) We had tons of people using PW on day one—I talked
directly with everyone (sometime by phone, sometimes by email and
sometimes by blogging about it on my site and others that I respect) and
they were just waiting, eager for me to launch—so much so that I had to
throttle signups just to keep up. It was one of the most flattering
things ever to happen to me, even if I have to be a bit egotistical to
refer to myself as a c-list Celebrity here.

b) It also helped that I have an IT background and was using PW
myself. As a content creator, I knew what other publishers were looking
for and needed. I also understood the other part of the equation—what
advertisers were looking for, for example, I gave them control over the
pricing for their own ads. That is, they were able to make their own
determination about what the traffic on any site (and the quality of
that traffic) was worth to them. I also protected the publisher because
the price of each ad is posted right underneath each PW display ad and
another advertiser can come along at any time and outbid the first
advertiser. So rates are set by advertisers in a completely fair and
transparent way while at the same time, content creators get full and
fair value because the advertisers compete for the space.

c) Twitter would certainly have helped but PW launched before Twitter
had traction, and I wasn’t using it then.  If I had been, though, I
would’ve posted about it.  At the time I used blogs and other social
media in much the same way.

d) Having a good product that solves a real problem as I did with PW
was key but even so if you want to fast forward word of mouth and
grassroots growth, having an opinion-maker (which doesn’t have to be a
celebrity, but someone who others respect) using your product really
helps.  I think this is why companies send products out to people for
their review but a product review is sort of a pale echo of what I
actually was able to do with PW. An opinion leader reviewing your
product/service is good; the same person actually USING the
product/service day-to-day is way, way better.

I hope this helps!  And yes, please feel free to share it with your students.


Ed. Note: I think Ryan’s pixie dust (other than the fact that he is a
brilliant tech guy) is his quirky personality which people picked up on
with PW. He spread the gospel of an open advertising platform through a
vertical—comics, socially aware content creators and off beat
personalities who ‘get’ Ryan. It then spread fast. But Ryan’s own
recommendation and his ability to make direct contact with hundreds of
launch clients was huge as well…

     Prof Bruce @ 9:13 am

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         The Internet Revolution and the Business Model        

   Posted on
       Thursday 14 January 2010  

Humans have been trading on this planet for 100 centuries.
Never in all that time has it been possible to produce, for example,
custom outputs from standard inputs. If you were an artisan (we now call
them consultants), you produced unique results from a unique input (the
highly trained artisan himself or herself). Or if you worked on an
assembly line (such as the line that produced Henry Ford’s Model T), you
produced standard products from standard inputs. As Mr. Ford said: “You
can have any color of car you want as long as it’s black.”

Now for the first time you could create a business model for, say, a
home building firm that produces unique homes for every individual using
standard inputs. By allowing your clients to visit your website to
configure their lot, their design and their finishes from 1,000s of
choices, every homeowner could have a unique building. Costs may also be
lower because your firm has reversed out so much of the work to a more
than willing customer.

So here are five things that the Internet can do for the business
models of your 21st Century enterprises that were never possible before:

1. Create custom outputs from standard inputs.
2. Reverse out the work to clients and suppliers.
3. Embed your enterprise in a networked business ecosystem made up of
your clients, your suppliers and yourself plus your clients’ clients and
suppliers’ suppliers.
4. Match making—directly connecting your clients to your suppliers making service industries scalable* for the first time ever.
5. Mass communication planet-wide through social media and other Internet tools at almost no cost.

This is just the start. I predict that the Internet will take as long
as electrification did (about 120 years) to find its way into every
aspect of our lives and revolutionize the way we do things in every
respect. If that is correct, we will still be improving and changing our
business models as the Internet continues to mutate circa 2114.

Prof Bruce

* Scalable means that MR/MC > 1.0. i.e., Marginal Revenues/Marginal Costs are greater than one.

     Prof Bruce @ 1:55 pm

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         Secrets to Attracting and Keeping Clients        

   Posted on
       Sunday 3 January 2010  

For Lawyers, Accountants and Other Professionals

The Power of the Brand

Most people don’t understand why branding is important—it might be a
personal brand (i.e., yourself) or a company brand you are trying to
build—whatever it is, branding is important for one over-arching reason:

“People like to buy from people they like and trust,” Prof Bruce, Ottawa, Canada.

Or put another way: “Have you ever bought anything from someone you didn’t like or trust?” The answer is probably “No” or if it is “Yes” then you only did it once and never again.

You build your brand (or in the case of an individual, your reputation, which is your personal brand) because
it engenders trust. Trust is the most important thing in business and
probably in life. I can easily convince my students of this simply by
asking them a question: “What if your girlfriend (or boyfriend) was fooling around behind your back, what kind of relationship would that be?” You can see their eyes go back and forth as they recall a situation they may have experienced—then they understand.

What a well respected brand creates is the opportunity to sell successfully. Here is how it works:

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

Here is the process in a diagrammatic format:

[Marketing Creates Trust in your Brand and Trust Powers Sales]

A good example of this process at work is the marketing that Clarica
Life Insurance (now a Sunlife Financial member) did when they first came
on the scene. For example, a man is seen in a restaurant waiting for
someone to come out of one of the W/Cs because it isn’t clear to him
which is the men’s and which is the women’s. The ID signs are ambiguous.
When finally someone does exit, the person is so androgynous that the
poor guy still can’t figure out which is which. Fortunately, a Clarica
agent is waiting in the wings to clarify the situation. A whole series
of television ads were done using this theme and a sense of humor and
they made an impact on the marketplace.  But why did Clarica invest tens
of millions of dollars in a marketing campaign like that? It is
instructive to find out why.

First, let me ask you another question. How many of you have wanted
to get up off the couch after watching an insurance commercial and place
a call to an insurance agent to buy some life insurance? Right. Zero.

There isn’t even a call-to-action at the end of these Clarica
commercials; selling life insurance is not like the type of selling that
Vince (aka Billy Mays) uses for ShamWow! products. “Call now.
Operators are standing by to take your order at 1-800-555-5555 and if
you call right now, we’ll give you an extra set for FREE!” doesn’t work for most products and services.

So why did Clarica run these commercials? If you look at the diagram above, Clarica was marketing by way of a marketing process to build their reputation and brand. A good reputation and solid brand created trust
in Clarica in the minds of the public. So then, when a life insurance
salesperson sits down with John and Sally Smith in their living room to
sell them life insurance, John might say: “Oh, I have heard of you!” John and Sally already trust the salesperson before their first meeting ever takes place.

Right off the bat, they trust Clarica a heck of a lot more than they
trust, say, a representative from the Pirate Insurance Company of
Kinakuta (a fictional country featured in Neal Stephenson’s novel,
Cryptonomicon). So if you are thinking about trusting the future of your
family to either someone representing Clarica or the Pirate Insurance
Company (who you have never heard of before and who hasn’t spent a ton
of money creating their brand and a reputation), you are probably going
to go with Clarica.

Note that Clarica doesn’t sell a thing through their marketing; they have established a separate sales process
to do that (i.e., having thousands of life insurance agents out there,
making meetings and actually doing the selling.) If you meet anyone
whose biz card reads, say, ‘VP of Marketing and Sales’, say hello to
someone who doesn’t have a clue as to what their job really is.

So a sale, any sale, actually gets completed because of trust: the
client trusts you and, therefore, they are willing to buy from you.
That’s the real secret to successful selling: creating trust. Again
remember, people like to buy from people they like and trust.

Ethics and Branding

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

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

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

I don’t care what city you are in (a small city like Ottawa, a mega
city like NYC or a city like Buenos Aires, the Paris of South America).
Every city is controlled by a small number of business and political
leaders. In Ottawa, the number of real movers in tech or real estate or
any other major economic engine probably numbers no more than 600. In
NYC, it’s more but probably not more than 2,500. So it’s a small number

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

‘Intricate’ Your Clients

You all know the one about the Ford Motor Car Accountant who sat on
their BOD? At every BOD meeting, he kept pressing the Board to shutter
factory after factory. That was his entire contribution to the debate on
going at the time (circa the 1980s). Finally, one of the other Board
members told him: “Imagine how much money Ford could save if we closed all of our plants?”

It’s thinking like this that has led the Big Three North American car
producers to the edge of the abyss and it’s also why newly installed GM
Chairman, Ed Whitacre has sacked just about every senior GM manager
including their most recent CEO. Big Ed needs new people with new ideas
who can turn GM around.

In today’s world, you need to do more for your clients than tell them
the obvious. I can’t believe how many accountants add little value to
their clients’ businesses. If he or she tells me that if next year you
increase revenues by x% and reduce your costs by y%, you’ll make more
money next year than you did this year. Gee, I had to pay $350 an hour
to hear that? It reminds me of what one Manager said to his star player
when the Atlanta Braves were perennial losers and the player came in to
ask for a raise. The Manager said: “I reckon we could’ve finished last without you.”

If you want loyal clients, clients who send you work year in year
out, you’ll have to better than this: you have to make yourself
indispensable. As my friend, the late Elliot Richardson, former Attorney
General of the United States, said when we were trying to Bring Back
the Senators: “Bruce, first we’ll intricate the NHL. Then we’ll get the franchise.”

(In Elliot’s honour, I added his word to UrbanDictionary.com: https://www.urbandictionary.com/define.php?term=intricate+)

How do you do this? One of the ways you intricate your clients is
simply by the passage of time. If for example, it’s legal or accounting
work you are doing for a client, the fact that you have their entire
history is a huge advantage for you. If your client is buying real
property, mortgaging it, doing a merger or acquisition, starting a new
division, whatever, the fact that you have their files is very

But I can’t believe how many law firms and accounting firms don’t harness the data to make themselves indispensable*.

(* The data can be as simple as remembering and filing your
clients’ clients and suppliers’ contact information. Recently, a client
of mine complained to me that every time he need his lawyer’s assistant
to do something for him, he needed to give the legal secretary the
telephone numbers, fax numbers and email addresses over and over again.
This is ridiculous. If you are going to be a ‘deal maker’ type of lawyer
or accountant, then you need to be able to talk to the clients and
suppliers of your client.

If, say, you are trying to get a real estate transaction closed for a
client, you may need to talk to your client’s Banker, Surveyor,
Environmental Consultant (for, say, a Phase 1 Environmental Assessment),
Insurance Broker (for an insurance binder), Title Insurer, Mortgage
Broker, Appraiser and a half dozen other suppliers to your client as
well as your client’s client (perhaps the Seller, the Buyer or
Investors). I can’t tell you how many lawyers just sit and wait to be
told what to do instead of taking the initiative to contact on behalf of
their client all the stakeholders involved in a closing. And then they
or their legal assistants can’t find or remember their contact info
including email addresses, web sites, fax numbers, telephone numbers
(not just at work but cell numbers and even home numbers too), snail
mail addresses, etc. Your clients will thank you and become more loyal
to you if you relieve them of a lot of this burden and they won’t mind
paying you and your staff extra because paying you to do these things
let’s them concentrate on growing their businesses while you focus on
getting deals completed for them. They won’t want to move to a new law
firm or accounting firm for a lot of reasons, one of which is that they
will need to train a whole new crew to become familiar with their
business’ ecosystem.)

I tell my wife that in my consulting practice, my true J.O.B.
description is that I am a file clerk. She laughs (thanks, Dawn) but
it’s true. My clients are generally hopeless at keeping their files
straight so they are always coming to me. Simple but true. You can do it
too. I put a huge amount of effort into capturing data electronically; I
must PDF a few thousand documents every year for clients and I can get
their information much faster than they can. Information is power. (I
also make sure I capture the data on multiple backups too BTW.)

Technology and You

I remember trying to convince my law firm way back in 1982 to buy a
fax machine. They were recalcitrant in the extreme or, at least, that’s
what I thought. “Why do we need a fax machine,” my lawyer said. “We have couriers!”

One of the most important aspects of providing your clients with the
highest possible service level is raw speed. I tried for over a year to
get them to invest in a bloody fax machine. Fax machines are a classic
case of network effects: what is the value of owning the only fax
machine in town? Not much. As more people adopt them, the value of my
fax machine goes up: I have someone to talk to!

Speed is key. Fax machines allowed us to increase the speed with
which we were able to do things in business in the 1980s. The Internet
is capable of increasing the ‘speed limit’ in your city even more. (I’ll
elaborate on this in a minute.)

I think that every city economy (which is really a city-state in the
sense that, for most people these days, your economic well being is
probably far more tied to how well your local economy is doing than the
national or global economy) has a certain ‘speed limit’ intrinsic to it.
It is the maximum speed at which a local economy can move which is
limited by many local factors such as how fast your lawyer moves, how
fast your local financial institutions react to your requests for
financing, how fast your customers make up their minds, how fast your
suppliers can move, etc.

My perception is that business moves a lot faster in Hong Kong, NYC
and Singapore than it does in Toronto, Calgary or Sydney. And Toronto,
Calgary and Sydney move a lot faster than folks tend to in places like
Ottawa and Vancouver say. Anything that increases speed in your
city-state will increase overall productivity and increase overall
financial well being there. The reverse is, unfortunately, also true.

The investment we all made in computers and, especially, personal
computers didn’t really pay off until we added a communication aspect to
them: email, the browser and today social networking. Email is a push
technology while the browser and social networking are pull
technologies. The so-called killer app on the Internet in the 1990s
wasn’t email or pornography or video on demand or any of the things that
you may have thought it was: it was the browser. Today, it’s social
networks—sites like Twitter that allow you to follow and be followed by
hundreds or thousands of people in your business ecosystem and to
communicate with them effectively in seconds by pulling them to you
instead of pushing yourself on them…

Mark Andreeson’s invention of the Mosaic Browser (which later became
Netscape) really was the key invention for sharing (communicating)
information on the Internet in its early days. Think about your own use
of the Internet in its infancy: how many times are you using Google for
research, how many times are you checking out websites for information?
It is a far more important use than email.

Facebook, Twitter and WordPress are the harbinger of new ways to
organize our business communities and professional communities online.

(You can follow me on Twitter at: https://twitter.com/ProfBruce or read my blog at: https://www.eqjournal.org/.)

Selling Your Services

The THREE TOP THINGS in entrepreneurship are SALES, SALES, SALES. It
doesn’t matter if you are a professional and an expert—you still need to
be able to sell because you are also an entrepreneur even if you don’t
call yourself that.

If you want to make a sale, here is my list is how you communicate (in descending order of priority):

1. Face to face meetings are ALWAYS preferred.
2. By phone.
3. By social network and blog.
4. By Browser.
5. By Fax.
6. By IM.
7. By Snail Mail.
8. By Email.

Notice how social network, blog and Browser rank third and fourth,
respectively on my list. I know that many professionals think of their
online presence as nothing more than a glorified brochure—a static
document that rarely gets changed. Well, think about that for a minute:
your website is narrowcasting 24/7 to your audience the same thing over
and over. It’s like every channel on your TV broadcasting reruns of I love Lucy; no, it’s worse than that. It’s like every channel broadcasting the same episode of I love Lucy all the time.

So maybe you think that what I am getting at is you should tell your
office managers to get with the program and change the background colour
of the home page every once in a while? Nope. What you need to think
about is that your firm’s website is a method of two-way communication.
Clients can come to your website to find things out but they can also
come there to contribute too. This is called reversing out the work* and
is a huge part of what the Internet revolution is all about. It’s a
huge boon to productivity and to speed too. Let me give you an example.

(* For more detail about how to get custom outputs from standard inputs, you can go to: https://www.dramatispersonae.org/CustomeOutputsFromStandardInputs.htm.
This is by far one of the most important changes that the Internet has
brought to our global economy. For the first time in history, it is
possible to give customers customized products using standard parts.
It’s sometimes called ‘mass customization’. It’s what made Michael Dell billions of dollars.)

Let’s say you are a lawyer working for a large homebuilder in Tampa;
you know your client is likely to sell 800 homes next year. The way the
system works now, their sales people sit down with homebuyers (for many
hours) and fill in paper APSs (Agreements of Purchase and Sale). These
APSs are submitted to head office where they are signed and a copy is
returned to the sales office for transmission to the happy couple; one
copy goes to their lawyer, one copy comes to you (the homebuilder’s
lawyer) and one stays in head office for later transmission through to
the accounting department and later to their auditors.

Of course, homebuyers will want a few changes to their Agreement
after they have thought up a dozen or more changes in their house plans
and finishes, so there has to be another process to capture those COs
(Change Orders) and make sure they get paid for as well.

But what if we had a different process that went something like this?
The homebuyer goes to the homebuilder’s website. They can ‘build’ their
own home online: select a lot, add finishes, change the design a bit,
whatever and they can also see what all this will cost them. If it’s too
much, they can take out some of the options themselves. When they’re
ready to buy, the APS reflects the work they have done and is
automatically submitted to their lawyer, to you and your client, the

Much of the work has now been reversed out to your client’s clients.
Your client’s clients actually like interacting with the homebuilder’s
website. And this saves an incredible amount of time for the builder’s

The retail customer is a special breed: they are huge time wasters.
Even if the salespeople  had to spend an hour showing each set of
clients how to use the homebuilder’s website (to makes use of the online
construction engine and price calculator), they could easily save ten
or more hours of fussing with customers as they try to decide on their
flooring, carpeting, cabinetry, vanity, lighting, counter top or
plumbing packages.

Now you may ask why should you care? You’re only providing legal
services. But you know what I said above about ‘intrication’, if you are
part of your client’s processes and eco system, then you are much more
valuable to them and very hard to dislodge.

Also, capturing your APSs online will hugely speed up the sales
process and your closings too. Speed goes up, productivity goes up and
your income does too.

Now I had a devil of a time trying to convince my brother, Peter (a
lawyer in Victoria) to even buy a computer. He has since discovered
email and that’s good but as you have probably gathered here, I believe
that this is a lesser benefit of what the Internet actually can actually
deliver. It doesn’t worry me or disappoint me that the Internet
revolution is so slow. It took decades for electrification to reach
pretty much every corner of the economy to the point at which I am sure
that you can not contemplate operating a modern economy without it. I
know that the Internet is not even close to reaching its full impact on
us. That is still a few decades away*.

(* If you are interested in getting some idea of what the Internet will do, read Neal Stephenson’s Snow Crash. When you read it, remember it was written in 1989 to 1991 before
the browser, social networking and blogging. It is that much more
impressive because of when it was written. Ignore the story. It’s the
actual uses that the main character puts the Internet to that are of
interest. Stephenson calls the Internet the ‘Metaverse’, a better term I
think than cyberspace. It’s a whole other essay to tell you what the
productivity implications are of the Metaverse but suffice it to say it
will dwarf what we are doing today. A lot of research is going on to
turn the Internet into ‘stereo space’ but you’ll have to read the book
or wait for another essay to get more info on it.)

Peter likes email today, but it has its limitations: notably the spam
problem as well as the fact that email can not clearly convey either
the importance of a subject or the nuances that are so important in
human communications. Another problem is that it is a push technology.
One of my clients, a CEO of a major corporation, told me that while he
used email to communicate company policy to his employees and to spread
the company’s message and culture, an important part of creating a team
out of all the diverse characters at any firm, fewer than 15% of his
colleagues even bothered to pen his emails.

That is how many actually open his emails on average. We don’t know how many of them actually read it. When an email is more than a few paragraphs practically everyone prints them out* if they are going to read them at all.

(* That’s why email newsletters are often quite useless. Sure they’re
practically ‘free’ to distribute but you get what you pay for.
Readership is very low. No one has the time to read them and, if they
do, they will want to first print them in order to read them. Starting a
newsletter to keep in touch with your clients can take a lot of effort.
Is it going to be read? Many firms still find that if they want clients
to read their newsletters, they still have to snail mail them.)

What we did for our CEO client instead is we created a personal website (PWS) for him on their Intranet
where he could post his thoughts and his employees could browse them
when they had time, when they needed information on company policies,
directives and direction. We taught him a few basics in less than an
hour: like how to post something to his PWS, how to add an image or
graph and a few other simple development skills.

He can get up at 3 am and post important notices on his PWS: this is
pull technology. The next day he can alert the people who need to know
by phone or in F2F meetings that the info they need is there. This works
much better and is a far more productive use of both the CEO’s time and
his employees’ too.

Of course, today, CEOs, COOs and others can use online tools for free that are self taught in a few minutes of effort.

Notice how this is disintermediating the techies. Our CEO client
learned basic web development skills (in less than an hour). All of my
students are required to learn basic web skills and I encourage you to
do it too. If I can learn how to do this in my 40s and 50s, by golly,
you can too.

This is heresy to most IT departments plus marketing and office
managers as well as compliance officers aren’t going to like it either.
They like controlling the firm’s website and messaging; they don’t want
you to have access to your little piece of it. Too bad and tough luck, I
say. The productivity gains for you, the higher revenues you will
generate and the better service levels you will offer your clients
outweigh their concerns about every corner of the website having the
same look and feel and avoiding any possible increase in liability.

Intra-company email can be an even bigger time waster with all its
unnecessary cc and bcc emails than outside spam is. In one tech firm I
advise, we introduced a no cc or bcc policy—if you needed to send a cc
to someone, you had to go into your sent files and forward it directly
to the third party with an explanation as to why they need to see this
email. The resulting reduction in intra-company email was formidable.

Let me give you another (and last) example to try to drive home this
point. I am a consultant to a real estate company active in industrial
leasing. I maintain a lease agreement for them which is stored on the
server side of our IT infrastructure. What that means is that it isn’t
stored on my PC’s hard drive. The client, the client’s clients and the
client’s legal firm can all get access to the server (just to the little
piece of it that stores their data). This means that if their lawyer
needs to make a change to their standard lease agreement, she can get at
it in only one place: our server. She updates it and saves it, to the
server. This is known as source control; there is only one copy of the
document but everyone can share it and you know that you are always
working with the latest version.

This is hugely different from passing around lease documents (or any
legal document or accounting record for that matter) by email for people
to use or to comment on or to redraft or update. You are never sure if
you have the most up to date copy and you might be adding your changes
to an older version of the document. So you can end up with a dozen
different documents, none of which contains all the necessary changes.
This is very inefficient and opens up the law firm or accounting firm to
unnecessary liability if their clients are using defective documents.

You have all experienced this problem. The answer is working on what
is called server-side documentation. For my client and his salespeople,
they know that if they download the document using a browser* (or for
the somewhat more technologically sophisticated, using FTP (File
Transfer Protocol) software), they are always using the right lease

(* They can use a Browser since we land them on a secure page that
requires them to use their personal password that generate for them.)

Now you can see how efficient this can be and you can see how I have
intricated myself into my clients affairs (I control their
documentation: information is power.) So build a PWS, use social
networking tools and use them for more than just a nice brochure or puff
piece about yourself.

Deal Maker or Deal Breaker?

The passage of time and being good at keeping files only gets you so
far. You need to be a deal maker rather than a deal breaker to really
become a permanent part of your clients’ ecosystem.

As an Accountant, it is much easier to simply be a bean counter; do
the double entry bookkeeping and leave it at that. But anyone can be
good at that and therefore you can be replaced pretty quickly if someone
else will do it a bit cheaper.

One accounting firm that I know, intricates their clients by
providing their management and ownership with what I call Personal CFOs;
that is, they know, how busy these people are so they have bookkeepers
visit them in their offices or in their homes to do personal bill
paying, make personal deposits and generally handle personal financial
affairs. These bookkeepers tie into their tax practice: so that personal
tax returns are a breeze. And because they are doing the personal work,
they can provide advice on tax strategies for the business too. As my
father, the later Professor O. J. Firestone once told me: “Son, be proud to pay your taxes in a great country like Canada. But don’t pay more than you have to.”

One young lawyer I worked with in my early days, Bill (not his real
name) was a funny, profane, charismatic guy who was a terrific deal
maker. He had so much charm that he could get away with saying
practically anything. I remember at one meeting we had with a
fantastically wealthy home builder, Ian (not his real name either), Bill
said: “Now Ian, I know you want to pay $6 million and Bruce wants
to sell for seven. There’s no f’ing way Bruce is going to sell at your
price and no f’ing way you’re going pay his price so let’s stop frigging
around and cut the crap and you both agree to six and a half and let’s
go get a glass of wine right f’ing now.”

I couldn’t believe it but Ian, who was a real gentleman, burst out
laughing and we made the deal. Not I am not suggesting that you brush up
on your slang but I can tell you without a doubt that the vast majority
of accountants and lawyers that I have known are deal breakers not deal
makers. You want more clients, better clients, more interesting work?
Then be the latter type of professional, OK? Find ways to make things
happen for your clients.

Quick what do Gary Bettman and Bob Goodenow have in common? They are
both lawyers. Together, they led the NHL and NHLPA into the abyss during
the NHL’s 2004-2005 lockout of their players. Why would you send two lawyers into a room by themselves to work out or negotiate anything?

Lawyers are trained to state the case for their client in a
forceful and convincing manner. No doubt Gary and Bob do this supremely
well. They are both super bright, talented guys but I wouldn’t call
either of them deal makers. They needed to have players and owners in
the room without which, nothing was going to happen.

It takes years to unlearn what your schooling and profession have
taught you. But if you want to become indispensable to your clients, you
need to do this.

Billing your Clients

Clients hate the feeling of being nickel and dimed.

I can remember the day that Ted Beament completed a large and complex
negotiation for my family. It was a long time ago now—1972 and the
final agreement had been reached to gift the Firestone Family Group of
Seven Art Collection to the people of Ontario. The Ontario Heritage
Foundation took ownership and control of the Collection and the family
home in Rockcliffe Park (which was then used as a museum to hold the

Mr. Beament, a former Captain in the Canadian Armed Forces and a WWII
hero, had returned to Ottawa after the War to create his own legal
practice. He was successful; his reputation for integrity and competence
was exemplary.

Ted had two bills that day for my father, Professor O. J. Firestone. “Jack,” he said. “I
have two bills for you. The first one totals $ _______ which is for our
time and disbursements in this matter. The second one is for $ _______
more. Now if you don’t want to pay the second one, I’ll tear it up right
now. But in the past, you know that sometimes I have adjusted our
firm’s billings down because the results for you weren’t worth paying
those kinds of fees for and I didn’t think it was fair for you to pay
them. But in this matter, I feel that the results have been
extraordinary for you and your family and I think our services are worth
more to you than just our time on this.”

My father picked up the second invoice and said: “Ted, you’re right.”

Customer Churn and Horsepower

I tell my students, that it takes years to create a great business.
Sir Terrence Matthews (founder of Mitel, Newbridge, March Networks and
many other firms) told me it takes at least 7 to 12 years to build a
great business. If it takes Terry 7 to 12 years, it’s probably going to
take you and me longer. I also tell them that if you want to learn how
to get rich quick, you can leave now. I don’t know how to get rich quick
and I am pretty sure that you have better odds of getting rich quick by
buying lottery tickets than you do in professional practice or

You can’t plan on winning the lottery but you can plan to get rich,
slowly. Build your practice one client at a time. Even mighty IBM starts
off every year at $0. They don’t suddenly go out and sell 85 billion
dollars worth of stuff on day 1 of their new fiscal year: they build
their business one customer at a time just like you do.

If you have great clients, even if the number of them is small, and
you keep them happy, your practice will grow. There is practically
nothing worse for a business than customer churn. Churn is very
expensive: it takes time, effort and money to attract clients in the
first place and to replace them if they leave. The customer that comes
in the door and needs a tax return for herself and her spouse isn’t a
$1,500 customer. If they stay with you for ten years and all they do
with you are personal tax returns, they are a $15,000 client. But if
they bring you their business audit and other work and referrals too,
they represent a lot more than that.

As your clients develop their careers, they can bring you along for
the ride. One of the things that I look for especially in legal work is
horsepower. When we were closing the purchase of an expansion franchise
with the NHL in December 1991, I remember stopping counting the number
of lawyers working on the transaction in Ottawa, Toronto and NYC when I
got to 35. As your clients’ businesses grow so do their demands and you
need to be able to grow with them.

Timeliness is another one of those crucial elements: you just can’t
be late. Whether you are preparing tax returns, closing a transaction,
conveying real property, whatever, don’t be late, ever.

A client of mine just fired his law firm of 15 years because they
were chronically late. The partner in charge always had a number of good
reasons why they were late. But so what? He got fired anyway.

Here is a comment from Dan Warren, CA, who has built a very
successful accounting practice by paying attention to quality,
reputation, service and also being a part of the solution for his
clients instead of being part of the problem:

“I tell our people that if they focus on the quality of their
work, have frank and honest communication with their client and (as you
say) try to make themselves indispensable, they will be successful.

I have found that as some professionals age, they act as if they are
more important than their clients. While they did not start out being
arrogant, some seem to develop that attitude. This is the starting of
the end in my view. A good dose of humility now and again keeps
professionals grounded and focused.

One attribute that is worth mentioning again is responsiveness. I
think it is very important for a professional to get back to their
clients on a timely basis. Clients notice this and appreciate it. Now it
is not always easy to do. I started this email to you this morning and
had to run out to a one hour meeting. During that time, I have received
15 emails and 4 phone messages. As already noted, it is a challenge to
manage one’s communications, but it is necessary. Being responsive I
think is a key attribute.

My final thought deals with providing your client with
something more than just the core service—a legal agreement or a
financial statement. This is often hard for a young professional to come
to grips with. They may feel that they do not have enough experience or
that the client may dismiss their ideas. That is a risk that one has to
take but in the end; I have found that clients recognize that you are
trying to go beyond the core service and give you credit for that.”

Now if you want to have a good meeting with your Banker every year,
you need to remember one thing: make a profit. Do you think your Banker
wants to hear how many cold calls you made, how many presentations you
made, how hard you worked, how much effort you put into business
development? No, they really don’t care about any of that. They just
want to hear that you got results.

You need to manage your clients, not the other way round. You need to
worry about their businesses as if they were your own. You need to push
your client so that they are not a roadblock to their own (and your)

I have always liked Sigourney Weaver’s character, Ellen Ripley, in the Alien
film series. She was the first woman I ever saw in any film that didn’t
scream and wait for some hero to come rescue her. She took charge. She
adapted well to very rapid changes in her environment. No matter what
bad news came her way, she coped. She didn’t sit around trying to figure
out who to blame. She just figured out how to survive.

I don’t care whose ‘fault’ it is, just get it done. That’s what your clients really want from you.

Prof Bruce

Copyright. Professor Bruce M. Firestone, Founder, Ottawa Senators,
Entrepreneur-in-Residence, Telfer School of Management, University of
Ottawa, Executive Director, Exploriem.org, Ottawa, Canada.

     Prof Bruce @ 2:40 pm

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         Guerrilla Marketing Basics        

   Posted on
       Tuesday 29 December 2009  


Guerrilla marketing (GM) is just another term for ‘smart marketing’. The unofficial credo for civil engineers is: “Do for a dollar what any fool could do for two.”
The guerrilla marketer is really similar—someone who uses leverage to
efficiently and effectively get the enterprise’s message out there
either by way of media attention (aka, ‘earned media’) or through more
direct means.  

GM is used by SMEEs (Small and Medium Sized Enterprises) because they
are in the business of substituting brains for cash in the marketing
wars—they want a place at the (economic) table but can not afford to
purchase the type of mass marketing available to larger firms. So they
resort to GM. Of course, GM is not limited to SMEEs; larger firms,
not-for-profits, even charities have been known to engage in this type
of promotional marketing.

Taco Bell’s brilliant coup years ago of floating a target in the
South Pacific for Mir to hit comes to mind. They stationed a floating
rubber target off the coast of Australia which, if any pieces of the
decommissioned Mir Space Station were to hit it, would entitle everyone
in the continental USA to a free Taco. (Taco Bell took out insurance
against this, by the way.) A photo of their floating target was carried
by major news outlets across the planet. Even Taco Bell’s NYSE symbol is
a bit of GM; their symbol is ‘YUM’.  Most companies would perhaps have
used ‘TBC’ for Taco Bell Corporation. YUM is so much better for a food
company, don’t you think?

GM exists in a grey legal area, which needs careful consideration
before attempting any of these types of things. One should never do
anything that is illegal or unethical or places any persons or property
in danger.

Here we are going to look at some smart guerrilla marketing, some
guerrilla marketing research and guerrilla selling. I provide an
extensive list of GM techniques below (60 things you can try*) based on
simple, proven ideas many of which have been used for generations.

(* If you just want to read the list, skip ahead to ‘Getting a Place at The Table‘.)

Guerrilla Marketing Research

What is Guerrilla Marketing Research? Well, many new products and
services don’t easily lend themselves to traditional market research
techniques. When we were trying to Bring Back the Senators (a team that
hadn’t played in the NHL since 1934), we did some market research in
Ottawa. It was a NHL prerequisite for entry into the League.

Our market research consultants asked the question: “Would you purchase season tickets if the NHL were to return to Ottawa?”
They followed up with questions about how much people would pay for
their season’s tickets. For NHL-starved fans in Ottawa, the answers were
astounding. When projected over the whole population from the
representative sample they used, the consultants found that the Sens
should be able to sell 100,000 season tickets at almost any price.

People when faced with a hypothetical question, answered: “Yes! I
would buy season tickets for NHL hockey in this city; in fact, I would
pay practically anything to help get the team here.”

We duly sent the study to NHL offices in NYC but, frankly, I had my
doubts. The Chicago Blackhawks in a city much larger than Ottawa worked
very hard at the time (the early 1990s) to sell 15,000 season tickets
and privately I thought that we might be able to sell 12,000. Although,
we have less competition for the sports dollar here in Ottawa, we are a
smaller city and a high percentage of employees here work for the GOC
(Government of Canada) who typically buy fewer tickets than private
sector workers.

It turns out that 12,000 season tickets has, in fact, been the
ceiling for Sens season tickets over the last 18 seasons. One has to
wonder about the reliability of market research in general—can you
accurately test for acceptance of a new product or service in the
marketplace? Maybe the only way to do that is to convince people that
they are actually making a buying decision—one where they will really
have to dig into their pockets to pay for the new product or service.
That is where GM Research may be of assistance.

In the 1980s, when trying to determine if there was a market and real
demand for mini offices in Ottawa, one of our executives (Greg Graham,
who later successfully managed the business for us and is now President
of Cardel Ontario) ran a series of ads in a local newspaper. When people
responded, they were directed to a telephone answering machine
(literally in a cupboard at head office) where they were asked to leave
their names and phone numbers and someone would get back to them
shortly, which Greg did. Sure, Greg was selling ‘vaporware’ but he got a
real sense of market demand—a more reliable type of data than perhaps
any other marketing survey could have produced.

People were faced with a real buying decision; Greg was asking them
to commit to a lease for a mini office for a minimum of three months at a
fixed lease rate. The response was so strong that within two weeks we
were building out one floor in a west end tower we owned and putting
tenants in temporary offices at HQ. The business (TCCL, Terrace
Corporate Centres) eventually became the largest mini office provider in
eastern Ontario with 164 mini offices in two locations (one downtown
and one west end) with an occupancy rate that regularly exceeded 94%. It
was profitable in its own right but it also acted as an important
source of new lease deals. Apple, when they first came to Ottawa,
started in TCCL and when they grew out of their mini offices and needed
expansion space, we had already established a good relationship with

(We later sold TCCL as part of the effort to raise capital for the purpose of acquiring the Ottawa Senators.)

A more recent example of a use for GM Research came up about three
months ago. A developer needed to know what rents he might be able to
get for new, two-bedroom units being built in the west end of Ottawa—his
property manager was telling him $900 per month and his REALTOR said
$1,100 per month. Who was right and how to test it?

The subject property was on a major street which was both good and
bad—lots of nearby services for residents to use but also lots of noise
and traffic.

The Property Manager had a bias—he felt that lower rents would make
it easier for him to fill the new units. (Cautionary note: the reverse
may also be true. If rents are set too low, it may scare off main stream
renters who fear that the place may be dangerous and that is why you
have priced it so low—remember, a price conveys a lot of information
beyond just the dollar figure.)

The REALTOR also had a bias—he wanted to sell the units to investors
so he wanted to show the highest possible rent and the highest possible
cap rate to investors so they would snap up the units.

My suggestion was simple: in today’s Internet age market test it FOR FREE.

Put two free ads on https://ottawa.kijiji.ca/: each ad would describe
the place slightly differently and each ad would have a different
REALTOR’s name to call.

It turned out that they received about the same number of calls on
each ad which happily (from the investor’s POV) meant that a rent of
$1,100 per month would work.

They also definitely picked up the sense that people calling for
units at the higher rent were associating the higher price with concepts
like ‘new’, ‘higher quality building’, ‘higher quality space’ and
‘better class of tenant’.

That is why you do this kind of research.

Think about GM Research like this:

1. It’s not hypothetical market research—it’s guerrilla marketing
research for three reasons: a) it’s free or very low cost, b) you are
asking about units that don’t yet exist and c) you are not asking a
theoretical question (at least as far as the respondent is concerned),
you are getting a real call from a real person looking for an apartment.
2. It’s not really ‘vaporware’ either—these units are for sale and for rent and will be built in the next eight months.
3. Typical of GM research, you are leaving out the fact that they are
not ready right NOW so you are in a gray ethical area but still, the
renter could be looking for later in the year anyway…

Getting a Place at the Table

Let’s face it, most large firms and established players don’t want to
give you a place at the trough. They have their snouts in there but
don’t want to share it with you. And most entrepreneurs don’t have
bucket loads of cash to throw into marketing to get their share of the
market. So they are forced to use GM and social marketing.

When I was teaching at Carleton University’s School of Architecture,
the Chief Designer of the Students Design Clinic (SDC) came to see me.
She wanted to know how the SDC could generate more clients for the
Clinic on a limited budget.

The SDC is a wonderful student-run enterprise that allows third and
fourth year students (and exceptional second years) to experience what
it is like to run their own architecture practices. Each summer about 15
to 20 students are gainfully employed by the Clinic at above market
wages; they design basic stuff such as fences, decks, gardens, gazebos,
retaining walls, small additions, basement renovations, granny flats,
etc. for clients in the local area.

The SDC is passed on from one student generation to the next with
junior designers becoming senior designers and the most accomplished
senior designer becoming Chief Designer. It is an oral tradition and a
very successful one—last time I checked they had generated a surplus
(over and above what they pay to the students) of more than $80,000
which no one apparently had any idea what to do with it.

The SDC is itself a guerrilla institution—officially frowned on by
the University’s Administration (they are concerned about liability in
case there is a dispute over fees or one of the designs is
sub-standard). But since all of their designs (above a certain size and
complexity) are submitted for building permit and must meet the OBC
(Ontario Building Code), liability seems quite manageable.

The GM program we laid out for the Clinic is simple and some of the
techniques they use are old but that doesn’t make them less relevant to
today’s entrepreneur. Many of my students think GM is this: a) do a
stunt, b) get national press, c) send out a mass email, d) put out a
tweet on Twitter, e) stand back and watch the traffic meter on their new
website spin out of control. Bad news, folks—it isn’t that easy.

Sometimes, there is no substitute for ‘shoe leather’. When getting
ready to launch Digg.com, Kevin Rose and his partner decided to populate
the site the old fashioned way—by calling people on the telephone. They
wanted to start Digg.com with at least 3,000 committed contributors.
That’s a large number but when you break it down, it becomes more
doable—if Kevin and his partner each made 30 calls a day for 50 days,
they could reach 3,000 people in less than two months. That is what they
did. They didn’t ‘push on a rope’. They didn’t send out 10,000 emails.
If they had, I predict they would each have gotten less than a .3%
response rate—that is, they would have launched Digg.com with 60
contributors. And those 60 people wouldn’t have really understood what
Digg.com was trying to do. It would have flopped.

To get to where they needed to be, they had to talk to people. You
need to hear their voices, the nuances, the emphasis and their
explanation of what they are doing and why you are an important part of

The result was a runaway hit on the Internet for their news
agglomeration site which has probably made a billionaire out of Kevin.

So don’t be lazy.

Here is the program we put together for the SDC:

1. Use lawn signs: if politicians use them, it’s because they work
and are cheap. On-site signage is great: pylon signs, lawn signs,
sandwich boards, window decals, whatever—they’re cheap and they keep
working 24/7. Maybe you want to bring back the walking billboard (a
person wearing a sandwich board) or better yet: a person wearing a
sandwich board giving out handbills which have a call to action on them.
So use lawn signs at all your job sites with your Students Design
Clinic logo and telephone number and URL clearly visible.
2. Lawn signs should cost no more than $10.00 each. Leave them up forever or until your client takes it down.
3. Add some type of call to action. How about: “Free One Hour Consultation”
4. Put your tag line and your logo on your lawn signs. You are a design
clinic so your marketing stuff has to look sharp otherwise it is reverse
marketing (don’t do this!)
5. Create a second web address that points to existing Carleton address
(www.arch.carleton.ca/clinic) which is a bit clumsy. Note: check out
www.domainsatcost.ca which is one of Canada’s largest domain name
registrars. Try for something like: www.studentsdesignclinic.ca or
www.designclinic.ca. (Editor’s note: these URLs are not currently
6. Create both private and public spaces on your website. The private
password protected space is and will become your ‘institutional memory’
of what works and doesn’t work over a period of years. (The same thing
was done for www.kosmic.ca so that students aren’t starting from scratch
every year for goodness sake.) Put in things like how to hire and fire;
what to pay people; how to monitor performance; how to interview and
select team members, what marketing worked and what didn’t—all the
hidden keys to success…
7. Use PSAs (Public Service Announcements) addressed to print, TV and
radio outlets. Your PSAs should go to local publications too such as the
Kanata Kourier Standard not just the Ottawa Citizen and the Ottawa Sun.
Give them visuals as well.
8. Get testimonials for your website and your flyer.
9. Create a logo for the Clinic and a tag line that is on everything.
Terrace Corporation (the first parent company of the Ottawa Senators)
was in the real estate business; they used “Great Space for Great
People”. You’ll want something different—it is much too commercial but
you need something that speaks to the core competencies of the clinic
and your mission.
10. Keep a customer data base of tel. #s, fax #s and especially email
addresses. The best place to look for new clients and new work is from
your existing clientele.
11. Every year you should email your past client base with the “news”—what is up with the clinic this year.
12. Do a flyer drop not just around the University but also in Kanata,
Nepean and Orleans as well as downtown—anywhere people are doing a lot
of renovations. Flyers to the home or office are cheap and cheerful and
often effective. But don’t wait too long to get them out. They need to
go out in February or March not May or June, that’s far too late. Don’t
forget to include your call-to-action like ‘Free Quote’ or ‘Free One
Hour Consultation’ or ‘10% off’ or ‘Fill in the attached ballot and
return it to win great prizes’ or whatever. You can use a variant of the
Flyer—the Handbill. It’s a bit different in the sense that it is
exactly what it sounds like: a ‘bill’ that passes from your hand to a
potential client’s hand directly. It is an old marketing concept but it
can be remarkably cheap and effective. And you know that it got to the
recipient for sure. Handbills can be given out at a trade show, for
example.  Something else to remember: marketing is about consistency and
repetition. When our family was a partner in a tool and equipment
rental chain, we found that our flyers became more effective over time.
People began to expect them and to use them more often when we repeated
the drops in the same neighborhoods a second, third or even a fourth
time over a period of two years.
13. Do a customer satisfaction survey. This is where you will get
testimonials, references and permission to use them. Put them on your
website and on your flyers even in your PSAs.
14. Let your clients know that you are never too busy for referrals.
15. Avoid expensive advertising and major media like radio, television and daily newspapers.
16. Use word of mouth, flyer drops, PSAs and lawn signs.
17. Your website is just a support tool but an important one.
18. Put photos of finished work on your web site—create a Design Clinic portfolio.
19. Everyone is in sales—Chief Designer, Assistant Manager, Senior Table Leaders, Table Leaders, Senior Designers and Designers.
20. Make sure you have 24/7 telephone messaging and design clinic email accounts.
21. DON’T call your Junior Designers ‘Junior Designers’; just call them ‘Designers’.
22. Your next level up is Senior Designer. And so forth—yes, it’s title
inflation but it works well in marketing your services. No one likes to
be called ‘junior’ and no one wants to hire anyone called ‘junior’.
23. Put ‘Free One Hour Consultation’ everywhere—on your website, on your
brochure and on your lawn signs. People love FS (Free Stuff).
24. Put on your website a few simple to understand reasons why people
should choose the Clinic like supporting students, like the exceptional
quality of your work, like getting really top notch people to work for
them at a fraction of the price they will command just a few years down
the road.
25. Your flyer should use colour—it is more costly but you are in the
design business. Last year 1,000s of good quality colour flyers (8.5 x
11) were printed (one side) for less than 25 cents each.
26. Put a copy of your flyer on bulletin boards in stores like IGA,
Loblaws, Canadian Tire, Walmart, Home Depot, Home Hardware, building
supply stores, etc.
27. Coroplast signs are very inexpensive (about $5 to $10 each for 18
inch  by 32 inch signs with either two-colour or full colour decals).
With the SDC URL, logo and tag line, they make good posters which can be
put up with a stapler or plastic ties on hydro poles or city owned
fences. (Note you should probably ask for permission from the
municipality but in guerrilla marketing people often don’t.) If you put
them up high (use a ladder for this), your signs tend to stay up longer.
City workers don’t like to get out of their vehicles to unload a
ladder, carry it, erect it and climb up the pole to tear down your
signs. They’ll call you and you can volunteer to take them down
yourself. Perhaps they may reappear somewhere else in the City.
28. You can offer to do a few free design jobs using your trainees and
the local media can be invited to review the work. Better yet, do a few
free designs for high profile persons in the community and get them to
talk about it on their shows, blogs, what have you. Get a free
endorsement or plug from a local celebrity.
29. You can offer to let people buy ‘gift certificates’ for design services for friends and family.
30. You can run a contest on your website. The winner receives, say,
$200 of design services with first, second and third runners up
receiving $75, $50 and $25. The winners always end up spending more.
31. Contests could be something like: putting a piece of a famous
structure (the Roman Coliseum, the Acropolis, Scotiabank Place, for
example) on your website, add to it every day and the first person to
email you with the correct identity, wins.
32. You can develop a $20 coupon program and give out the coupons to
clients and to others to give to their friends. You can also print the
$20 SDC coupons in local newspaper ads and folks can clip them out and
bring them to the clinic.
33. You need to visit established architecture firms to co-opt them into
your business ecosystem. Many architecture firms don’t have time for
gazebos, decks, fencing, basement renovations or small additions. They
would prefer to refer these clients to the SDC.
34. Faces are very important in marketing and that includes GM. You need
to put a picture of yourself and your team on your marketing materials
(web, flyer, maybe even your lawn signs). That way people can see the
faces of all your happy, smiling, enthusiastic designers. If there is
one ad with a face in it and another without one, the former will get a
lot more attention.
35. Because this is a design studio, you should probably also have a
watermark in addition to your logo. The watermark reflects the
underlying principles of your work and is used as a half tone (or a
sidebar) on all your drawings, contracts, marketing materials.
36. Can you accept Visa? You should probably ask your bank for that
service—folks love paying by Visa and even though you have to actually
pay a fee (probably 2.75 to 3.25% of each transaction) it will save you a
huge amount of time and frustration actually getting paid and the
amounts people will spend on design services will also go up! This is a
double whammy on your bottom line—collect faster and collect more.
37. Don’t forget to ask for a retainer up front. It should be around
45%. Try to get another 45% when the drawings are submitted for building
permit. Get the last 10% when you actually get the permit.
38. You can set up a referral system—for each client referred to the
Clinic that signs a contract, you can offer a premium like a really
fantastic SDC t-shirt. This is more promotion for the Clinic—people
walking around wearing your logo (and URL)!
39. Let people buy your branded promotional stuff. You are, after all, a
design shop. Why just limit yourselves to designing real property? Why
not use those skills in your marketing as well to create really insanely
great branded clothing and promotional items?
40. Put out media releases every time you do something newsworthy and
feed the press regularly. Make the title catchy: how about Third Wall
Theatre Group in Ottawa who put out a press release with the title: “Directors Stab CEO in Boardroom Uprising” to promote Julius Caesar. They got attention in a hurry from the media.

Today, we would add a few new things to the above list including:

41. Use social media—start your own Facebook group and use Twitter to
develop a following; use these as tools for CRM (Customer Relationship
Management) as well.
42. Start a blog for the SDC highlighting interesting and challenging jobs you have tackled.
43. SEO, Search Engine optimization can do wonders for your website. By
increasing your profile in search engine results, you can turn your
website into a big lead generator for da nada. SEO includes things like
link trading with all your friends’ websites so that more sites link to
you. Search engine algorithms look for how many sites link to you as an
indicator of how important you are.
44. Give your company or organization a name and a website address that
are identical so you don’t waste any effort branding different names.
45. Go to trade shows like the Ottawa Home and Garden Show and use
giveaways (promo items) that are branded with your logo, name, tag line,
contact info and some type of call-to-action.
46. Network like crazy and use your employees’ and suppliers’ networks too.
47. Try to sell to people you buy from (reverse selling). Your AP,
Accounts Payable can be a good source of leads. At the Sens, if we
needed a plumber he or she was certainly going to be a season tickets
48. Volunteer for worthwhile causes in your local community.
49. See if you can create an event that’s fun and helps promote your
business and doesn’t cost you anything or maybe even generates revenue
for you.
50. Do some polling: people love to be asked their opinion on just about anything.
51. Create a market survey: people like to be asked for their views.
They’ll answer your survey, which will also generate information and
leads for you.
52. Create some type of scoring test on a subject of interest like when to know when it is time to replace your roof or windows…
53. Follow the trail of really bad marketing to see who needs your help
in your industry. Maybe a local builder needs the SDC’s help with one of
their design issues.
54. Make sure you can explain your value proposition in three to five
separate points to give people a few simple, compelling reasons to buy
from you.
55. Find sponsors or patrons for your business or organization. Create something that they can sponsor and benefit by.
56. Bid on jobs even if you know you might lose: you end up knowing
everyone involved with the process; you can build up your network this
way for next time. It’s a kind of win-by-losing strategy.
57. See if you can get volunteers to help you.
58.    Don’t forget the Yellow Pages and its related website. Yellow
Pages ads are expensive but I have found that even a three line ad can
be effective. This give you enough room to have your name, tel. #, URL
and tag line. If you can afford it, add one or two more lines for a call
to action like ‘Free Quote’ or ‘One Hour Free Consultation’. Your logo
would be nice too. You can also sometimes place your ad in a non
traditional category where you can stand out. Maybe sneak your design
shop into the building supplies category by asking one of the big
advertisers there to add your design shop to their ad. Perhaps you could
convince them to do that for free…
59. Try negative cost selling: it’s huge and works really well. Show the
client (preferably with a spreadsheet) how he or she either makes money
from buying your products or services, or reduces costs or both. This
requires a level of understanding about your client’s situation, which
you should have anyway. For example, show them how a basement renovation
or adding a granny flat is a negative cost when compared to, say,
putting your mother-in-law in one of the those vertical warehouses
called a retirement home. (To read more about Negative Cost Selling,
please refer to: https://www.eqjournalblog.com/?p=482.)
60. Use co-branding. Who is in your business ecosystem? Would they want
to pay some (or all or more than all!) of the costs of your marketing?
For example, maybe there is a building supplies retailer who provides
lumber and other construction materials. Or a builder or landscaper who
is winning lots of work designed by the Clinic. Perhaps they want to
co-market with the SDC and pay some of your marketing costs. (For more
on co-branding and cross-selling, see: https://www.eqjournalblog.com/?p=571 and https://www.eqjournalblog.com/?p=571.)

There are so many ways to use GM, the list really is endless and
today, through the Internet, a small enterprise can leave big tracks.

Marketing is a bit of a mystery. Maybe we think we now have evidence
that shows us that we don’t need our Yellow Pages ads any longer or our
fliers aren’t working like they once used to do. Everyone we ask about
where they heard about us or how they found us seems to be saying: ‘on
the Internet using Google’. So, as a result, we get rid of our Yellow
Pages ad for next year and stop putting out flyers. Lo and behold, our
volumes drop. How is that possible? Maybe what your customers are really
saying is that their last stop before they called you was Google but
forgot to mention that they first heard of you by picking up a flyer or
looking in the Yellow Pages. Marketing works in subtle ways and GM is no

Publicity Stunts

As noted above, Guerrilla Marketing often involves entrepreneurs and
intrapreneurs in gray areas—things that are either ethically
questionable or legally questionable. Obviously, you should never do
anything illegal or unethical but if you are a small business, a
startup, a new skunk works (often part of a large company but separate
from it—either spatially or managerially or both), how do you get
noticed, how do you earn media attention instead of buying it and how do
you get a place at the table with the big boys?

You use GM.

Promoting your new video game with packages lashed to bridges with
flashing lights on them is probably not a good way to promote yourself
in the US post 9/11 unless getting arrested is on your list of to dos
for next year.

One of my former colleagues had a cute idea for the brokerage we were
both working at the time. He wanted to mount commercial real estate
signs (FOR SALE signs or FOR LEASE signs) with most of the information
upside down except for the phone number and a slogan—“We turn the market
upside down for you!” Like I said, it was a cute idea but too radical
for that brokerage.

But clearly it meets the test of what is acceptable.

Years ago, we got annoyed with the major newspaper in our city—their
only competitor had gone OOB (look it up, it’s in
urbandictionary.com)—and they decided to jack up their advertising
rates. So, what the heck, I had seen the Boston Business Journal on one
of my trips to that city, let’s start one of our own—Ottawa Business
News (now Ottawa Business Journal) was born.

Let’s ask the three questions again:

• how do you get noticed,
• how do you earn media attention instead of buying it, and
• how do you get a place at the table with the big boys?

We decided to bring 150 paper boxes to Ottawa. At that time there
were no paper boxes here. The Ottawa Citizen and the Globe and Mail
dominated the newspaper scene. Now what would you do: ask for permission
or just do it?

If you decide to ask the City of Ottawa for permission, they were likely to do the following:

1. Say ‘No’. That is the bureaucrats’ answer to almost everything.
2. If they don’t say ‘No’, they will use their second best answer:
‘We’ll study it.’ Cities and bureaucracies know that they can make you
do studies, attend meetings, consult with the community, fill in forms
and do endless, mind numbing things until either you go away or die,
whichever comes first.

Now you also know that entrepreneurs would rather ask for forgiveness
than beg for permission so we planned to drop 150 boxes on streets all
over Ottawa without asking permission. We had a tractor trailer load of
those paper boxes waiting at the Canada/US border.

But before we dropped them, we needed what is called political cover.

So for about a week before we dropped the paper boxes, we had one of
our employees (in a cape and mask no less, looking like Hanna-Barbera’s
Quick Draw McGraw dressed as El Kabong) go around Ottawa and drop 25
cents into parking meters that were about to expire. That got us some
decent media attention and positive attention—we were seen as good guys
saving drivers from the Green Hornets and City parking tickets.

(Note: when we did this, it was a new stunt. Soon after we did it,
others copied us but we may have been the first to try it. The City of
Ottawa wasn’t impressed though—they soon passed a spoil-sport By-law
making it illegal to put money in a parking meter being used by a third
party, i.e., not your own car.)

Paper boxes are a powerful way to promote your brand—they are
inexpensive and sit at crowded intersections and tirelessly work for you
24/7. If you bought billboards, you would pay (in Ottawa) around $1,500
per side per location per month. So buying a paper box for $150 (a
one-time cost) and dropping it on a sidewalk and chaining it to a post
is pretty good signage at a very, very low CPM (cost per thousand pairs
of eyeballs per month).

What entrepreneurs and intrapreneurs must do is be like the North
Vietnamese—cause your enemy to expend a lot more resources than you to
put a soldier in the field with bullets and this gives you leverage. If
you have 50 million North Vietnamese and Viet Cong facing 250 million
Americans, you might think that the Americans will win given a simple
power ratio of 5:1 (250 million divided by 50 million). But if the Viet
Minh have a supply line of 300 miles and the Americans have one that is
10,000 miles long, this means the correct power ratio is (250 x 300)/(50
x 10,000) or 1:6.667, practically the inverse!

If entrepreneurs and intrapreneurs can’t use leverage in their fight
with their elephant-sized competitors, their enterprises will soon be
dead anyway.

Paper boxes were that kind of leverage for OBN.

Now if we had asked the City of Ottawa for permission, they probably
would have convened a committee of stakeholders. Who do you think would
be on that committee? Well, the Mop and Pail (G+M) and the Ottawa
Citizen for starters. Do you think they would be inclined to give a new
competitor that kind of leverage? How about Joe and Jane Q. Busybody?
People from the community who volunteer for these types of committees
tend to have too little to do in their lives. They undoubtedly would
have cried foul—paper boxes would have been compared to billboards and
‘visual pollution’.

Plus how long would the Committee have taken to make a decision? A year? Two years? And then it would have been ‘no’ anyway.

Entrepreneurs don’t have time for this.

So we dropped them overnight and chained them.

Entrenched competitors howled.

But we were ready. Under the then new Canadian Charter of Rights and
Freedoms, we wrote to the Mayor and made it an issue of freedom of the
press. If the City touched one of our paper boxes, they were going to
get sued for breaching our rights under the Charter.

Now politicians like two things—money and power and they are of
course related to one another. We had another strategy ready as well.

After the first commotion died down a bit, we suggested to the City:
“Why, wait here a sec. Instead of forcing OBN to remove its paper boxes
and face a lawsuit, why don’t you charge a fee for paper boxes? We
suggest $50 per box per year!”

The G+M and the Ottawa Citizen did, of course, put out their own
paper boxes. But they put out thousands. OBN was just fine with 150 in
strategic locations. So we made them spend a ton of money on paper
boxes, filling them each day (we only came out weekly) plus pay a fee
for each box to the City (the City accepted our idea but they upped the
license fee to $75.)

So there it is—creating leverage through GM while using political cover and learning from the success of others.


One of the keys to success in any enterprise is to become an accepted
part of your business ecosystem. Once you are embedded in a business
ecosystem, you are very hard to dislodge. How hard would it be to
duplicate Digg.com’s site? Not hard at all. How hard would it be to
duplicate Digg.com’s community of more than 45 million monthly readers
and contributors? Really hard.

The reason for that is that Digg.com has become an important part of
that community (a largely male demographic aged 15 to 55 with an
interest in technology, science, politics and odd ball stuff). It is way
for that community to talk amongst itself, to express itself and to
compete to see who can get their stories on the front page.

Digg.com works for these reasons and for another reason—Digg.com
readers and contributors trust the site. They trust Digg.com to produce
interesting material that they could not themselves find on their own
(to, in effect, curate the stories that matter to its community*). They
also trust Digg.com not to change its algorithm to favour its own

(* I wrote that one of the professions to watch out for in the 21st Century is (surprisingly) the curator. See: https://www.eqjournalblog.com/?p=487.)

At the end of the day, trust is the most important quality any of us
has. So while GM is essential for the success of most new enterprises,
you can take it too far. This means you need to use sound judgment on
when it’s OK to use GM and GM research and when it isn’t.

Prof Bruce

Postscript: here are a few examples of some successful GM campaigns:

• A local high tech company doesn’t have the marketing budget to put
inserts into the local newspaper for distribution to their target
market. So early one morning, the founders go out with abundant pocket
change and they open the paper boxes and insert their marketing
brochure; then close up the boxes and wait for the phone to ring.
Student note: this is probably illegal. Don’t do this but it is an
example of clever thinking nonetheless.
• Another tech company, looking to recruit top talent, put up hundreds
of $2 placards along the main drag where techies working for their
competitors tended to drive. They put them up on a Thursday night after
city workers had gone home and they remained up for six days before the
City had the (illegal) signs removed. The campaign was cheap, cheerful
and successful.
• A local Subway franchisee takes over a loser of a location. Every day
at 10:30 am, he ‘sneaks’ over to the megamall parking lot across the
street and puts $1 off coupons under the windshield wipers of 500 cars.
He runs back to his shop and waits for the traffic to come in the door.
He also visited every local office within five kilometres of his
location between 11:00 am and noon each weekday over an 18 month period.
He brings in a huge platter of finely cut subs and a bunch of $1 off
coupons. He talks his way past the receptionists and security people and
gets into even the most highly secure buildings to hand out free food
and coupons by the bucket load. Within two years that location alone is
making over 120 grand for him and his family.
• What type of car do you drive? If it is relatively new and if you keep
it clean, then you could consider adding your corporate logo and web
address to the passenger side, driver’s side, rear and front (in mirror
image). This is free advertising for you that works 7 days per week. But
MATS THAT STICK TO THE CAR. This would be reverse marketing. Bill
Renaud, one of Ottawa’s most successful real estate agents, uses his
vehicles this way. If you do it, it has to be done well and depending on
what type of business you are in, it can be done in an understated kind
of way.
• How can you collect email addresses with the permission of and indeed
the willing participation of your target market?  This is a campaign
Labatt Brewery undertook a few years ago. They looked good as a result
and were able to direct people to their beer.com site where they
collected e-mail and contact information—the campaign spread fast on the
net. Al at almost no cost.

‘Subject: Another Long Weekend!

Labatt Blue Light is petitioning the Ontario government for a new long weekend in June. This is serious…they’re really doing it.

The petition comes on the heels of a national survey that says about
HALF of Canadians don’t have enough free time and that they have less
free time than they did five years ago.

Make your voice heard now. Go to https://www.enlist.com/cgi-bin/re/freeyourtime and sign the petition. And pass this along!’

(Editor’s Note: This is an example of guerrilla marketing by Labatt
that uses a supposedly third party to promote Labatt Blue and it uses
the power of the web for geometric growth.)

• When cruising down the Queensway in Ottawa, I took a picture out my
front windshield of a Napa Auto Parts vehicle. It was not a very good
picture—kids don’t do this at home. Driving at 100 kph while looking
through a 5 mm aperture is not a good idea. It’s like driving while
using a periscope. Anyway, the bumper sticker on this Napa Auto Parts
vehicle, read: “How’s my driving?” and gives a 1-888 phone number. One
could imagine that, if you were to actually call that number, they might
try to market something to you?
• The Canadian Taxpayers Federation put 82 lawn signs (pig figures, one
for each member presumably) on the lawn outside the Alberta Legislature
to protest against the ‘obscene’ increases in Alberta politicians’ pay.
The cost for this stunt was about ten bucks a lawn sign. They got
national exposure for their story, as a result.
• Many companies have entered into litigation with registrants of the
‘acmecompanysucks.com’ domain name. This automatic knee-jerk response is
that the (insert your company name here)sucks.com holder is infringing
on your company trade mark right? The www.sucks.com people (Dan Parisi)
have maintained that these sites are places and spaces where people can
go to vent their sometimes legitimate complaints—that the right to
freedom of expression will, in effect, outrank the right of the
trademark holder, a rather persuasive argument. Some companies like
Intel and American Express are a lot smarter; rather than sue, they say
the sites are o.k. They provide management with feedback that they
probably couldn’t get any other way. Middle managers usually aren’t as
forthcoming as, say, an irate customer. It is a form of inexpensive,
independent product research—another example of guerrilla marketing
research, if you will.
• You can turn cost centres into profit centres by seeing assets where
before there were only liabilities. For example, Roger has a small real
estate company in Ottawa. He is budgeting $50,000 for marketing in the
upcoming fiscal year. His accountant, Claire, notes that many of the ads
they run and a lot of their marketing mention partners; people like
home builders, framers, landscapers, lawyers, well drillers and other
suppliers. Claire goes on to point out: “This is like the ‘mini-office’
concept applied to our newspaper ads, our on-site signage, our website
and marketing generally. We now own valuable marketing and advertising
space which we bought at basically a wholesale price. Perhaps we can lay
off some of our costs on our partners so that we can market our company
at a reduced cost or possibly even a negative cost.
• Bain Capital made an offer in 2005 to buy all 30 NHL teams. Was this a
serious offer or a bit of GM? I think this was a form of Guerrilla
Marketing for Bain Capital. They are a reputable Boston-based private
equity firm but they must have known that this would not go anywhere.
From time to time, these kinds of offers circulate. There was a similar
one for the CFL about ten years before this. They never go anywhere
because there is a concern (rightly, I believe) about competitiveness.
If one firm owned all 30 NHL teams as Bain suggested and operated each
NHL team as a company-owned franchise, then it would be mighty tempting
to pre-select the Stanley Cup winner every year for heightened dramatic
or commercial effect much as, say, the WWE does with wrestling matches.
They pre-determine the winner for maximum drama and ratings. It would be
relatively easy to do if, for example, one team decided to trade all
its top stars to another just before the playoffs and then somehow got
them all back at the start of the next season… Also, buying the teams
without their buildings would be incredibly stupid and the people at
Bain Capital are really smart people so I am pretty sure this was just a
stunt. They got mainstream media coverage: huge television, radio,
newspaper and Internet exposure and buzz. It was all free ‘earned media’

     Prof Bruce @ 3:04 pm

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         The Seven Measures of Business Success        

   Posted on
       Monday 28 December 2009  

I think that business success occurs when you can say that you achieved all or most of the following. You:

1. Set the bar high for yourself, your colleagues and stakeholder
group (your entire enterprise and business ecosystem) in terms of not
only your financial goals but also in terms of engendering trust,
protecting your reputation and achieving non-financial goals as well.
2.     Used your talents, creativity and energy to the maximum and made each day count.
3. Took care of the business so that the business could take care of your family and your family could take care of you.
4. Didn’t become a burden on your society.
5. Made a profit.
6. Took care of your stakeholder group and, to the extent you could, your fellow human beings.
7. Kept what you worked so hard to create and, when it was time, you passed it on successfully.

Prof Bruce

     Prof Bruce @ 11:30 am

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         What is Business Success and How to Achieve It?        

   Posted on
       Sunday 27 December 2009  

Where Should I  set the Bar?

Success is something most people seek. I say ‘most people’ because
some do not—perhaps they lack the courage to seek it, or they define it
so that the bar is set so low that they can’t help but achieve it or
they fear success.

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.

It’s not logical for people to behave in this way, it just happens to
be true in some cases. People aren’t necessarily logical. Understanding
this about yourself (self-knowledge) and about others is very important
in trying to become more successful and in taking a path that will lead
to success.

Why is Business Success Important?

So why is business success important?

A successful business person, Peter Patafie, owner of Patafie’s
Packaging and Moving Supplies came to the University to give a speech
about entrepreneurship at my invitation.

Peter is an up by the bootstraps kind of guy. At age 45, he got laid
off from his sales job selling moving and packing supplies because he
was making too much money (more than the President). The job was on a
commission basis only—he was paid no salary. The President of the
company thought he had hired a sucker—someone he didn’t have to pay
unless Peter actually made a sale. Yet Peter had confidence in himself
and he was right. The President came to regret his decision. He called
Peter into his office one day and asked Peter to take a salary instead,
which, of course, would mean a pay cut. Peter refused and was fired.
Still, he had a wife and three kids to support. Never having finished
high school, Peter was concerned: “What am I going to do?”

Well, he started his own business in the one business he knew and
understood: selling moving and packing supplies. He started with less
than $5,000 but he had a great reputation, he knew how to sell plus he
could get product on credit from his suppliers because they trusted him. Also, in a pretty mundane business, he brought some creativity to it.

He had a great insight. He realized that the salespeople for his
clients (mostly moving companies) spent a lot of their time redelivering
packing and moving supplies to their clients. In other words, he was
worried about his clients’ clients.

He went to the moving companies with an irresistible proposition: “What
if instead of delivering moving boxes to your warehouse and then having
your salespeople redelivering them to people who are moving, I save
them the time and trouble and I deliver the boxes and moving supplies
directly to the people who are moving. That way, your salespeople can
spend more time selling (moves) and less time delivering boxes?”

Peter ended up with a 97% market share (better even than Microsoft’s
OS!) Within six years he had built a business that did $13 million per
annum with a gross profit margin of about 30%. He told me he never
expected to make that kind of money—twice a year he gets together with
his employees and shares part of the profits with them.

He told the attendees that day that he had three priorities in life:




One of the attendees asked Peter: “Surely, you mean TAKE CARE OF THE FAMILY is your number one priority?”

But Peter stood firm. He explained it this way: “What is the
number one cause of divorce: a) Alienation of Affection or b) Financial
Difficulties? The answer is b). Having creditors call you at home for
payment puts tremendous stress on a marriage. Trust me, I know. Sure
people may say that they fell out of love but often the root cause is
financial pressures.”

So he concluded if you take care of your business, it will take care
of your family, not the other way round. And your family will take care
of you.

What are the Moral Underpinnings of Success?

Success in business is important not only so that the business can
take care of your family and your family can take of you. It also allows
you to fulfill your duty to your society.

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

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

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

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

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

The moral underpinnings of capitalism are:

a. Self organization to achieve optimal production of goods and services;
b. Efficiency and environmental sustainability are linked;
c. Private ownership of the commons also means careful husbandry of resources;
d. Take care of your business;
e. Take care of your family;
f. Take care of yourself;
g. Don’t become a burden on society;
h. Look out for the interests of others once you have first taken care of your family and yourself.

What is Business Success?

If you give due regard to the above then, in a successful enterprise,
you are also assisting others to do the same—these are your

Your stakeholder group includes:

• your shareholders,
• your employees,
• your suppliers.
• your suppliers’ suppliers,
• your clients,
• your clients’ clients,
• your whole business ecosystem.

Business success means making a profit—‘profit’ is not a dirty word.
Yes, it allows you to have material well being for yourself and to
acquire things that you could not otherwise afford but it does much

• allows you to reinvest in the business,
• allows you to invest in the best technology,
• allows you to pay for the continuing education of your workforce and your suppliers’ too,
• sustains the enterprise in downturns,
• gives all stakeholders confidence in your enterprise—they trust you, a
crucial factor in the sustained success of any enterprise,
• allows you to produce the best products and services and, thus, to the
create the greatest benefits for your clients and customers.

Can you Summarize that?

Well, from the above we can say simply that business success occurs when you have:

1. Set the bar high for yourself, your colleagues and stakeholder
group (your entire enterprise and business ecosystem) in terms of not
only your financial goals but also in terms of engendering trust and
achieving non-financial goals as well.
2.      Used your talents, creativity and energy to the maximum and made each day count.
3. Taken care of the business so that the business could take care of your family and your family could take care of you.
4. Not become a burden on your society.
5. Made a profit.
6. Taken care of your stakeholder group and, to the extent you could, your fellow human beings.
7. Kept what you worked so hard to create and, when it was time, you passed it on successfully.

How do you Achieve Business Success?

I have been asked over the years if I can come up with some ‘rules to
live by’ in order to become a successful entrepreneur. I think those
‘rules’ might also apply to anyone in any field of endeavour. So I put
together this list which might help guide you in your quest to become
successful in business. The list is a mixture of new age philosophy and
ideas as old as civilization. I am not claiming originality here.

I believe that to be successful, a person needs to aspire to become
some combination of the ‘impeccable warrior’ (from Carlos Casteneda’s
The Yacqui Way of Knowledge), Good Samaritan and Atticus Finch (a wise,
compassionate, courageous, learned character in Harper Lee’s To Kill a

1. Be someone others can have trust in. Trust is the foundation of a successful life in business.
2. Under promise and over deliver.
3. Develop some self-knowledge.
4. Be in touch with your gut (instincts) and your subconscious.
5. Be the same person in private as you are in public—don’t be a phony.
6. Behave ethically.
7. Live a healthy lifestyle—all things in moderation. Don’t drink and
think. Get some exercise. Don’t take drugs. Don’t smoke. Eat reasonably.
Enjoy the life you have been given and enable your body and your mind
to work to their full potential unclouded by substance abuse. Exercise
some self-discipline. Get enough rest.
8. Give people including yourself, a second chance (but not a third chance).
9. Be a Good Samaritan and a good citizen.
10. Be humble—walk a mile in someone else’s shoes. Be modest. Live modestly.
11. Enhance and embrace your creativity.
12. Be positive.
13. Do not fear success. Fear failure.
14. Don’t be afraid of competition—it will make you better.
15. Don’t engage in self-pity when things go wrong. Look in the mirror first before you blame others for your failures.
16. Don’t get too high or too low. Compartmentalize—try to keep going even if parts of your life are not working well.
17. Be patient. Success takes years of effort. The harder you work, the luckier you get. There are no shortcuts.
18. Lead by example. Be committed. Focus. Be competent. Show up every day for work—the ‘show’ must go on.
19. Do things in parallel. Be a good team member and friend and colleague.
20. Seek out others who share these characteristics—surround yourself
with good people. Probably the most important decision you will make is
who to select to be on your team. They must trust you. You must be able
to trust them.
21. Take responsibility for yourself. Pull yourself up by your
bootstraps and help others to do the same. Accept help if offered and
seek it when you need it. When something isn’t working, change. Stick
together and reach out to others.
22. Learn from your experiences—don’t make the same mistake twice.
23. Get the Business Model Right so the harder you work, the more money you make.
24. Work smarter and harder.
25. Expect a great deal from yourself—use your given skills, creativity and energy fully.
26. Empower those around you. To be a successful entrepreneur, you need
to able to lead and co-ordinate your team. Team members are not only
your employees but also your suppliers, your clients and customers and
your banker, your shareholders, your lawyer, your accountant, the media,
the community-at-large, community associations, trade associations,
politicians, government ministries, regulators and many others. People
make better decisions when they are fully informed; don’t hoard
information. A team that is top down directed can only move as fast as
the entrepreneur—you, can move. Teams that are networked with you at the
centre of an interconnected, communicating web move much faster and are
synergistic plus they are learning organizations.
27. You aren’t necessarily in a popularity contest as a leader—your job,
rather, is to make your views, positions and goals popular amongst your
broadly defined team.
28. Never lead-by-fear. Remember that real power comes from ability, not
the organizational chart, not from age, not from title or position.
29. Don’t postpone what you can do today to tomorrow.
30. Have a vision and set goals for yourself and your organization.
Communicate your vision in a way that engenders hope in all those around
you. Hope is the sine qua non of the human condition.
31. Keep your head when all those about you are losing theirs. (Thanks to Rudyard Kipling for this one.) Be calm in a crisis.
32. Be able to think on your feet.
33. Develop perspective and good judgment.
34. Give everyone (employees, suppliers, customers, shareholders, banks,
all stakeholders) feedback both positive and NEGATIVE—communicate.
Spread the credit when things go well. Thank people.
35. If you’re not sure about someone, an employee, a supplier, whatever,
fire them. If you don’t trust someone, don’t associate with them in any
36. Always prepare ahead of time. Have the discipline to write down your
analysis and your decisions, verbalize them and check them again. Take
24 hours to think things through. Sleep on it. You will find ways to
make MUCH better decisions if you do this.
37. Pay attention to detail.
38. Check everything and everyone three times. Triangulate on people and information.
39. Creditor proof yourself so you can focus on the business or
organization and have some peace of mind and a clear mind to deal with
the issues and problems of the day.
40. Learn to cope with stress (not by drinking or taking drugs or losing your temper or …). Find a way.
41. Spend as little time as possible on recriminations; focus on the
here and now and how to solve the problem. If something isn’t working,
admit it and then either stop doing ‘it’ or change ‘it’. Try to avoid
litigation which is a soul destroying, time sucking, negative energy
type of thing.
42. Never delegate your personal or organization’s core competencies. Be available: problems only get worse if you ignore them.
43. Education is a lifelong process—you never get old as long as you are capable of and open to learning new things.
44. Practice, practice, practice—it takes practice, commitment and preparation to master any field of endeavour.
45. Be able to resist all manner of temptation like the seven deadly sins: pride, envy, gluttony, lust, anger, greed and sloth.

Why is it Important to Resist the Seven Deadly Sins?

To be successful, you must possess power: power to change things, to influence others and to make things happen.

Lord Toranaga (a principal character in James Clavell’s 1976 novel,
Shogun) became a successful leader, in part, because he was able to
master himself above all else. He learned to resist strong emotions and
to think clearly when everyone around him was panicking. Clavell, in my
view, understood the nature of individual power—it comes from within.

Let’s look at how resisting the 7 Deadly Sins might help your enterprise:

1. Let’s start with lust. Just think of the difficult circumstances
that Tiger Woods is currently facing and you can immediately see what a
lack of control over this aspect of your life can do to your career, not
to mention your marriage and family. Think back a bit further—Donald
Trump’s personal and financial circumstances changed radically (and for
the worse) when he installed a mistress in a condo around the corner
from his head office and then started to have long, liquid lunches with
her. Before (and after) The Donald had been a teetotaler. And he was
successful both before and after but not during these events.
2. Pride. This sin prevents people from concluding successful
negotiations more often than not. In an essay titled ‘Don’t be Afraid to
Make the First Move’ (https://www.eqjournalblog.com/?p=557), you can see
how pride gets in the way of deal making.
3. Greed. Let’s face it, lawyers are trained to go into every situation
with just three things on their minds: a. how to win on behalf of their
client, b. how to game the situation so they can generate more billable
hours and c. how they can protect themselves from liability. That’s it.
They only understand situations that create one winner and one loser.
Deal makers and peace makers understand that you have to leave something
on the table for the other party. In a commercial negotiation, if you
leave something on the table for the other party, you have a pretty good
chance of turning that party into a long term client or loyal supplier.
4. Wrath. When you get angry your IQ drops (by about 10 percentage
points). You lose your ability to think around corners, think outside
the box or see the other person’s point of view. One thing you have to
admire about Barrack Obama, he keeps his cool. If you are going to lose
your temper, don’t, just pretend to. That way people will know you are
making a point of emphasis and you will know it too.
5. Sloth. I have never known a lazy entrepreneur who was successful.
Maclom Gladwell says (in his book, Outliers) that it takes 10,000 hours
to master your craft. Sir Terence Matthews (Founder of Mitel, Newbridge
and March Networks) says it takes 7 to 12 years to create a great
business. For most people, it takes even longer.
6. Envy. There are many attributes about Canadians that are admirable
but the desire to tear down the tall poppy is not one of them. Early in
his NHL career, Wayne Gretzky was widely unpopular amongst young males.
Why? The stated reason was: “He doesn’t fight.” The real reason? He was
mega successful and had a cute girlfriend. In the US, when your best
buddy, say, Leo DiCaprio, hits it big, Leo brings his whole crew along
for the ride (like Vince inEntourage). They celebrate his success
together. You can learn from examples of success and then you can focus
on what you can do to make your own life better.
7. Gluttony. If you are not fit for life, you won’t be a leader. You
need energy and concentration—if you are consuming mass quantities of
food and alcohol and other substances, forget about it—you’ll go

Now I realize that no one is perfect and that everyone is subject to
temptation. We all fall short. So remember to be tolerant of the faults
in those around you and in yourself. Most people deserve a second (but
not a third) chance. Heed Plato’s words: “Be kind, for everyone you meet is fighting a hard battle.”

Why Should I Bother Practicing?

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

They practice. A lot.

I worked for a really tough guy in the 1980s—he was a PhD in
Engineering Economic Systems from Stanford and that is one tough degree
to get at one of the world’s top universities.
He didn’t brook shoddy performances and, frankly, was no different than
the toughest Director—he wanted the best from his employees (actors) and
demanded that from everyone, including himself.
Everyone I knew who worked there kind of feared him.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I happen to believe that being reasonably well organized and living
in a clean environment is a good thing. So I re-learned what my mother’s
people knew—they came from Russia and if they had to clean their
carpets, they swept them with a broom. Not too many Russian peasants had
vacuum cleaners, circa 1909. Of course, none of them did but it works
just fine. And if the broom couldn’t get all the dirt, I would get done
on my knees and pick up lint piece by piece, no problem.

I have never known a lazy, successful entrepreneur.

Prof Bruce

     Prof Bruce @ 5:06 pm

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25 Steps to Business Success


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Goal Setting


Political Economy


Why Businesses Fail


         ROI is Measured in Terms of CPMs and Engagement        

   Posted on
       Tuesday 22 December 2009  

In an essay titled How to Measure the Value of Earned Media (https://www.eqjournalblog.com/?p=508),
I looked at ways to measure Return on Investment (ROI) using a
conventional methodology—CPM, Cost Per Thousand. Ryan Anderson, one of
Canada’s leading experts on social media mentioned that I was
underestimating the value of guerrilla marketing if I only looked at
CPM. In other words, it isn’t enough to just know how many thousands of
pairs of eyeballs have seen your stuff. The other dimension that needs
to be measured is engagement.

This seems intuitively right to me; if someone reads an article about
you or your organization because of a successful GM (Guerrilla
Marketing) campaign your organization conducted, is that the same as
seeing a mention of your enterprise in an ad somewhere? Probably not.
The difference is the level of engagement with what he or she is seeing,
hearing, reading or feeling when they come upon a mention of you or
your firm.

I had an example of this yesterday. I was working with a student on
her fashion and design startup; she is funding it, in part, with
sponsorship money. She is constructing a CPM measure to demonstrate the
value of these sponsorships for her partners. But it was also obvious
that Ryan was right—the CPMs by themselves don’t tell the full story.

As she gets ready to take her new women’s fashion and design shop on
tour of major cities in N.A. and elsewhere, her sponsors expect and will
receive plenty of media mentions in RL (Real Life) and online. That’s
the CPM side of things. But for her sponsors (perfume, jewelry,
magazines, fashion bloggers, music publishers, wineries, distilleries,
breweries, makeup, potions and lotions, etc.), they want more—they want

Now how would she generate that for her sponsors? Well, they are some
simple things she can do. For example, she can give out samplers—of
perfume, magazines, CDs, wines, spirits, beer, makeup, potions and
lotions—at each of her events. You would have to agree that someone who
tries your perfume on her skin is more engaged than someone who flips
through a magazine and sees an ad for that perfume.

So how can she measure the value of this type of engagement? Maybe
the advertising business needs a new measure, let’s call it CPMt.

CPMt might be a measure of cost per thousand views adjusted for the
length of time that people interacted with or viewed the product or

So let’s say that a sponsor or advertiser was willing to pay $15 per
thousand views, which is pretty typical for a good quality magazine or
blog spot.

The typical view time for an ad or sponsor mention is around 200 to
250 milliseconds. This is enough time for most people to recognize
facial expressions and absorb emotional responses. Reaction time for the
average person is about 100 milliseconds. To also help you put this in
perspective—most people won’t wait longer than 250 milliseconds for a
page on the Internet to resolve. So a quarter of a second (250
milliseconds) is actually quite a ‘long’ time.

So a typical ad or sponsor mention would generate a CPM of: $15 per
thousand views. But what if just 1% of all views were longer—say, long
enough to dab some perfume on your wrists and behind each ear—30 seconds
(i.e., 30,000 milliseconds)?

The impact is dramatic as we will see in a minute.

But first, let’s create a formula for CPMt.

CPMt = CPM / (t / 100,000 milliseconds)


CPM is your conventional cost per thousand and t is the total viewing
time or viewing and interaction time measured in milliseconds.


t = [(30 seconds/engagement x r x 1,000 engagements x 1,000
milliseconds/second) + (250 milliseconds/view x (1-r) x 1,000 views)]

where :

r is the proportion of engaged viewers versus normal viewers.

So the units for CPMt are costs per hundred thousand milliseconds .

I have made it easier for you—you can download a spreadsheet from our server in .xls format that will calculate CPMt for you: https://www.ottawarealestatenews.com/CPMt.xls. All you have to do is put in the CPM and the percentage of engaged viewers and CPMt numbers will be generated automatically.

You can also change the average duration of a typical view or the
average time for engagement and this will give you your own estimate of

In the example above, if each 1,000 views are typical ones (i.e.,
they last for 250 milliseconds per view), you get a CPMt of $6.00 per
100,000 milliseconds of viewing. If just 1% of views are of the longer
duration type, the sponsor’s cost to produce 100,000 milliseconds of
views is just $2.74.

Put another way, by directly engaging her audience in experiencing
her sponsors’ products, my student entrepreneur can deliver a lot more
value for the same investment.

When a sponsor invests $10,000 in her enterprise and assuming the
appropriate CPM number is $15.00 per thousand, she would normally be
generating 666,667 conventional views for them during the tour. But if
1% of her viewers are directly engaged, the adjusted number of views*
jumps to a whopping 1,460,000. That is an increase in ROI for her
sponsor of 119%.

(* We have adjusted the number based on the idea that an engaged
viewer is worth more than a casual viewer—the adjustment is simply the
total time of the engaged scenario divided by the total time where none
of the viewers are directly engaged. You can use the spreadsheet to
generate those numbers for you as well.)

This is a powerful new tool to demonstrate that not all sponsorships and advertising campaigns are created equal.

Prof Bruce

Postscript: here are the calculations for the above scenarios.

CPMt Calculator and ROI for Advertisers and Sponsors

CPM $15 per thousand views 1,000 views
Average View Time 250 milliseconds Typical Ad
Total View Time 250000 milliseconds 1,000 milliseconds/second
CPMt $     6.00 per 100,000 milliseconds 100,000 milliseconds

CPM $15 per thousand views
Average View Time 250 milliseconds Typical Ad Conventional Views
Average View Time 30 seconds Engaged Direct Engagement
Number Engaged 1%
Number Typical Views 99%
Total View Time 247500 milliseconds Typical Ad Conventional Views
Total View Time 300000 milliseconds Engaged Direct Engagement
Grand Total 547500 milliseconds
CPMt $     2.74 per 100,000 milliseconds

Investment $10,000
Total Number of Conventional Views 666,667 views
Total Number of Conventional Views (adjusted) 1,460,000 views
Increase in ROI for Sponsor 119.0%

     Prof Bruce @ 4:22 pm

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        Filed under:

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Value Proposition


         Trade Credit/Supplier Credit        

   Posted on
       Tuesday 22 December 2009  

An Increasingly Important Source of Bootstrap Capital

In 2009, trade credit (or supplier credit) has surpassed bank lending
as a source of finance for business in the US. TC amounted to $2.15
trillion this year versus $1.5 trillion in bank lending (which was down
more than 6.5%, year over year) according to data from the US Federal

For startups, trade credit or supplier credit is a key source of
funding. For a nascent homebuilder, say, suppliers may extend credit for
everything from concrete foundation work to trusses, lumber and
drywall. Even lawyers, architects, structural engineers, surveyors,
soils engineers and other professionals may extend credit for their
services until completion of a sales transaction.

Now why would they do that?

• First of all, they do it because they trust the business they are providing credit to, to eventually pay them.
• Secondly, they want to expand the market and their market share—one of
their key weapons for doing that is to provide credit to the firms that
buy from them.
• Thirdly, this tends to lock clients into their business
eco-system—once the client has been approved for trade credit, they tend
to buy from the same source over and over again using their approved
credit facility on a revolving basis.
• Fourthly, once the client establishes good credit, they can always
apply for a higher credit limit and expand their business further using
OPM—Other People’s Money, i.e., credit extended by their supplier or
• Fifthly, suppliers expect to be paid not by their clients but by their
clients’ clients—in the case of the homebuilder, for example, cashflow
is actually coming from homebuyers. So the supplier is actually funding
(indirectly) the credit rating of their client’s homebuyers.
• Sixthly, suppliers want their clients to stick around for a long time.
They will often go out of their way to help out a loyal client who
perhaps gets into financial difficulties by giving them better terms on
their financing, forgiving portions of their debt or even trading debt
for equity. If a bank hears you are in trouble, they’ll more than likely
call your loan. Most suppliers will remain supportive (to a point).

The homebuilder may be able to get credit from not only suppliers of
construction materials and professional services but also from
landowners. Landowners might sell the homebuilder some lots and take
back financing on the lots so again they get paid when the homes sell.
This greatly reduces the amount of capital a startup homebuilder would
need. They might also be able to source startup capital from their
clients in the form of deposits on each home sold.  

Let’s look at another business—the promotional products business.
We’ll call the business Acme Promotional Products. Again, Acme’s clients
will be a prime source of capital if the business takes, say, deposits
of 50% on each order, up front. The business might also arrange trade
credit with suppliers—maybe they pay 1/3 down with each order and the
balance 30 days after delivery.

Let’s look at Acme’s cashflow. Let’s assume that they do only one
transaction in their financial year in the amount of $300 and their cost
of goods sold is $200. They pay 1/3 of the order up front to their
supplier (i.e., $66.67) but they get a deposit of 50% from the client or

A good indicator of what their cashflow will look like is to calculate their Cash Conversion Cycle (CCC)?

The CCC is an important tool for entrepreneurs to use—if it is 0 or
negative, then entrepreneurs can probably grow their businesses without
the need for outside funding.

You can determine your CCC as follows:



CCC* is Cash Conversion Cycle,
ART is Accounts Receivable at Year End,
INVT is Inventory at Year End,
APT is Accounts Payable at Year End.

(* To make it easy for you, you can download a spreadsheet in .xls format from our server at: https://www.dramatispersonae.org/BusinessModels/CashConversionCycleMeasurement.xls. You simply insert the figures for ART, INVT and APT and the spreadsheet will automatically give you your CCC number.

You may prefer using our CCC calculators in your browser, so we also put them up for you at: https://sheet.zoho.com/public/profbruce/cashconversioncyclemeasurement.)

For Acme, we can figure out their CCC as shown in postscript 2 below.
In this simple model, their Cash Conversion Cycle is a healthy -61
days. What this tells you is that the faster that Acme grows the more
cash they will have on hand.

This is a non-trivial advantage for them. If they had to rely on
their Bank to fund their AR, they are vulnerable to a change in Bank
policy, the appointment of a new Account Manager, rumors spread by a
competitor that might frighten their Bank into calling their loan and
lines of credit or an overall downturn in the economy that results in a
decrease in Bank lending. In this case, Acme is relying instead on their
customers and their suppliers to provide them with their financing.

What if Acme, instead of asking for half down from their clients only
got paid when the order was delivered? What happens to their CCC? It
becomes a horrible +122 days. So even though they are only giving their
suppliers 1/3 down on each order, waiting to get paid by their customers
means that they have to find outside financing for each order and now
they are in hock to and reliant on their Bank, with all the attendant
downsides I described above.

Of course, if they don’t pay anything to their supplier
until they get paid, then their CCC will be exactly 0 which is better
than +122 but not as good as the payment plan, receivable plan and
inventory management system we started with. Seemingly small changes in
company policies can produce big  changes in your CCC and cashflow so this is an area that needs more focus and attention.

Most entrepreneurs and many businesses do not give enough thought to
this. We had one client of ours, a top notch advergaming firm, nearly go
out of business despite: a. fantastic growth in their order book, b. a
client list to die for (including several Fortune 50 and Fortune 500
companies) and c. having tremendous technology and creative resources
within the business. Each time they signed a contract, they had to hire
more, highly paid tech developers and build their ‘pipeline’ to deliver
the product. They forgot to get any money up front from their clients
and didn’t even receive progress payments when they hit certain project
milestones. For complex projects that lasted a year or more, they had to
wait until delivery plus 30 days to get paid—it was feast or famine for

As a result, they needed huge amounts of capital from their Bank,
which predictably enough put them in a precarious position. I was called
in when the Bank had called their loan and the firm was threatened with
extinction. We got the Bank to agree to a 90-day standstill agreement
and then we asked their client base for help. Practically all of them
came to their assistance.

Now their biz model calls for 1/3 deposits up front with each new
contract and progress payments that always put the firm out front in
terms of cashflow. Only 10% is due upon final delivery. Their CCC went
from over +300 days to a -40days and the firm went on to do really great

If you think this only applies to SMEEs, you’re wrong. Think about
Dell for a minute. They don’t build computers until they have an order
and they require that you pay 100% (and sometimes more than 100%) up
front. Once they have your money, your PC is built by a Dell supplier
who only gets paid, say, 30-days after delivery. I guesstimated Dell’s
CCC at -45 days. In fact, it may be better than this—Dells tries to
upsell you on ‘value added’ services like a full, multi-year extended
warranty for parts and service that they hope you will never actually
use or they will never actually have to deliver (remember ‘Dell Hell’?)
The impact of Dell receiving > 100% of the price upfront on their
cashflow is a big plus for them, not so much for you.

So one of the keys to Bootstrap Capital is to not need startup
capital in the first place! You can help do that by looking for
financing in the deal flow itself; i.e., start with a CCC that is
negative. You can get capital from your clients and from your suppliers
and you should try to get as much as you can (within reason) from both.

Prof Bruce

Postscript 1: Sometimes your suppliers can be coaxed into giving you
not only trade credit but cash too. If you are an automotive company,
for example, a good place to look for the cash you need to fund the
required R&D for a new car line would be from your suppliers. They
will ‘sponsor’ your efforts in the hopes of securing supply contracts
for the new assembly line. Think this only applies to large firms? Think
again. Many startups could find funding in sponsorships except that
they just don’t think in those terms.

One of my students wants to start her own women’s fashion and design
firm in Montréal and she isn’t sure where she will get her startup
capital. Every VC and Angel Investor she has talked to has turned her
down—not a field they are interested in.

Instead, we sketched out a program to ask perfume companies, jewellry
firms, fashion magazines and bloggers, wineries, distilleries,
breweries, sunglasses manufacturers and others to sponsor her first
event in Montréal; after a successful launch there, she will go on tour
of major cities in Canada, the US, Europe and Asia and her sponsors will
go with her.

Why would they each contribute money to this? Again, first of all,
because they trust her. Secondly, she is passionate about what she does.
Thirdly, she has a very different approach to fashion and design which I
can’t disclose here. And they want to be associated with something
avant garde like this.

Postscript 2: We calculated Acme’s CCC as follows:


CCC Measurement- Promo Products Biz** Number Units

Accounts Receivable at Year End (AR) $150
Days Per Year 365.25 Days
AR x Days Per year $54,787.50 Dollar-Days/Annum
Annual Sales $300 Dollars/Annum
AR x Days Per year/Annual Sales 182.625 Days ART

Inventory at Year End (INV) $0
Days Per Year 365.25 Days
INV x Days Per Year $0.00 Dollar-Days/Annum
Cost of Goods Sold (COGS) $100 Dollars/Annum
INV x Days Per Year/Annual Sales 0 Days INVT

Accounts Payable at Year End (AP) $     133.33
Days Per Year 365.25 Days
AP x Days Per year $48,700.00 Dollar-Days/Annum
Cost of Goods Sold (COGS) $200 Dollars/Annum
AP x Days Per year/Annual Sales 243.5 Days APT

CCC* -60.875 Days

** For demonstration purposes only.

Payables Down 0.333333333 0.666667 In 30 days
One Sales Transaction

     Prof Bruce @ 12:25 pm

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         What’s Legal versus What’s Right        

   Posted on
       Sunday 20 December 2009  

Customer Service at Its Worst

A few years ago, Ottawa experienced enormous snowfalls—well above
average. That winter (2007-08), Ottawa had the second highest amount of
snow on record (432.7 cm.) Our snow plowing contractor, who had been
satisfactorily removing snow for us at our home in Kanata for more than
15 years, faced a crisis—like many of his competitors, he was running
out of money due to the extramedia amounts of fuel, labour and
maintenance he needed to pay for.

So he consulted with his lawyer who told him that all of his
contracts included weasel words that the lawyer had put there in the
first place that would allow him legally to hit up his clients for more
dough. “Great,” he said, “draft me up a letter that I can send to

We received a demand letter a few days later as did all 249 of his
other clients. Basically, it said that he had the legal right to demand
more from each of us and that if we didn’t pay up by a certain time and
date, he would no longer provide us with service. During the toughest
winter in more than 30 years, he was threatening to leave us in the
lurch if we didn’t pay up. The letter also made clear that we had no
recourse: that we couldn’t sue him for non-performance under the
contract since he had this right built into the fine print of the
contract which we had duly executed.

At that time, I had no idea how other families in Ottawa were
reacting to this but after talking it over with my wife, I called the
guy. I noted the fact, that snowfall had been trending down over the
years and that there had been many seasons when he had not been to our
home very often and that he must have banked many off-hours during those
times. I mentioned that we had been good clients for more than 15 years
and also that his drivers had missed the third lane of our driveway
about a quarter of the time and, after telling them a few times, we had
basically given up and removed the snow ourselves by hand from that part
of the driveway.

He told me that his lawyer had told him that he couldn’t make any
exceptions; he needed to treat everyone the same—he was simply asserting
his legal rights under the contract we had signed.  I then politely
told him we would take care of our own snow clearing for the rest of the

We don’t react well to threats. Who does?

I have never understood why lawyers feel they have to talk tough.
Does that ever get anyone anywhere except in Hollywood westerns?

Five days later we got the largest single dump of snow—more than 100
centimeters (> 3 feet). There was no chance of getting another
contractor that late in a difficult year so we were truly on our own.
And there was no way we weren’t going to dig ourselves out of it—we were
going to get mobile, no matter what.

My two boys and I got out there and started digging and later on our
three girls and my wife took pity on us and came outside to help. My
youngest daughter had the tiniest shovel you can imagine but she
doggedly shoveled all the walkways.

It turned out that not one of his 250 clients paid that guy anything additional and the following year, not one of his clients renewed with him, not one. He was OOB—out of business.

Compare this with the approach of another contractor in another part
of the City, JR Snow Removal, who didn’t have the ‘benefit’ of legal
advice. He asked his clients if they would voluntarily* help him out
with his extra costs and, lo and behold, 85% of his 550 customers sent
him, on average, an extra $60. The next year, 98% of his clients renewed
with him.

(* By the way, he also had the legal right in his standard contract
to demand additional payment for snowfall above 250 cm. At about $1.50
per cm., that would have entitled JR to an extra payment of (432.7 –
250) x $1.50 or a whopping $274.05 per household. This is on top of a
typical residential contract amount of about $300 per season. Average
snowfalls in Ottawa are 235 cm.)

So what your legal rights are and what you actually do are not or
shouldn’t be the same. Where ethics and the law diverge, ethics should
guide you not the law, in my view. Was it legal to send that demand
letter? Certainly. Was it ethical to demand more money from hard pressed
households and to threaten them with a cutoff of service in a tough
winter like that? Probably not. Was it smart? Absolutely not. I have
argued elsewhere that good Customer Service is always a profit centre.
Poor customer service (like the Kanata case above) can produce the worst
possible outcome—total destruction of your business.

Prof Bruce

Postscript 1: I must caution my readers to be careful around lawyers.
They can think around corners in a way that most others can not (media
types and politicians can do this too). In litigation, they can examine
pretty much every part of your life and make you miserable with repeated
requests for more information and through depositions, examinations for
discovery and cross examination. They know this and will use it against
you. It will eat up your time, energy and life force in a negative
holocaust that is unbounded. So while I believe that you must put
business first and legals second if you want to be successful in a
commercial enterprise, this is not the case if you end up in a legal
dispute and the other side hires a lawyer. They don’t do this to set
matters right, they only do this because they want to make you suffer.
In that case, you need a lawyer and fast. You can not and must not try
to deal with these people on your own—lawyers eat people like you and me
for lunch. If you want to get a sense of what lawyers and the legal
system can do to you, read Tom Wolfe’s Bonfire of the Vanities.

Postscript 2: I asked JR how he differentiates his snow removal
business from all the others. “It must be pretty hard to add DV
(Differentiated Value) to a service like this?” I said. “Not at all. We
do three things: 1. We do walkways for people. As the population ages,
folks are having a tough time with snow. So we send around a second crew
and they make sure walkways and steps are cleared, sanded and salted.
2. We actually have Quality Control—we carefully mark out driveways and
we tell our drivers, if they have missed the edges by six inches to take
the extra time and blow the snow exactly where we said we would. 3. We
never make any changes to our service or contract without first asking
our customers what their views are before we do it and then listening to
them too.”

Postscript 3: Asking customers what they think isn’t exactly a new
idea but listening to them might be. I recently went to a fast lube
place to get my vehicle winterized. The next day I got a nice email from
the GM of the place thanking me for coming in and asking if the
experience was satisfactory. How nice I thought. So I replied to the
email that, well, there were a couple of things that needed his
attention: a) Google maps shows their store in the wrong place and they
should ask Google to fix that and b) when they replaced the engine
coolant, they did not top it up and the warning light was coming on.
Could I come in and get that fixed? This was more than two weeks ago—no
reply. I realize now it was just an automatic email notice that I
received and that my answer has gone into a black hole that the fast
lube place has reserved for people like me who are foolish enough to
think that they were really interested in what their clients have to
say. I just went to a local automotive store today and bought myself
some coolant and topped it up myself. I won’t be going back to that
place any time soon.

What I can’t figure out is why Customer Service is so poor—it’s a
widespread phenomenon. There must be something fundamental in the way
our species is formulated because it is everywhere. We have all heard
stories about Dell Hell or horror stories about cell phone providers,
insurers, banks, utility companies, government departments, home
builders, REALTORS, car dealerships, plumbers, financial planners,
hospitals, big Pharma, what have you.

Do people not understand that the fastest and cheapest place to find
new business is from and within your existing client base? That
replacing clients who dump you because of poor CS, is very expensive?
That if you have good CS, your customer churn rate will go down and your
opportunity to upsell will improve?

     Prof Bruce @ 8:57 am

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         Want to be a Better Leader, Manager, Business Person and Human Being?        

   Posted on
       Saturday 19 December 2009  

Learn to Resist the 7 Deadly Sins

Lord Toranaga (a principal character in James Clavell’s 1976 novel, Shogun)
became a successful leader, in part, because he was able to master
himself above all else. He learned to resist strong emotions and to
think clearly when everyone around him was panicking. Clavell, in my
view, understood the nature of individual power—it comes from within.

Let’s look at how resisting the 7 Deadly Sins might help your career and life:

1. Let’s start with lust. Just think of the difficult circumstances
that Tiger Woods is currently facing and you can immediately see what a
lack of control over this aspect of your life can do to your career, not
to mention your marriage and family. Think back a bit further—Donald
Trump’s personal and financial circumstances changed radically (and for
the worse) when he installed a mistress in a condo around the corner
from his head office and then started to have long, liquid lunches with
her. Before (and after) The Donald had been a teetotaler. And he was
successful both before and after but not during these events.

2. Pride. This sin prevents people from concluding successful
negotiations more often than not. In an essay titled ‘Don’t be Afraid to
Make the First Move’ (https://www.eqjournalblog.com/?p=557), you can see how pride gets in the way of deal making.

3. Greed. Let’s face it, lawyers are trained to go into every
situation with just three things on their minds: a. how to win on behalf
of their client, b. how to game the situation so they can generate more
billable hours and c. how they can protect themselves from liability.
That’s it. They only understand situations that create one winner and
one loser. Deal makers and peace makers understand that you have to
leave something on the table for the other party. In a commercial
negotiation, if you leave something on the table for the other party,
you have a pretty good chance of turning that party into a long term
client or loyal supplier.

4. Wrath. When you get angry your IQ drops (by about 10 percentage
points). You lose your ability to think around corners, think outside
the box or see the other person’s point of view. One thing you have to
admire about Barrack Obama, he keeps his cool. If you are going to lose
your temper, don’t, just pretend to. That way people will know you are
making a point of emphasis and you will know it too.

5. Sloth. I have never known a lazy entrepreneur who was successful. Maclom Gladwell says (in his book, Outliers)
that it takes 10,000 hours to master your craft. Sir Terence Matthews
(Founder of Mitel, Newbridge and March Networks) says it takes 7 to 12
years to create a great business. For most people, it takes even longer.

6. Envy. There are many attributes about Canadians that are admirable
but the desire to tear down the tall poppy is not one of them. Early in
his NHL career, Wayne Gretzky was widely unpopular amongst young males.
Why? The stated reason was: “He doesn’t fight.” The real reason? He was
mega successful and had a cute girlfriend. In the US, when your best
buddy, say, Leo DiCaprio, hits it big, Leo brings his whole crew along
for the ride (like Vince in Entourage). They celebrate his
success together. You can learn from examples of success and then you
can focus on what you can do to make your own life better.

7. Gluttony. If you are not fit for life, you won’t be a leader. You
need energy and concentration—if you are consuming mass quantities of
food and alcohol and other substances, forget about it—you’ll go

Now I realize that no one is perfect and that everyone is subject to
temptation. We all fall short. So remember to be tolerant of the faults
in those around you and in yourself. Most people deserve a second (but
not a third) chance. Heed Plato’s words: “Be kind, for everyone you meet is fighting a hard battle.”

Prof Bruce

     Prof Bruce @ 11:50 am

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         Building Orientation        

   Posted on
       Sunday 13 December 2009  

Which way should homes and offices face to optimize daylighting as opposed to power production?

Most developers and builders take it as given that the ridgeline of a
home built in a northern shelf city like Ottawa should be east-west.
When the ridgeline (i.e., the long axis of the structure—either a home, a
condo tower or office or other type of building) runs east-west and the
front faces north, your backyard/your deck/your primary windows face

This is supposed to do several things: a) give you the most exposure
to daylight, b) maximize solar irradiation so you can warm the structure
with either active or passive solar and c) allow you and your friends
to sit leisurely on your deck or balcony during warmer weather months
for longer periods of time.

These are not inconsequential decisions that can result in a
reduction of heating costs as well as problems resulting from SAD,
Seasonal Affective Disorder. But are we sure this is right?

First, let’s look at the daylight assumption. Here we are measuring
hours of exposure to daylight not the intensity of solar irradiation. So
let’s examine the data set for Ottawa.

From first principles, we can determine that for a home with a
ridgeline running north-south and the backyard facing due west (i.e.,
your deck or balcony faces west) and the front of the home faces east,
your building will have sun coming in east-facing or west-facing windows
virtually from sunup to sundown on both March 21st and September 21st
each year. This is because the length of day at those times is about 12
hours and the sun (for Ottawa which sits about 45 degrees 25 minutes
north of the equator) rises directly in the east, moves in a ‘line’
about 22 degrees south from normal before setting in the west. At no
time do any north-facing windows get any direct sunlight. South-facing
ones are receiving daylight as well.

Now we have to examine two other conditions. What happens on June
21st (the longest day of the year) and December 21st (shortest)?

On those two days, the sun’s declination is either +23.44 degrees or
-23.44 degrees in Ottawa. At 1 pm on June 21st (it’s 1 pm not noon since
we use daylight savings time), the sun is at its peak.

Again (for your home with a north-south ridgeline), at sunrise on
June 21st, light comes flooding in your east-facing windows and at
sunset, your west-facing windows and deck are again bathed in sunlight.
What happens in between is interesting: you get direct daylight into
your home on the east side as the sun heads overhead until around 2:30
pm EDT (when the azimuth of the sun is -45 degrees) after which the
west-facing side of your home starts to receive more direct sunlight. So
even when the length of day in Ottawa is 15.73 hours, your east and
west walls add a great deal of daylighting to your home.

Now you can do the same analysis for December 21st and what you find
out is that from 0841 to 1522, you are getting more direct sun on south
facing windows; that is, for 6 hours and 41 minutes out of your 8.78
hour day, you are getting more direct sunlight and more intense
daylighting from your south facing windows. This doesn’t mean that you
aren’t getting direct sunlight in your east-facing and west-facing
windows during that time, it’s just that the sun coming in those windows
is coming in at a more oblique angle. You have to be conscientious
about not only sun-hours but its intensity too since a SAD antidote
requires a certain minimum threshold to combat it effectively.

But if you are more likely to be at home before 8:41 am and after
3:22 pm, then again, you are going to want to orient your home’s
ridgeline north-south so you can capture more daylight while you are
actually there.

This analysis is based on the assumption that combating SAD (which
can have significant mental and physical health impacts—daylight
deprivation is no joke) is a top priority for you.

Offices where we tend to be present during the period from 8:41 am to
3:22 pm might be better oriented with their long axes pointed
east-west, provided we only have offices on one side (the south side) of
the building. If you have double-loaded corridors, the offices on the
north side of the building will be horrible dungeons of deep, dark
depression for three months of the year.

Now so far, we are only looking at daylighting, not solar power
production—either passive or active. Again, conventional wisdom is to
orient your ridgeline east-west so you can capture the maximum amount of
solar irradiation during those crucial winter months.

We know that solar irradiation at the earth’s surface is stronger
when the sun is overhead. This is simple geometry. A one kilometre
sunbeam hitting the earth’s surface from directly overhead heats up one
kilometre of the surface; if the sun’s angle is, say, 30 degrees, then
the area being irradiated is SQRT [(1/ tan (30))**2 + 1**2] or 2 km;
i.e., half as much irradiation is occurring when the sun is lower in the
sky. Other factors affecting solar irradiation are the amount of light
reflected or refracted back into space by the atmosphere, dust, cloud
cover, moisture content, length of day. These are not simple
calculations which is, in part, why climatology is such a difficult

It’s obvious that solar irradiation is gong to be a lot less when the
sun is low on the horizon than when it is more directly overhead so
that, if you are maximizing capture (for either solar cells or windows
and heat sinks) during, say, the period of 0841 to 1522 on December
21st, then you should be better off with a south-facing backyard. But
wait a second, in the case of windows and walls, these aren’t
conveniently mounted at optimal angles for solar irradiation. They are
standing vertically instead. For a kilometre wide sun beam falling on an
imaginary (humongous) vertical wall facing south with a 30 degree angle
of attack, the surface length is 1.1546 km. (2 x tan (30)). This isn’t
too bad (you are only losing about 15% efficiency) so there is no need
to build yourself a crooked house.

Obviously, solar cells or hot water heating systems in your roof can
be made more efficient in the winter months by pitching the roof at an
angle above 60 degrees so they can be 90 degrees to the incoming angle
of the sun. Now, no one (outside of a Swiss Chalet) would do this (it’s
too steep) but a flat roof won’t do and less than 30 degrees is pretty
bad too since your panels will be 30 degrees off normal.

But still one has to wonder to what extent those of us who live in
northern climes want to go to maximize solar power at the expense of
significantly less daylight in our homes year round. I suspect that
aligning the ridgeline of your home in a north-south direction so that
the backyard, balcony, deck, family room, kitchen and master bedroom
(where you spend more evening hours) will face west while your exercise
room and home office (where you may spend more morning hours) face east
will become more popular. Having light from sunrise and sunset flood
your home at daybreak and day’s end is a plus, I believe.

Another reason why builders seem to prefer east-west orientations is
that they can more readily control the sun on their south elevations. On
west and east, structures are prone to uncontrollable glare, which
inevitably results in use of sun shades (thereby eliminating light).

Note this could be offset by specialty glass or similar systems… It
might be better to use Solera (as an example) on a west elevation as
compared to south, as a lower sun on the west elevation could result in a
stronger light with deeper penetration into the building.

Here are a few caveats to be mindful of:

• East and west sun tends to be lower in the sky. While this can
result in a higher penetration of light, it also results in increased
shading from adjacent trees, buildings and such.
• Many buildings focus all efforts on north and south facades and sort
of abandon east and west. East and west can play a role for daylighting
and a good design could bring in western or eastern light when northern
light or southern light is not available.
• One of the challenges wrt passive solar and daylighting from a green
building performance perspective is that a standard development model is
generally indifferent to questions of orientation. It is left to
consumers and chance to select from available options on siting and
orientation. That is why we see most innovative housing strategies such
as those exemplified by CMHC’s Equilibrium competition winners who focus
on other measures for improving their environmental performance.
• We suggest that underlying issues concerning orientation deserve more
consideration going forward. There is growing recognition that each
exposure and interior use of a building deserves a considered response.
On any major new building designed to meet the 2030 Challenge target of
60% energy reduction, we treat the envelope design for each exposure and
related interior activity differently. A new generation of development
that offers a more nuanced approach to building design and site planning
is needed—one where solar and daylight orientation are better taken
into account. Buildings have a significant role to play in our energy
future and the leveraging of building orientation is and will be an
important aspect.

I am quite sure that passive or active solar installations can work
around orientation of ridgeline—hip roofs, for example, will work fine
on end units in tract developments thus producing the desired
orientation for these applications while making daylighting more of a
priority for persons resident there. For condo and office towers, most
architects can do a great deal more to enhance livability and
productivity– they just need clients who act more like patrons instead
of developers.  

Prof Bruce with assistance and input from Ralph Wiesbrock and Mark Lucuik (see below) and Morley Oneill and Shawna Cameron

Postscript 1: An informal survey of knowledgeable people in the
industry (Ottawa-based, residential REALTORS) found that 18 out of 26 or
69.2% wanted their decks or backyards to face west while 30.8%
preferred a south orientation, that is, if they had a free choice in the
matter. I was surprised that the margin was more than 2 to 1 in favor
of west; when I asked them why, most of them simply said it’s nice to
sit on your deck or balcony and watch the sun go down but I couldn’t
help but think that they had intuitively grasped the fact that this
orientation was producing more daylight inside their homes and those of
their clients.

Postscript 2: Data Set Ottawa, Canada

Day and Month Declination Sunrise Sunset Length Length
of Day of Day
(degrees) (hours:mins.) (hours:mins.) (hours:mins.) (hours)

March 21st 0.61 700 1918 1218 12.3
June 21st 23.44 512 2056 1544 15.73333
September 21st 0.33 647 1903 1216 12.26667
December 21st -23.44 837 1724 847 8.783333

Time of Day 1000 1100 1140 1305 1430 1510 1610

Azimuth (June 21) 75.39 59.56 45.17 -0.29 -45.56 -59.85 -75.6
Time of Day 800 841 1201 1500 1522 1600 1700

Azimuth (December 21) 52.83 45.13 -0.02 -41 -45.35 -52.49 -62.98

Latitude and Longitude 45° 19′ N by 75° 40′ W 45.316667 75.66667

Storey Height 3 metres 2 storeys 3 average height of windows (m)



Comments by Ralph Wiesbrock, Partner / Principal, KWC ARCHITECTS INC. and Mark Lucuik of Morrison Hershfield:

“Good afternoon Bruce,

We took a look at your post and have the following comments:

• As you implicitly suggest, the advice, wisdom, or otherwise,
pertaining to building orientation depends on your goals and
assumptions. Your analysis privileges quantity of daylight. It suggests
some psychological benefits and the start of documentable consumer
preferences but does not delve further into the finer grain of the
qualitative aspects of daylight and orientation. Nevertheless, you have
to take into account factors like the stifling late afternoon heat and
sun on the west facing deck at Ralph’s mother-in-law’s house in Thunder
Bay; this would suggest that the issue is more nuanced than a simple
matter of orientation.
• We can more readily control the sun on the south elevation.  On the
west and east we are prone to uncontrollable glare, which inevitably
results in the use of sun shades (thereby eliminating light).  Note this
could be offset by specialty glass or similar systems….it could be
better to use Solera (as an example) on a west elevation as compared to
the south, as the lower sun on the west elevation could result in a
stronger light and deeper penetration into the building.  Having said
this, we also need to recognize that that western daylighting is simply
not there for a large part of the day.
• East and west sun tends to be lower in the sky.  While this can result
in a higher intensity of light, it also results in increased shading
from adjacent trees, buildings, and such.
• Many buildings focus all efforts on north and south facades and sort
of abandon the east and west.  East and west can play a role for day
lighting and a good design could bring in western or eastern light when
northern light or southern light is not available.
• Your post seems to be predicated on a status quo tract housing model.
One of the challenges wrt passive solar and daylighting from a green
building performance perspective is that this development model is
generally indifferent to questions of orientation. It is left to the
consumer’s chance opportunity to select from available options on the
site plan or MLS listing. That is why we see most of the innovative
housing strategies such as those exemplified by CMHC’s Equilibrium
competition winners focus on other measures for improving their
environmental performance.
• We would suggest that the underlying issues concerning orientation
deserve more consideration going forward. In the commercial /
institutional sector there is considerable and growing recognition that
each exposure and interior use of a building deserves a considered
response. On a major new institutional building that is designed to meet
the 2030 Challenge target of 60% energy reductions that we are
involved, we treated the envelope design for each exposure and related
interior activity differently.
• It would be great to see a new generation of development that offers a
more nuanced approach to building design and site planning where solar
and daylight orientation are better taken into account. Buildings have a
significant role to play in our energy future and the leveraging of
building orientation is and will be an important aspect.

So what we are saying is that your blog posting raises as many
questions and points of further discussion as it answers, and that’s a
good thing. Occupation of space (i.e. comfort – physical and
psychological) are significant factors to be considered but should be
separated from energy related performance which is the primary measure
for most discussion of solar orientation. At that point, we need to do
whole building analysis to examine the energy impacts of each potential
design decision.

Now, just for the record, Ralph’s backyard (a small city lot) faces
southwest but is blessed with a fine tree canopy that he relishes in
summer for its fine cooling microclimate. Ralph has a wonderful red
maple in the front yard and between these traditional passive solar
control strategies we avoid the use of air conditioning.

Best wishes,

Ralph and Mark”

     Prof Bruce @ 12:21 pm

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    Bruce is an entrepreneur/real estate broker/developer/coach/urban guru/keynote speaker/Sens founder/novelist/columnist/peerless husband/dad.