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Institute of Entrepreneurs/Advanced Business Model Course/Strathmere
Posted on
Monday 5 March 2012
(IOE5100 Advanced Business Models for Entrepreneurs and Intrapreneurs, MBA level)
Come to beautiful Strathmere (1980 Phelan Road West, North Gower near
Ottawa, Canada) to study with Prof Bruce from Monday July 23rd to
Saturday July 28th, 2012. In less than a week, we will help turn you
into a creative, focused entrepreneur or intrapreneur with a world class
business model that will allow you to compete with the best in the
world.
Strathmere near Ottawa
Prof Bruce is
a leader in designing and building business models for the 21st century
that allow you to compete and win in a tough competitive world.
He is best known as Founder of the Ottawa Senators, Scotiabank Place
and Ottawa Senators Foundation but he has also participated either as
principal or advisor in 168 other startups and counting. He has taught
entrepreneurship, urban economics, urban design and real estate
development at University of Ottawa, Carleton University and the
Australian National University. He is a civil engineer from McGill
University in Montreal and has his Masters of Engineering-Science from
the University of New South Wales in Sydney and his PhD in Urban
Economics from the Australian National University’s Urban Research Unit
in Canberra.
Prof Bruce
He has been at times an engineer, a real estate developer, a hockey
guy, University Prof, consultant, art collector and benefactor, broker,
writer, columnist, futurist and novelist as well as Executive Director
of not-for-profit Exploriem.org dedicated to assisting entrepreneurs and
intrapreneurs everywhere.
In less than a week, he will help turn you into a creative, focused
entrepreneur or intrapreneur with a world class business model that will
allow you to compete with the best in the world.
Schedule and Content
In six lectures, you will learn/study and do the following:
L1, Business Modeling in the 21st Century—Integrating the Internet into the DNA of your Enterprise. Slide deck: PPT file, PDF file (Lecture 9 am to Noon, followed by one hour workshop and lovely lunch)
L2, Case Studies of Self-Capitalized Enterprises—Creating Powerful,
Innovative Value Propositions and Sustainable Competitive Advantage
through Differentiation. Creating and Improving new products and
techniques in existing established companies. Slide deck: PPT file, PDF file (Lecture 9 am to Noon, followed by one hour workshop and lunch)
L3, Self-Capitalization for the Modern Enterprise—You are never too
big a company to use Bootstrap Financing techniques. Slide deck: PPT file, PDF file (Lecture 9 am to Noon, followed by lunch and afternoon adventure tour at fabulous cottage on Big Rideau Lake)
L4, Turn Selling into Buying—Effective Customer Acquisition using
Negative Cost Selling, Guerrilla Marketing, Social Marketing and Earned
Media. Slide deck: PPT file, PDF file Assignment (Blue Heron Storage Case Study): https://old.dramatispersonae.org/NegativeCostSellingBlueHeronStorageExercise.doc. Blue Heron Storage Corp Blank Spreadsheet: PDF file, Blue Heron Storage Corp Answer Spreadsheet: PDF file, XLS file (Lecture 9 am to Noon, followed by one hour workshop and lunch)
L5, Corporate Organization and Structure for Entrepreneurs,
Intrapreneurs and high level management—Creditor Proofing Yourself.
Slide deck: PPT file, PDF file (Lecture 9 am to Noon, followed by one hour workshop and lunch)
L6, Student presentations 9 am to Noon, celebratory lunch with prizes/surprises
Learning Outcome
What we are going to do together in a week is to take you on a voyage
to help you create the most compelling business models for the 21st
Century. We are going to look deep into the past (as far back as the
beginning of trading economies circa 10,000 B.C.) as well as show you
models from the decade past and the new one we are currently in that may
amaze you—ones that generate cash on three sides (not only getting cash
from customers but from suppliers and marketers too).
You will learn how it is now possible to reverse out much of your
work, to create mass customization in products and services, turn
products into services and vice versa, engage in negative cost selling
and negative cost marketing and much more.
Outputs
You will complete these assignments:
A. Build/Improve/Adjust your Business Model (50%)
B. Produce and record your 2-Minute Elevator Pitch on YouTube (if public) or otherwise (if private) (20%)
C. Present your Business Model (30%)
For more on outputs, please see postscript below.
Ten Reasons to Attend IOE5100
Are you a talented entrepreneur, intrapreneur, 3rd, 4th or MBA-level
student, product manager, executive, supply chain manager, high level
manager/executive or enterprise founder? If so, here are ten reasons why
you or someone from your organization should take this course:
1. Receive an IOE Certificate for course work in a condensed one-week period.
2. Create and improve your Business Model so the harder you work, the more money you make.
3. Craft and improve on your value proposition and then turn it into a fantastic elevator pitch and YouTube viral hit.
4. Learn and expand your knowledge about self-capitalization for modern
enterprises, effective customer acquisition using Negative Cost Selling,
Guerrilla Marketing, Social Marketing and Earned Media.
5. Take advantage of personal mentoring by Prof Bruce during the retreat
as well as a 6-month and 1-year follow up with Prof Bruce! Access to
IOE Newsletter only available to former IOE students.
6. Surround yourself with competitive individuals who share your passion for entrepreneurship and intrapreneurship.
7. Learn the entire entrepreneur skill set—A to Z.
8. Take a one-week, learning, guilt-free ‘vacation’ and escape deadly routine.
9. It’s held in friendly, world-class resorts! Includes: adventure
tour/cool takeaways (Entrepreneurs Handbook, YouTube Elevator Pitch, Biz
Model, Graduate Certificate, Commemorative Collectible Institute Pin
and advance/signed copy of Quantum Entity, a novel about an
extraordinary group of young people who found a globe-spanning tech
company*).
10. It’s cost effective-special introductory price. It’s world class. It’s team building. It’s adventure. It’s fun.
(* To read the Foreword of Quantum Entity, please go to: https://www.eqjournal.org/?p=2932.)
Takeaways
Here’s what you will take away from IOE5100:
A. Entrepreneurs Handbook II (Read the Foreword here: https://www.eqjournal.org/?p=3179)
B. Student Entrepreneur Business Model
C. 2-minute Elevator Pitch video on YouTube (if public) or unlisted (if not)
D. Masters-level Certificate and Commemorative Collectible Institute Pin
E. Advance copy of Quantum Entity, a novel written by Prof Bruce to be
released in 2012 and signed by the Author together with your very own
Worry Doll**
(** Excerpt from Quantum Entity re. Worry Dolls: https://www.eqjournal.org/?p=2939.)
Follow up Mentorship
IOE provides each of its students with 6-month and 1-year individual follow ups with Prof Bruce.
Course Pre-Preparation
1. Please get a free Twitter account and follow: @ProfBruce. We will be using the hashtag #IOE. Please read ‘Twitter Nation‘.
2. Take the ECQ Test. Send your score to tscholtes @ exploriem.org.
3. Give some thought to the Business Model you wish to build during this course. Please read: The Complete Business Model. The more of these elements that you can incorporate in a new or existing model, the more you are likely to prosper.
4. Practice using our online Business Model Generator: BMG
5. Get ready to make a 2-minute YouTube elevator pitch video (public or
private) by reading ‘How to Make a Great Elevator Pitch’: Word Doc
6. Please also read: Should Every Person on the Planet have a Personal Business For Life (PB4L)? https://www.eqjournal.org/?p=421
More about Prof Bruce
Dr. Bruce M. Firestone, B. Eng. (Civil), M. Eng.-Sci., Ph.D., is
perhaps best known as Founder of the Ottawa Senators and Scotiabank
Place. In May of 2006, Dr. Firestone joined the University of Ottawa’s
Telfer School of Management as its first Entrepreneur-in-Residence. In
addition, Dr. Firestone is a licensed Real Estate Broker with Century 21
Explorer Realty Inc. Dr. Firestone is also known for his work as
Executive Director of Exploriem.org, a Canadian Registered
Not-For-Profit corporation focused on educating and mentoring
entrepreneurs and intrapreneurs in Canada and around the world.
Dr. Firestone advises clients on business modeling, self-financing,
smart marketing, differentiated value, harnessing the Internet, real
estate and other issues related to entrepreneurial companies and
organizations. Prof Bruce has launched or helped to launch more than 168
startups in fields including tech, real estate and services.
Dr. Firestone received his Bachelor of Civil Engineering degree from
McGill University in Montréal; his Master of Engineering-Science
(Traffic and Transportation) from the University of New South Wales in
Sydney and his PhD in Urban Economics from the Australian National
University in Canberra. He has also studied or taught at Laval
University, Harvard University, University of Western Ontario and
Carleton University as well as the University of Ottawa.
Dr. Firestone is married with five children. He supports numerous charities.
Prof Bruce has been an operations research engineer, a real estate
developer, a hockey guy, a professor of architecture, engineering,
business and entrepreneurship, a real estate and mortgage broker, a
founder of two not-for-profit organizations, writer and novelist and, of
course, a peerless husband and father of five great kids.
You can follow him on Twitter at: www.Twitter.com/ProfBruce and read his blog at: www.EQJournal.org.
Special Introductory Price
Costs for the course, meals and adventure tour as well as all takeaways and outputs are:
Course cost is $585 for students or not-for-profits/charities/NGOs and $835 for everyone else + HST.
A limited number of scholarships are available.
Pre-Admission and Pre-Preparation
To apply for admission and prepare, you need to do the following:
1. Provide us with two reference letters; one personal and one from a past employer.
2. Take the ECQ Test (https://old.dramatispersonae.org/ECQTest/ECQ(ns)TestAuto.htm) and send us your score.
3. Please read: Twitter Nation (https://www.eqjournal.org/?p=2080), Personal Business for Life, PB4L: The Road to Financial Security and Independence (https://www.eqjournal.org/?p=2020) and The Complete Business Model (https://www.eqjournal.org/?p=692).
4. Run your preliminary business model (the one you would like to work
on during the course) through our online utility, the Business Model
Generator (see: https://old.dramatispersonae.org/BusinessModels/BusinessModelGeneratorLandingPage.htm and https://www.old.dramatispersonae.org/bmg/) and bring the outputs with you.
5. Provide us with a link to your
Twitter/Blog/YouTube/Business/Facebook/LinkedIn and other relevant
social media tools. If you don’t have one, get a Twitter account and
follow @Prof Bruce and @exploriem as well as @tclscholtes. Twitter is
the fastest way to integrate you to a worldwide, learning network of
entrepreneurs and intrapreneurs.
6. Record a 2-minute Elevator Pitch* and put it on YouTube (public or
unlisted) Your pitch is the product/idea you or your company would like
to develop and launch to complete or improve your business model and
increase revenue. To improve your value proposition and elevator pitch,
please read: How to Make an Elevator Pitch (https://www.eqjournal.org/?p=339) and Elevator Pitch Workshop (https://www.eqjournal.org/?p=361).
(* You will compare your preliminary business model and your initial
2-minute Elevator Pitch with the final ones you will create during the
course—to measure your progress and evaluate outcomes.)
Testimonials
“Basically, you can’t be running a startup in Ottawa and not have
benefited from Prof Bruce’s wisdom in some way. His credentials would
take a whole page to write but in a nutshell, he is Founder of the
Ottawa Senators, is Executive Director of a business incubator called
Exploriem.org and with his knowledge and experience he is one of the
best advisors I ever had!” Vahid Jozi.
“This course filled a hole in the MBA program – business modeling is
an essential skill for all MBA grads regardless of whether he/she is an
entrepreneur or manager. The experience was enhanced by Prof. Bruce’s
innovative teaching style. Of the 20 MBA courses I’ve taken, this one is
in the top two!” J. Krenosky.
“Startup DNA was different from any MBA course I have taken to date.
It provided me with both a practical understanding and creative outlook
on the how to’s of building a business model. Prof Bruce equips you with
the knowledge and the courage to stop ‘thinking’ about entrepreneruship
and start ‘doing’ it – all the while reviving your entrepreneurial
spirit. Thank you Prof Bruce!” Ziad Geagea
“Entrepreneurialist Culture is invaluable to anyone interested in
becoming an entrepreneur, intrapreneur or wants to create a start-up and
reap the benefits. It forces you to think in business models,
relationships and ecologies, to take ideas and turn them into strong
value propositions for individuals, and to stand alone; looking at a
market and measuring yourself in the success you create with your ideas,
determination and leadership. You don’t only learn how to work hard,
but how to reverse out the work as well. It changes the way you think
about business and the possibilities beyond just a carrier, but a way of
life and thinking,” Craig Schoen.
What Steve Jobs and Sam Palmisano Think about Biz Models
Steve Jobs
Steve Jobs figured out how important biz models are before he
launched the iPhone when he insisted that AT&T* give him a share of
their subscriber revenues in return for a two year exclusivity on the
device. With that, he revolutionized yet another industry’s biz model.
Cell phone manufacturers went from selling a ’shrink wrapped’ gadget for
a one-time payment in a brutally competitive market with poor margins
that was racing to the bottom to an industry with multiple sources of
revenues (ads on the iOS platform, iTunes downloads, app store sales and
revenues, search fees, streaming, subscriber revenues, sale of the
device itself), some of which are recurring: the holy grail of techdom.
(* Wired.com (https://www.wired.com/gadgetlab/2012/01/iphone-att-q4-sales)
reports that the iPhone represented 80% of all AT&T smartphone
activations in the last quarter of 2011 during which they added 9.4
million new subscribers, 50% more than in any previous quarter in
company history. We estimated that the iPhone is returning a phenomenal
288% p.a. to Apple making the platform and the device perhaps the single
greatest tech profit generator ever. Please see: https://www.eqjournal.org/?p=1714.)
Sam Palmisano
Sam Palmisano, when he was CEO of IBM told BusinessWeek (April 3rd,
2006) why he places a great deal of emphasis on the importance of
business model innovation. He said: “…with product innovation, it’s a
certainty that your competition is shortly going to copy what you have
done. With business-model innovation, though, if you can come up with a
unique way of doing things, it’s much tougher to react to.” Mr.
Palmisano spent approximately 40% of his time as CEO on IBM business
models.
For More Information about the Course about IOE
Ms. Theresia C.L Scholtes
Assistant Manager
Exploriem.org
LINCOLN FIELDS SHOPPING CENTRE, 2525 CARLING AVE, SUITE 23, OTTAWA ON K2B 7Z2
Tel.: 613.422.6757 ext. 204 Fax: 613.422.2807
Internet: Exploriem.org/about-us/institute-of-entrepreneurs-mission/ioe/
Twitter: https://twitter.com/tclscholtes
Comparables from Schulich Executive Learning Centre
Masters Certificate in Business Analysis/Program Fee: $9,450 CDN + applicable taxes
Program fee includes full 9-module program tuition, all teaching
materials, iPad 2, lunches, and refreshments. Schulich Executive
Education Centre’s liability is limited to reimbursement of paid tuition
fee.
Masters Certificate in Supply Chain and Logistics Management/Program Fees:
• SCL members: $10,550 CDN + Applicable taxes
• Non-members: $10,950 CDN + Applicable taxes
• Program fee includes program tuition, teaching materials, lunches and refreshments.
• It also includes a six-month membership in Canada’s leading supply
chain & logistics association – SCL Canada – for non-members who
register.
• Schulich Executive Education Centre’s liability is limited to reimbursement of paid tuition fee.
Location: Schulich Executive Learning Centre, 4700 Keele Street, Toronto, Ontario
Postscript: More on Biz Model Outputs
Your Complete Business Model should include:
1. A one page Business Model Flow Chart. Start by using our online Business Model Generator, BMG (https://www.old.dramatispersonae.org/bmg/)
to get a sense of what your final model might look like. Then improve
it and let it evolve to describe using a pictogram the entire ecosystem
that your new enterprise will live within. Your Business Model will show
your ECQ Test Score,
your ‘Pixie Dust’, source of Bootstrap Capital and Guerrilla
Marketing/Social Marketing ideas, your Guerrilla Marketing Test Score
and your Business Model Test Score. The BMG will lead you through this
process. Try to select the right idea for your next startup (read Ten
Things Startups Forget to Do: https://www.eqjournal.org/?p=335).
Create a business model for the 21st Century that will produce great
results so that the harder you work, the more money you make and so you
can compete effectively with hard charging entrepreneurs from China,
India and other Tigers by having a business model that can not be easily
duplicated or dislodged and gives you a lasting, sustainable
competitive advantage and concession or franchise.
Understand not only your clients and suppliers but the whole network
or ecosystem: clients of your clients and suppliers to your suppliers.
Becoming part of your business ecosystem is one of the keys to
longterm sustainability for your enterprise. Add some differentiated
value, innovation and ‘pixie dust’ to your business model.
Self-capitalize (bootstrap) your new enterprise so that you end up
owning it and not a VC firm or other investors or partners (please see
Bootstrap Capital, the Last Word: https://www.eqjournal.org/?p=1162).
And use some smart marketing (guerrilla marketing and social marketing)
so you can acquire customers and clients cost effectively (please read
Guerrilla Marketing Basics: https://www.eqjournal.org/?p=643).
2. You will also need to develop a one page spreadsheet showing how
value is created for one individual client or customer. Here are some
examples of how to demonstrate your Value Proposition: Value Proposition of a Residential Realtor, the spreadsheet, Value Proposition for a HR Professional, the spreadsheet.
You are demonstrating 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.
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 use online: 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
basis.
4. Make sure you also understand what a Cash Conversion Cycle is and how to calculate it for your enterprise. Please read Cash Conversion Cycle,
CCC: How the CCC Affects Your Internal Rate of Return, The Power of
Leverage to Work for You and Against You, and Effectively Manage your
Enterprise by Measuring your Cash Position. Here is a spreadsheet
example for calculating the CCC: https://www.old.dramatispersonae.org/BusinessModels/CashConversionCycleMeasurement.xls.
5. You will produce and record a 2-munite video of your Elevator
Pitch and load it to YouTube ( public or private) for viewing in class.
See: https://old.dramatispersonae.org/HowToMakeAGreatElevatorPitch.doc and https://old.dramatispersonae.org/ElevatorPitchWorkshop.doc. Here is a sample elevator pitch given by student entrepreneur, Daniel Beachamp: https://blog.avitu.com/2010/07/30/elevator-pitch-time/. Sean Wise has a humorous but useful take on what makes a good elevator pitch: https://www.youtube.com/watch?v=Tq0tan49rmc&feature=related.
6. 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. Leverage in your business
model comes primarily from these principal 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
leverage.
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
effect.
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
productivity.
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
geometric.
(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
achievement.)
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
announce…
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
before.
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 also generate leverage for you when you use a
non-linear selling model:
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’.
7. Lastly, you will need to write a Summary of your Business Model that is 2-pages or less that summarizes:
a. Your value proposition including its ‘pixie dust’ (https://www.eqjournalblog.com/?p=9)
or differentiated value and how you can create a sustainable
competitive advantage. Make sure that you are abundantly clear about the
costs and benefits that you are creating for each customer.
b. How you can acquire customers and clients, including pre-launch
clients, in a cost effective manner through guerrilla marketing, social
marketing or direct marketing. Explain how you might use negative cost
selling to achieve this: https://www.eqjournalblog.com/?p=425.
c. How you integrated the Internet into your business model. (See: https://www.eqjournalblog.com/?p=1609).
d. How you can bootstrap your business and self-capitalize it (https://www.eqjournalblog.com/?p=1162).
e. How you will build cashflow and create a cash conversion cycle that is workable (https://www.eqjournal.org/?p=2257).
f. Why you and your team are the right people to execute this model.
@ProfBruce
Prof Bruce @ 8:31 pm
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On Leadership (Continued)
Posted on
Monday 5 March 2012
(Prepared for Professor Matthew Archibald’s 4th year
Seminar on Leadership Development: Friday March 9, 2012 from 1 to 3 pm
in DMS 4140)
For more on this subject, please refer to:
Defining Leadership, https://www.eqjournal.org/?p=2668.
Corporate Culture, https://www.eqjournal.org/?p=2656.
The Entrepreneur Skill Set: A to Z, https://www.eqjournal.org/?p=1274.
On Leadership, https://www.eqjournal.org/?p=1155.
10 Things that Entrepreneurs can Learn from JJ Abrams, https://www.eqjournal.org/?p=1067.
Entrepreneur’s Venn Diagram, https://www.eqjournal.org/?p=992.
Teamwork in the 10th Millennium B.C., https://www.eqjournal.org/?p=862.
Show Some Adaptability, https://www.eqjournal.org/?p=844.
Why Businesses (Really) Fail, https://www.eqjournal.org/?p=548.
Leadership Versus Management, https://www.eqjournal.org/?p=68.
Leadership Skills, https://www.eqjournal.org/?p=49.
@ProfBruce
Ottawa, Canada, March 2012
Postscript: To learn how we estimated Apple’s ROI, please see– iPhone Yields at least 288% p.a. Return to Apple, https://www.eqjournal.org/?p=1714.
Prof Bruce @ 11:33 am
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Differentiated Value
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IRR
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Can You Bootstrap a Chain of Specialized, Cash-Only Restaurants?
Posted on
Thursday 1 March 2012
I recently had a chance to ask one of the founders of Toronto-based vegan ‘fast food’ restaurant The Hogtown Vegan (https://www.facebook.com/TheHogtownVegan),
Madeleine Foote, six questions about her startup. There are some
terrific entrepreneurial lessons here—like KISS (Keep It Simple), be
authentic, have a sense of humour about yourself, deliver a lot of value
to customers, bootstrap yourself to success, ask for help from family
and friends when you need it, don’t burn any bridges and more.
Also, it’s clear that entrepreneurial ability tends to run through
multiple generations of a family. Madeleine is the daughter of
Ottawa-based serial entrepreneur Sandy Foote of https://footeworks.ca/.
Entrepreneurship is Hard Work
Prof Bruce: I understand that you have a one price menu for things like ‘unchicken’. Why did you go in that direction?
MF: We wanted to make our menu as simple and
affordable as possible. We opted for a single price for sandwiches and a
single price for entrees so that some of the items that cost us more to
make or have pricier ingredients would be more affordable to our
customers. It’s a kind of internal subsidy we use.
Prof Bruce: Can you run a cash only restaurant in these days when everyone uses debit cards et al?
MF: The proof is in the pudding. You can absolutely
run a cash-only restaurant if you take proper precautions. You have to
inform your customers in every way possible that you are cash-only so
there are no surprises when they get their bill!
That means you have it on your website, Facebook, Twitter, voicemail
and somewhere really visible in your restaurants. You also have to have
an ATM. It’s very costly to take debit and credit and being cash-only
allows us to pass these savings on to our customers by keeping our
prices low.
Prof Bruce: For a VEGAN restaurant how does ‘Hogtown’ in your name work as a brand work for you?
MF: The word ‘Hogtown’ is a colloquialism for
Toronto. Toronto used to be—and still is to a degree—known for its large
number of slaughterhouses surrounding its downtown core. You still see
trucks of pigs on the Gardiner Expressway. Our name comes with a nod to
more traditionally named places—such as The Thirsty Scholar or The
Artful Dodger—as well as a desire to set ourselves apart from other
vegan restaurants in this city. Health-oriented vegan restaurants have
names like Fresh and Live, whereas we are an ethical vegan restaurant
focused more on comfort food and we wanted our name to reflect that. The
name also shows our sense of humour; that we are a casual place that
doesn’t take itself too seriously.
Prof Bruce: How did you fund your startup?
MF: We first started a smaller vegan take-out called
Hot Beans and that restaurant was entirely funded by personal savings
and small family donations. We managed to generate enough income there
together with a lot of credibility and confidence that, along with a
sizable investment from a family member (my Dad), allowed us to open The
Hogtown Vegan. Even then we had a tiny amount of start-up funding
compared with most restaurants but what we lacked in funds we made up
for in work! Basically, our sweat equity made the difference.
Prof Bruce: You had a falling out with one partner. What would you do differently next time?
MF: We did separate from a third partner but I
wouldn’t call it a falling out. We parted on good terms and it was a
mutual decision. If I could go back I would do everything exactly the
same. However, what I learned from our separation was that communication
is key, especially early on. Also, never burn your bridges! If you are
going to separate from a business partner, do whatever it takes to be on
good terms afterwards.
Prof Bruce: What inspired you to do this in the first place and what plans if any do you have to expand?
MF: Our inspiration came from vegan restaurants we’d
visited in New York City and Portland. As ethical vegans—meaning we
still like to gorge on ‘junk’ food every once in a while—there was
nowhere in Toronto that we could chow down on comfort food and get that
real indulgent experience meat-eaters get when going somewhere like
Mickey D’s or KFC. It’s important to eat well but part of going out is
that it’s a little bit of decadent and we wanted to offer that to other
vegans like us. What we didn’t expect is the reaction we’ve had from
non-vegans—they love it too so our market is much bigger than we
expected.
As for plans to expand, we’ve only been open six months so it’s a
little early to say. If things go well that is definitely an option in
the future.
Thanks for taking an interest in us!
…
Nice job, Madeleine. I am personally hoping to see some of these show
up in Ottawa soon but given the ‘Battle of Ontario’ between Sens and
Leaf fans maybe ‘Hogtown’ is not the best name for a master franchisor
in Canada. Then again, maybe it is.
Prof Bruce
Professor Bruce M. Firestone, Author and Executive Director,
Exploriem.org; Entrepreneurship Ambassador, Telfer School of Management,
University of Ottawa; Founder, Ottawa Senators; Broker, Century 21
Explorer Realty. Blog: www.eqjournal.org Twitter: www.Twitter.com/ProfBruce
Prof Bruce @ 6:22 am
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Personal Business for Life, PB4L
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Bottom Up Versus Top Down Selling
Posted on
Thursday 23 February 2012
If you look at the diagram below you will see one of the
most common mistakes made in sales—the top down sales method. In this
scenario, lazy salesperson X in Organization A, knowing that their
President or CEO is friends with the President of Organization B, asks
him or her to call/text/message/Facebook/Tweet/email/meet with the other
President telling him or her about A’s great products and services.
Then the President of Organization B is expected to tell Buyer Y in that
company all sorts of nice things about A, strongly suggesting that it
would be a good idea to add them to their supply chain. Finally, X calls
Y hoping to seal the deal.
Now how do you think Y feels? Maybe like the rug has been pulled out
from under him or her? Y will do everything in her or his power to find
an alternative supplier.
So what is the right way? X should call Y and introduce the company
and its products. If the discussions look promising, X can then and only
then enlist her or his President M to call the other company’s chief
executive (N) to solidify the budding relationship but only after Y has
talked to the President of Organization B and given a briefing so they
are not taken unaware.
The idea is to develop deep relationships between the two organizations and that starts from the bottom up not the top down.
Prof Bruce
Note: Thank you to @MattFirestone for help with the above diagram.
Prof Bruce @ 6:09 am
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Old Milwaukee Guerrilla Marketing
Posted on
Friday 17 February 2012
How can you outperform a $3.5 million Super Bowl commercial
with a $700 to $1,500 North Platte, Nebraska TV buy and a ridiculously
badly produced ad? That’s what’s possible in the 21st century via social
media.
Old Milwaukee aired a 30-second spot on NBC affiliate KNOP-TV 2 in
one of the smallest markets in the US during Super Bowl XLVI. North
Platte has just 15,180 TV homes. It didn’t cost them very much but gave
them the cred they needed to say it was in fact a Super Bowl ad.
First, they got 1,640 mentions on Twitter then a YouTube user by the
name of Daddymcc uploaded a cheapo copy of their Will Ferrell-cameo
advert to YouTube. So what did Old Milwaukee do next? They turned their
IP lawyers loose on Daddymcc, YouTube and Google, of course, to force
them to take down an unauthorized version of their ad. They sent them a
sternly worded cease-and-desist-letter threatening them with legal
Armageddon. Not!
What they really did was link from Old Milwaukee’s official Facebook
page to Daddymcc’s upload. After that, they got over 1 million views in
the 11 days subsequent to the 2012 Super Bowl compared to say
Budweiser’s professionally-produced eternal optimism Super Bowl ad (https://www.youtube.com/watch?v=enfJEibY1nY) which got just over 400,000 in the same time period.
The Old Milwaukee ad is beyond cheesy (https://www.youtube.com/watch?v=tejGMPAShdY):
The point is that guerrilla marketing (in this case, a form of ambush
marketing*) is about substituting brains for money. There is no way
that OM can compete with Bud’s deep pockets so they did this instead.
It’s what entrepreneurs need to do every day.
Prof Bruce
Source: Bloomberg BW, Feb 19, 2012
* Ambush marketing tends to happen every four years when the Olympics
come up. It is so expensive to be an official 5 Olympic Rings sponsor
that even major companies are sometimes forced into guerrilla marketing.
Or perhaps if they are shut out of the Olympics by a competitor who has
category exclusivity, they could decide to ambush both them and the
Olympic movement.
A while back a major shoe company did a little ambush marketing at
the Atlanta Summer Olympic Games. While one of their competitors paid
$40m to be an official sponsor, they set up a mega tent on a parking lot
down the street from the main Olympic venue. They filled the place with
product, interactive games, VIP sections, you-name-it. It became the
in-place to be during those games and they scooped the competition and
scored a major PR hit—both admiring and outraged reactions were
welcomed.
Old Milwaukee has sort of ambushed Bud and their other competitors as well as the NFL with their North Platte gambit.
Postscript: for more about GM, please see: https://www.eqjournal.org/?p=643.
Prof Bruce @ 1:39 am
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MMB, Magic Marketing Button
Posted on
Sunday 12 February 2012
(How Picture Inc can Develop a Sustainable Community Built Around its Redesigned Biz Model)
If your enterprise cannot connect efficiently and cost effectively
with customers and clients, you’re dead. This is the sine qua non of
marketing.
It also means that each enterprise (non-profits, charities, for-profits, even NGOs and gov’t departments) needs to have a ‘magic marketing button’—a button they can push that ‘makes the phone ring’. It’s an ‘easy button’, so to speak.
Last year, I had a chance to catch up with Glenn Schmelzle, Founder
of Marketing What’s New. We were talking about one of his clients—a high
end, specialty commercial camera manufacturer which we’ll call Picture
Inc (PI, not their real name).
PI and Schmelzle were working on an online tool which helps users
spec their camera requirements. In essence, it’s a ‘physics engine’
which allows potential clients to design a specialty camera with
features that meet their requirements.
This is a tool that, in effect, goes on the front of PI’s website to
engage potential customers, first, in the spec development and, second,
hopefully in purchasing one of PI’s systems. But what Glenn and I wanted
to do was make the tool a standalone site that could become a
destination in itself. To do that, PI will have to accept (as yet
unknown) that the tool could spec camera systems not actually made by
PI.
This would be similar to Kris Kringle (in the 1947 film, Miracle on
34th Street) working at Macy’s as a sales clerk advising a customer to
go to rival Gimbels for a product they don’t stock. It was considered
heresy at the time but eventually the tactic was widely adopted,
customer service took on new meaning and ultimately the idea of
co-opetition would come to be better understood.
But this new tool can do a lot more than help clients spec camera
systems (itself, a non–trivial problem with 1,000s of options to choose
from). Using crowd sourcing, a d-base could be added that would permit
each client to see what other clients who have the same problem (such as
picking out defective products on an assembly line) did to resolve
their issues.
Today, you can take it one step past web 2.0 as well—you can add a
social media component that facilitates clients learning from each
other. This might allow, say, a new client to query an earlier client
who had generated a successful spec for their system and for them to
comment back on the new client’s spec as well. Thus, you are developing a
community of friends, followings and followers around the tool that
cements it in place in a learning business ecosystem.
The free tool is obviously designed to be PI’s MMB. We’ll see if it
works but if it does, it will do a lot more than just boost their
marketing, it’ll help cement PI in place.
Now this approach takes guts—many companies are afraid of
competition, afraid of cooperating with competitors (co-opetition),
afraid of opening up their backend systems to clients, afraid of letting
one client to talk to another.
But think about the ultimate propose of your enterprise—at a minimum,
don’t you think you should treat your clients at least as well as you
would treat yourself?
If you were buying a new product, say, wouldn’t you want the best
price and best service, wouldn’t you want to know what other people who
faced the same problem also did and, lastly, wouldn’t you want to talk
to some of them so: a) you could learn from them and b) if you did
decide to buy a PI device, you could get an independent reference on the
company and its products and services?
Sure you would so why not enable all of that in your new (indispensible) MMB?
If you do all of this, an interesting thing will happen to you—your
enterprise will become integrated into a business ecology where you will
feed and be fed—and you will find customers and clients ‘magically’
appear early and often and they will come back to you over and over
again and sustain you and your business for a long time.
Prof Bruce
Prof Bruce @ 10:52 pm
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Bundling
Posted on
Sunday 12 February 2012
I think bundling is going to be a big factor in terms of
leveraging entrepreneurial ventures in this century. For example,
Lululemon Athletica not only sells active wear they also have Yoga
classes in their stores. In essence, they are housing two complementary
businesses under the same roof. But there is no reason why they could
not be offered by two different organizations.
The key here is for each entrepreneur or intrapreneur to view their
enterprise as a platform on which they can build a community of
interests. Obviously, it could be a technology platform but just as
easily it could be a real estate play, a retail chain, a department
store or almost any other kind of business. Ask yourself these
questions: a. what services or products does it make sense for you to
bundle with your core offering (i.e., they complement it) and b. can you
unbundle/break apart your core offering to uncover separate services or
products that could be offered by others?
If you can get others to use your platform, you can push some of your
capital costs onto them—it becomes a form of bootstrap capital. What’s
more, they may pay you both a rights fee and rent just to be part of
your offering. If I were advising Lululemon, I would rent stores to Yoga
professionals for classes by them and create two revenue streams that
way—more clothing sales plus hall rental. It is also a form of negative
cost marketing as well since Yoga studios would be paying
Lululemon to bring their clients to Lululemon stores, a highly valuable
proposition for Lululemon. It’s similar to co-branding and co-opetition.
We did something similar back in the day when we were operating TCCL,
Terrace Corporate Centres, the largest mini office provider in Eastern
Ontario with 164 offices in two locations in the 1980s and 1990s before
selling it. We operated a word processing business for the convenience
of our clients—but it lost about $3,000 per month. When we unbundled the
business and spun it out to an independent entrepreneur (who paid us
$50,000 to buy what was then a failing operation), she was able to turn
it around in just six months and make a decent living for herself. In
addition, she paid us rent every month and a percentage of her sales.
IBM under past President and CEO Lou Gerstner bundled outsourcing,
consulting, software and other services onto an enterprise that was
flailing back in the 1980s—its mainframe hardware biz was under assault
by low end personal computers and mid-tier mini computers. Some thought
IBM should be broken up and sold in pieces or wound up.
Gerstner did not agree and frankly he saved a great company from
oblivion. Sometimes, you unbundle things and sometime you do the
opposite. Entrepreneurship is like that—full of contradictions that
somehow make sense. Nortel under CEO Mike Zafirovski failed to do this
(they had a great opportunity to add services and outsourcing to their
biz model and didn’t). So NT was led to the brink of extinction and then
fell off the ledge.
Govindh Jayaraman, other-directed founder of Green Stop, is trying to
bring quality food, grown locally to the c-store business. C-stores are
notorious for selling smokes/alcohol/guns and snacks that can hardly be
called food and which are certainly contributing to an obesity epidemic
in North America.
I suggested to him that he bundle other services into his
platform—like Yoga classes, fitness classes, health and nutrition
classes, cooking classes to teach people, especially inner city folks,
about wellness. He could, of course, contract out these services and
turn them from cost centres to profit centres. Maybe he partners with
many strategic partners—Lululemon and Yoga studios, exercise clubs like
the one run by student entrepreneur Angella Goran called Cyclepathic
which itself is an independent part of Ottawa Sport Performance Centre (https://www.train4sport.com/programs/spinning/).
He might also consider creating online accounts for his customers so
that he can form an Internet community around Green Stop—to create meal
plans, monitor their calorie intake, order stuff, suggest things that
could be added to their offerings and so forth.
In Ottawa, Mountain Equipment Coop which sells bikes, running shoes,
kayaks, canoes, outdoor clothing, cross country skis and much more will
be adding a new 500 square-foot space to their existing store in
Westboro and making it available for community use by sports and
environmental groups. They want to be more than a store; they want to be
a central part of the community’s commitment to an active lifestyle. In
other words, they get the concept of bundling services and events into
what was previously mostly a retail environment.
Apple does some of this with their stores where you cannot only buy
Macs, iPhones, iPads, iPods et al but also attend a free workshop, get
stuff repaired, ask for assistance at their Genius Bars, get help
setting up your computing and communications environment, learn how to
use iTunes and their app store, get one-on-one training if you need it…
It’s all about bundling services around your core offering and creating a
platform.
All kinds of products and services are experiencing these types of
changes. Bundling can also involve co-branding; e.g., marketing Brooks
Brother’s suits with Audi cars and Rolex watches or, better yet,
bundling them all together—buy an Audi and get a Brooks Brothers suit
plus a Rolex thrown in! What’s interesting is that these three products
can all become sales channels for each other. It’s quite synergistic.
Here is an unlikely duo: Xerox co-promoting Michelin in its advertising in Bloomberg Businessweek (March 11, 2012):
I suppose it is no more unlikely than Michelin (best known of course
for its tires) starting its Michelin Guide in 1900 to help motorists
find decent accommodation and restaurants. Anything that got more people
driving further and more often was, indirectly, good for their tire
company their thinking went. However, the Guides became their own profit
centres; i.e, they stood on their own as well as providing negative
cost marketing and co-branding for the tire company. So you can see
these concepts are not new but are often forgotten by each successive
generation only to be rediscovered once in a while. Everything old is
new again…
Even the lowly dental floss is not immune; one brand has added baking
soda/tooth whitener to its rolls of floss (a non trivial technical
problem BTW) so while you get your gums massaged, you also get your
teeth cleaned/whitened at the same time. Bonus!
If you build a platform that others use, you not only reduce your
capital costs, increase your revenues and decrease your marketing costs,
you also build a community around your enterprise/product or service
which makes it both sustainable and doubly hard to knock off.
Prof Bruce
Postscript: bundling is gaining traction as a biz model tool witness
the recent announcement by Chrysler that it will certify and sell used
cars by OTHER manufacturers.
Why not extend their warranty program? After all, it is a profit
generator. Plus having more people, some of whom are perhaps not
interested in Chrysler but are in say Hondas and Toyotas, come to their
stores means that, at least, now they have a chance to persuade them
otherwise.
“Chrysler Group has announced a new certified used car program under
which the automaker will guarantee cars built by any manufacturer.
So-called certified pre-owned programs are commonplace in the auto
industry, but car manufacturers usually only certify their own cars for
resale. For instance, under Honda’s program, someone who buys a used
Honda from a Honda dealership will get warranty coverage in addition to
the original manufacturer’s warranty, as well as roadside assistance.
Used Toyotas and Chevrolets aren’t eligible for Honda’s program, though.
There are some certified used car programs that can be applied to any
make or model of car, but those programs are run by third-party
warranty companies, not automakers themselves.
The new Chrysler program is the first to provide additional warranty coverage for used cars made by another manufacturer…”
For more, please see: https://ca.finance.yahoo.com/news/chrysler-sell-used-cars-other-205500838.html.
Postscript 2: ‘Bundling’ is a term I would also use for anything that
blurs the lines. It is not easy theses days to tell the difference
between a hardware, software, consulting, outsourcing, products,
services or app tech company. They are all using their biz models as
platforms to poach on each other’s territories. It makes sense–it
becomes counter cyclical, it makes more efficient use of their fixed
costs caused by their underlying investment in office, lab and
manufacturing space as well as administration costs, investment in staff
and staff training, equipment and other basic requirements without
which they cannot operate.
In the entertainment business, Bloomberg News’ Norm Betts reports
that Netflix CEO Reed Hastings is meeting with cable operators to
discuss a way for Netflix to be included with monthly cable bills. This
would be a way for Netflix to add huge new numbers of subscribers by
using existing cable networks as, in effect, Netflix resellers.
Netflix would then be on a more level playing field with Showtime,
HBO and other specialty cable channels– more subscribers, steadier and
higher committed monthly recurring revenues– and so be in a better
position to compete for directors, screen writers, stars, talent, screen
plays and so be able to offer more original content– series and films.
Bundling while developing reseller sales channels will make Netflix an even more formidable competitor.
Prof Bruce @ 12:46 pm
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70 Ways to Raise Bootstrap Capital
Posted on
Sunday 12 February 2012
There are certainly hundreds or even thousands of clever
techniques entrepreneurs and intrapreneurs are using to raise cheap/free
capital, aka bootstrap capital. No list is ever going to be complete.
But here is our summary of what people are doing these days to
self-capitalize their new products/services/enterprises. If you would
like to add to our list, please let us know on Twitter via @ProfBruce.
1. Soft Capital: Mom, Dad and rich Uncle Buck; basically this is a
family, friends and fools round of financing either formally or
informally organized. Angel investors may also take part at this stage.
2. Home equity loans. This is the number one source of equity for
entrepreneurs across the globe. It is usually accessible at low cost
(i.e., low interest rates) and can be put in place relatively quickly.
Student entrepreneurs should, in my view, make home ownership an early
priority not only as a storehouse of value but also as a way of
diversifying their asset mix and doing some creditor proofing too. The
home would normally go in the name of the spouse or partner with the
lowest risk profile. For more on creditor proofing, please refer to:
https://www.eqjournalblog.com/?p=526 and https://www.eqjournalblog.com/?p=1138.
3. Business plan or model competitions for cash (e.g., the Wes Nicol
Competition or the Celtic House Competition.) Student entrepreneurs get
very good at this and often use it to supplement their startup capital.
It not only is a potential source of funding, it can be a valuable
experience—forcing you to commit to writing your plan/model and pouring
sunlight over it—you’ll get feedback, an essential element in launching a
new enterprise.
4. Future customers or launch clients are another large source of
startup capital. Home buyers in Ontario, for example, can be asked for
deposits of up to $40k in advance. Launch clients are important for
other reasons as well: they give the new enterprise additional
credibility as well as commenting on their offering which often results
in changes to the product, service or business model.
5. Future suppliers can often be persuaded to extend long term credit
to the entrepreneur (e.g., vendor financing of 30, 60, 90 days or more)
or invest cash in your business since they have a lot to gain if you
become another (good) customer of theirs. They will probably want a
long-term supply agreement though. In 2009, trade credit (or supplier
credit) 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 Reserve. For more on trade credit, please
see: https://www.eqjournalblog.com/?p=610.
6. Strategic partners. (For example, Ogden Corp. was a strategic
partner of the Ottawa Senators Hockey Club—in return for a 30 year arena
management deal plus a F&B (Food and Beverage) rights deal, they
invested, loaned and guaranteed significant capital to/for the nascent
team.) To find strategic partners just ask yourself the question: ‘Who
benefits from what I am proposing to do?’ Look upstream to your value
chain (where your customers and their customers are) and downstream to
where your supply chain is. Then look upwards to your marketing
program—you’ll find more clues there.
7. Micro capital lending and grant programs. For example, the GOC’s
(Government of Canada’s) SBL (Small Business Loan) Program is run very
effectively by Canadian Chartered Banks. SBLs are available up to
$350,000 and the GOC will guarantee 75% of the loan so that if the
enterprise fails, the founders are only (personally) responsible for
25%.
8. Supplier rights, product placement and licensing fees. For
example, Molson Brewery purchased pouring rights for the Corel Centre
(now Scotiabank Place) and the Civic Centre after the City of Ottawa was
awarded a franchise by the NHL in December 1990 but before they
commenced play in October of 1992.
9. Patent or other IP licensing fees and royalty payments. Noma
Industries purchased the rights to LED Xmas light strings designed by
the author for $10,000.
10. Consulting services. A lot of entrepreneurs support their
startups by providing consulting services at the same time. Eseri.com
(now CirrusComputing.com), started by PhD entrepreneur, Bill Stewart,
provides lightweight Internet-based (actually cloud-based) desktops that
use widely-available and proven freeware. Eseri based in Ottawa and
Montreal was started with nothing—Bill still gives $1,000 per day
seminars on project management software so that he can fund his real
passion—building a great business of his own. For more on this, refer
to: https://www.eqjournalblog.com/?p=752.
11. Partners can bring cash to a business or they can bring sweat
equity (SE) or both. SE reduces the capital the enterprise requires
while the former adds to the capital base of the new company. You have
to be careful though: “There are still two chairs in Heaven waiting for
the first two partners to get there and still like each other,” Anon.
Also, if one partner has access to significantly more financial
resources than the other, he or she may well end up owing 100% of the
business, squeezing out the other partner or partners.
12. Debentures (mostly a form of debt). Family, friends, fools,
angels may prefer to invest their money in the form of debt with equity
conversion rights or equity bonus.
13. Financial leasing of fixed assets (such as computers and phone
equipment, photocopiers and the like although it can apply to almost
anything. I have heard of financial leasing for, of all things, roller
coasters.)
14. Receivables factoring. If you have clients with strong credit,
you can sell your receivables for cash. Car dealers sell their car
leases and loans for cash. The Don’t-Pay-A-Cent-Event furniture stores
sell you their stuff in say June and tell you that you won’t have to
make any payments until next January but as soon as you sign your name
to a contract, they sell it for cash.
15. Publisher’s advance on a book or manuscript. Endorsement by you
of a product or service for a fee. If you have a strong personal brand,
you can turn it into cash.
16. Sponsors. You can get people to sponsor practically anything. A
couple of young REALTORS I know raised donations (cash and in-kind) for a
local food bank last year while raising their profile in the community.
By getting sponsors on board, their cost for their food drive was
negative. Sometimes, it’s as simple as just asking for donations and
sponsorships. For more about this, please see: https://www.eqjournalblog.com/?p=400.
17. Trading activity: buying low and selling high. In essence, you
are taking advantage of arbitrage opportunities or asymmetrical
information. One domain name registrar I know found out what percentage
of dot-CA holders did not have their dot-COM equivalents while dot-COM
equivalents were still available. He sold a ton of dot-COMs that way by
making owners of dot-CAs aware that they could have their equivalent
dot-COM extensions. Early in my career, I did a lot of trading up.
Check out this story: https://oneredpaperclip.blogspot.com/.
This person traded a paper clip for a pen and traded the pen for … and
then for a generator and then for a snowmobile and then for a truck… His
idea was to eventually get a home for himself (which he succeeded in
doing).
18. Credit cards (oft used strategy but dangerous because of high
interest costs and what can happen to you and your credit rating if you
fail to make payments).
19. Scientific Research and Experimental Development Tax Incentive
Program (SR&ED, pronounced ‘SHRED’) from the GOC and NRC (National
Research Council) Industrial Research Assistance Program (IRAP) grants.
The SR&ED program is a federal program, administered by Canada
Revenue Agency (CRA) that encourages Canadian businesses of all sizes,
and in all sectors to conduct research and development. It is the
largest single source of federal government support for industrial
R&D. Both IRAP and SR&ED are so valuable that many CDN startups
stay in Canada rather than moving to the US because these programs
provide valuable leverage for their technology R&D spending. There
are many accounting firms that will provide you with help to determine
how much your firm may be entitled to and then help you apply for them.
They will even buy the grants from you at a discount to give you
immediate access to cash.
20. Finding capital where you least expect it. From the example
above, we saw how a national polling services company extracted capital
($800,000 of it) from its below-market office space lease deal. Please
refer to: https://www.eqjournal.org/?p=3310.
21. Reverse or Negative Pledging of Assets. Years ago, Olympia and
York raised 100s of millions of dollars by not pledging the value of
their office towers to anyone. They extracted mega loans from their
Banks based on the value of their real estate and based on their
agreeing to not pledge their assets to anyone… It’s another dangerous
strategy because you can end up over-leveraged which O & Y did. Then
they went bankrupt.
22. Co-guarantor. You can often borrow someone else’s (stronger)
credit rating. For example, Suite Leases for Scotiabank Place (when it
was called the Palladium) were pledged to support construction
financing. Basically, the Bank was loaning money on the strength of the
covenant of lessees. Of course, you could also ask Mom or Dad or Rich
Uncle Buck to co-sign for a loan…
23. Accretive buying. This occurs when you buy another company using
the target company’s balance sheet as collateral. That way, you may end
up with more cash on hand after the purchase is complete than you had
before. Disney’s acquisition of the Mighty Ducks is an example of this.
More recently, a financial advisor I know by the name of Tim bought a
book of business from a retiring colleague. He took over the advisor’s
clients in return for monthly payments to the soon-to-be retired
individual equal to a percentage of the commissions he will receive over
the next three years. This was accretive to Tim—the cash he pays out
every month is less than what he receives and it’s guaranteed: if any
clients leave, the commissions are reduced accordingly. The reason Tim
got the opportunity was because the selling broker trusted him.
24. Accretive Selling. When you sell products or services with third
party customer financing in place, you end up with more cash after the
sale than before (e.g., those OAC, On Approved Credit deals—the sales
contracts are immediately sold for cash.)
25. Employee ESOPs (Employee Stock Ownership Plans). Employees may
choose to invest part of their earnings back into the company. Wesley
Clover (an Ottawa based business incubator) uses this extensively not
only as another source of capital but as a way to keep highly skilled
staff from leaving and to provide further performance incentives for
them.
26. Pre-sold services. For example, here is an example from Craig
deSchneider, a former student: ‘In looking for some start-up capital for
our automotive related business, me and my partner offered potential
investors future discounts through our business. In selling automotive
parts, we had accounts set up with distributors, accounts which could
only be set up by having a business license, tax numbers, and some
negotiating, so the average person off the street would not have access
to these discounts. We set no specific investment amounts, simply the
most the person could afford. We kept these contributed amounts a secret
among different investors as we offered them all the same return.
Therefore, in return for a fair investment, we extended to our investors
cost prices for all of their future purchases through our company. The
only limit we set on this agreement was that investors’ annual purchases
could not exceed our company’s sales revenue from our average monthly
sales figure (not including cost purchases made by investors). The
overall idea was to provide them with a very fair return on their
investment while at the same time, they would promote our company. Why
you may ask would they do that? Well the greater our monthly sales were,
the greater the amount of goods they could buy for themselves at cost
price.’ Basically, Craig and his partner turned their investors into
customers and their customers into investors. Nice work.
27. Collectibles sales and auctions. Here is a new one: Michael
Moshier put the original version of his SoloTrek flyer up for auction on
eBay, hoping a museum would pick it up. It didn’t even fly but by
January 12th, 2003, the bidding on eBay had already reached $6.5 million
USD: money he planned to use to fund his Trek Aerospace startup.
28. Extended family savings and investment fund—an old style of
acquiring start up capital is to have the extended family contribute to a
pool of funds to help family members acquire or build businesses.
29. Seller Take Back (STB) mortgages/financing—typically used in real
estate transactions, the Seller provides some or most of the financing
for the sale by way of a (first or even second) mortgage back to the
Purchaser/Buyer.
30. Sweat equity. Don’t underestimate the contribution you make to a
new enterprise in ways that are unpaid and often not sufficiently
recognized. Youth and energy count for a lot.
31. Investor syndicate or investment club. You might form your own
club and some of that investment could be used for funding your new
enterprise provided that you disclose and get agreement from your other
co-investors.
32. Retainers (typical for consulting services or legal and
accounting services) and deposits on sales. Lawyers do it but more
startups should be asking for retainers and deposits in their sales
agreements.
33. Collecting early and paying late (boosts cashflow in the short
term). Delayed/deferred payments. You can also often go to suppliers and
get discounts for early payment. Also, if you get into trouble, you can
go to your creditors and ask them in return for payment if they will
agree to reduce the amount you owe them. This, however, may also
terminate your relationship with them and hurt your business as these
and other suppliers may refuse to ship you their product or provide you
with further services that you need to continue in business.
34. Progress payments on contracts. Advances for work-in-progress.
35. Advance ticket sales. We sold $22.5 million in season tickets for
the inaugural Senators season 22 months in advance of the first game.
These funds are impressed with a trust and are, in fact, a liability on
your balance sheet: they can not be recognized as an asset or cashflow
until you start actually delivering the service (i.e., playing NHL
games). Still, cash is king.
36. Becoming a reseller (this is big in the Internet age where you
can set yourself up for practically nothing as an agent to resell
services such as domain names or web hosting or books…) There are a huge
number of things that can be resold on the Internet—many sites generate
large revenues by reselling ads powered by Google or other providers.
Check out this silly site which generates up to 8,000 ‘facts’ on Chuck
Norris and got 18 million hits in December 2005. Really the purpose of
the site is to generate clicks (by asking people to rate the ‘facts’)
which generates a new ad and maximizes revenues for the site’s owner: https://www.4q.cc/chuck. Or have a look at this site: https://www.milliondollarhomepage.com.
All the young man (age 21 when he started and based in the U.K.)
apparently wanted to do was to pay his tuition so he created a million
pixel home page. You could buy an ad for $1 per pixel (minimum ten
pixels) linked to your site. He sold all 1,000,000 pixels so guess what?
He got his tuition paid and a lot more. I presume the ads are for a
limited time so he also has the chance to resell the million pixels over
and over again. The site gets a LOT OF TRAFFIC… Remarkably, this might
be a sustainable business (a PB4L, Personal Business for Life,
https://dramatispersonae.org/PB4LPersonalBusinessForLifeCEEDSpeechOct2009.doc!)
37. Importing/exporting.
38. Distributing products for other companies. Bundling their
products and services in with your own can often add large margins for
you since the cost of providing those products and services are often
paid for by suppliers: you take a percentage of sales you create for
them.
39. Developing a negative cost marketing proposition. I learned this one from LooseButton.com (see: https://www.eqjournal.org/?p=2748.)
Media companies desperately trying to hang on to their clients have
agreed to buy Luxe Boxes from LB to distribute as a premium to their
clients to reduce their customer churn. In effect, they are paying LB to
market their product for them.
40. Exploiting signage rights.
41. No money down, land speculation. Buying more land than you
require, developing a portion of it and selling the balance at a higher
price per acre since it is more valuable due to the fact that you have
added value in the form of a now completed first phase.
42. Using OPM (other people’s money)—raising funds through vehicles
such as limited partnerships. Using leverage in your
transactions—borrowing money at rates that are less than the IRR
(Internal Rate of Return) on your equity. This ‘gooses’ your returns.
Finding deals and getting paid a finder’s fee, often in terms of equity
at no cash cost to you, the finder. Holding Agreements of Purchase and
Sale of valuable, highly sought after property in trust as bare trustee
for wealthy buyers or developers to buy from you for a fee.
43. Asset flipping. Buying low/selling high. Asset speculation. Day trading.
44. Buying under power of sale or through foreclosure (again, mostly real estate related).
45. Buying distressed companies or divisions of companies and turning
them around. Often you can grab these from publicly traded companies
who look at non core assets as a nuisance where an entrepreneur sees
only opportunity.
46. Issuing script. There’s nothing new about raising money by
issuing script. When the Reynolds Brothers needed to raise money for
their Adirondacks sawmill (established in 1870 by Orson L. Reynolds),
they issued their own ‘currency’ called script using $5 promissory notes
to pay their bills and to fund new ventures or additions to existing
ones. Please refer to:
https://www.eqjournal.org/?p=3233.
47. Reducing your capital costs by changing your business model from a
one-to-many marketing methodology to a one-to-a-few using channel
partners and resellers upon whom you can practice your negative cost
selling abilities. See for example Amy Yee’s Event Bots model redesign: https://www.eqjournal.org/?p=2469.
48. Franchising/branchising.
49. Bundling. I think bundling is going to be a big factor in terms
of leveraging entrepreneurial ventures in this century. For example,
Lululemon Athletica not only sells active wear they also have Yoga
classes in their stores. In essence, they are housing two complementary
businesses under the same roof. But there is no reason why they could
not be offered by two different organizations.
The key here is for each entrepreneur or intrapreneur to view their
enterprise as a platform on which they can build a community of
interests. Obviously, it could be a technology platform but just as
easily it could be a real estate play, a retail chain, a department
store or almost any other kind of business. Ask yourself these
questions: a. what services or products does it make sense for you to
bundle with your core offering (i.e., they complement it) and b. can you
unbundle/break apart your core offering to uncover separate services or
products that could be offered by others?
If you can get others to use your platform, you can push some of your
capital costs onto them—it becomes a form of bootstrap capital. What’s
more, they may pay you both a rights fee and rent just to be part of
your offering. If I were advising Lululemon, I would rent stores to Yoga
professionals for classes by them and create two revenue streams that
way—more clothing sales plus hall rental. It is also a form of negative
cost marketing as well since Yoga studios would be paying
Lululemon to bring their clients to Lululemon stores, a highly valuable
proposition for Lululemon. It’s similar to co-branding and co-opetition.
We did something similar back in the day when we were operating TCCL,
Terrace Corporate Centres, the largest mini office provider in Eastern
Ontario with 164 offices in two locations in the 1980s and 1990s before
selling it. We operated a word processing business for the convenience
of our clients—but it lost about $3,000 per month. When we unbundled the
business and spun it out to an independent entrepreneur (who paid us
$50,000 to buy what was then a failing operation), she was able to turn
it around in just six months and make a decent living for herself. In
addition, she paid us rent every month and a percentage of her sales.
IBM under past President and CEO Lou Gerstner bundled outsourcing,
consulting, software and other services onto an enterprise that was
flailing back in the 1980s—its mainframe hardware biz was under assault
by low end personal computers and mid-tier mini computers. Some thought
IBM should be broken up and sold in pieces or wound up.
Gerstner did not agree and frankly he saved a great company from
oblivion. Sometimes, you unbundle things and sometime you do the
opposite. Entrepreneurship is like that—full of contradictions that
somehow make sense. Nortel under CEO Mike Zafirovski failed to do this
(they had a great opportunity to add services and outsourcing to their
biz model and didn’t). So NT was led to the brink of extinction and then
fell off the ledge.
Govindh Jayaraman, other-directed founder of Green Stop, is trying to
bring quality food, grown locally to the c-store business. C-stores are
notorious for selling smokes/alcohol/guns and snacks that can hardly be
called food and which are certainly contributing to an obesity epidemic
in North America.
I suggested to him that he bundle other services into his
platform—like Yoga classes, fitness classes, health and nutrition
classes, cooking classes to teach people, especially inner city folks,
about wellness. He could, of course, contract out these services and
turn them from cost centres to profit centres. Maybe he partners with
many strategic partners—Lululemon and Yoga studios, exercise clubs like
the one run by student entrepreneur Angella Goran called Cyclepathic
which itself is an independent part of Ottawa Sport Performance Centre (https://www.train4sport.com/programs/spinning/).
He might also consider creating online accounts for his customers so
that he can form an Internet community around Green Stop—to create meal
plans, monitor their calorie intake, order stuff, suggest things that
could be added to their offerings and so forth.
If you build a platform that others use, you not only reduce your
capital costs, increase your revenues and decrease your marketing costs,
you also build a community around your enterprise/product or service
which makes it both sustainable and doubly hard to knock off.
50. Training and uniform fees (e.g., GradeATechs.com required each of
their contractors to be ‘Grade A’ certified before they could provide
services to clients and customers and get access to their billing system
and appointments calendar (a system called GASnet). To be certified,
contractors had to pay in advance to take courses, buy uniforms …)
51. Pre-sales in real estate allows you not only to ask for cash
deposits but also may give you access to Bank or private lender
financing. For example, if you pre-sell 50% of your condo or townhouse
project, you can usually qualify for construction lending where, in
essence, your Bank or private lender is advancing you money to build
condos or townhouses on the basis of the strength of the credit ratings
of your customers (buyers) and not your credit rating per se.
52. The same type of thing can help you a lot if you are a
manufacturing business—if you have a guaranteed supply contract with a
credible client or customer, you can often finance against that.
53. Land options—sometimes you can convince a landowner to give you
an inexpensive option to buy his or her land at a fixed price at a later
date. You can then use the time to set up a sales office and begin
pre-selling. As discussed above, you can then take cash deposits (which
are impressed with a ‘trust’ in that the money doesn’t really belong to
you until you actually have delivered the condo, townhouse, single
family home, whatever), finance against Agreements of Purchase and Sale
executed by you and your clients, approach a Bank or private lenders for
funding (often through a mortgage broker), arrange for private equity
lenders or other investors to invest in your project, etc.
54. I learned about a new method of bootstrap capital from my (then)
13 year old daughter, Jessica. One of her best friends lives in a single
parent family. Her friend’s parent is unable to work and lives on a
modest income. However, every year they are able to take a family
vacation to a nice destination in a rented van. How do they afford to do
that? Bootstrap capital. They take with them five other kids—each kid
pays $250 for a week’s holiday—that’s a total of $1,250, enough for a
camping holiday and some neat adventures too. It pays for the gas, the
van rental, food and a few outings. The kids’ parents contribute cash
and their children, Jessica’s friend and her parent go for ‘free’ but
they provide the opportunity. Everyone wins…
55. Finding money in the deal flow itself. When we built Scotiabank
Place, the contractor was able to complete in 22 months instead of
30—the extra 8 months in a larger structure not only raised revenues
over what the Sens could earn in much smaller Ottawa Civic Centre, it
saved millions in interest payments owed on money borrowed during
construction.
56. Getting your partners to lend you the money you need to fund your
portion of a new enterprise. A young entrepreneur became a 1/3 partner
in a restaurant franchise in a great location because his other two
partners loaned him his share of startup capital. Interest and
repayments came out of his 1/3 share of profits. After seven years, he
owned his interest free and clear. Why did the other two investors agree
to this deal? Because the young entrepreneur was the operating partner
of the restaurant—his participation at both the operating level and
ownership level were crucial to the success of their new store. Here’s
another example of how to turn sweat equity into cash equity.
57. Create a Foundation or a Not-for-Profit to fund a worthwhile project you support.
58. Create one business that helps launch a 2nd. This is what former student Ryan North did with Dinosaur Comics (https://qwantz.com/index.php) which built a big community for and around him which let him start Project Wonderful (https://projectwonderful.com/), a democratic Internet advertising platform which turned profitable 14 days after launch.
59. Run a competition like Shopify.com did. It was called ‘Build a
Business’ and it allowed startups to build their business on Shopify’s
e-commerce platform. The fastest growing company after 3-months would
win $100,000. But during the competition, nearly 1,400 new stores signed
up which generated more than $3.5 million in sales on their platform
and over 66,500 orders. The competition was widely covered on
influential blogs including the NYT. So between margins generated during
and after the competition and the value of earned media they received, I
would guess that the cost of the competition would, in fact, be
negative and, hence, a source of bootstrap capital.
60. If your enterprise ever gets into trouble, sometimes you can just
ask for cash—from existing clients or suppliers and they will just gift
it to you. Surprised? Don’t be. They have a vested interest in your
survival.
61. You can get other types of support from suppliers, customers,
your alma mater, business incubators or even friends and relatives or
competitors (more on this later): they can provide you with low cost or
no cost office or production space; lend you equipment for free; do some
testing for you or R&D; even second staff to you for a period of
time to help you get started. Sometimes, all you need to do is ask.
62. You can make use of more social capital in the form of free or
low cost advice or introductions (never make a cold call, for example:
do some research on the target company and get an introduction if you
can) from prestigious law and accounting firms, knowledgeable friends
and relatives, former professors, advisory board members and many other
sources provided they see future potential either, directly, from having
a relationship with you and your new firm or through you to your own
network of contacts.
63. Many firms will use barter to get going: for example, a tech
company might exchange running a server to provide communications and
Internet services for a Landlord and other Tenants in the building in
return for lower rent.
64. Many types of Guerrilla Marketing are, in fact, also a form of
bootstrap capital. GM happens when you substitute ‘brains for money’
while marketing your firm. Earned media (basically, free mainstream
coverage and Internet exposure) is the desired goal of publicity stunts
and other forms of GM. Earned media can be much more valuable than other
forms of advertising: not only can you gain more exposure, faster and
at lower cost, you also gain credibility for your product and services
by having third parties talk and write about them. For more on GM,
please see: https://www.eqjournalblog.com/?p=643.
65. Strategic partners. If you look at your enterprise as part of a
business ecosystem, you can often find others in that ecosystem that
will help you. They may not be direct suppliers or customers, they could
be suppliers to your suppliers or customers of your customers. You may
find ways to exploit those relationships even if they are two or more
degrees of separation from you.
66. Co-opetition can be a huge source of capital. When Microsoft was
under investigation by US and European authorities for its monopoly
practices, it was to their advantage that the only viable alternative
provider of operating systems at the time (Apple), survive. Apple’s
on-going viability was in doubt and Microsoft loaned them the funds they
needed to get through a tough time. Homebuilders like to hunt in
packs—if a potential homeowner doesn’t like your product, they can often
march across the street and buy from an alternative supplier and, of
course, vice versa. So marketing by one becomes, in a way, marketing for
all. So if you think you have a product with a lot of differentiated
value, you could perhaps convince an established player to back you with
some of their capital…
67. Keep your operating or capital costs under control or reduce
those costs. If you can’t keep your costs under control, you are DOA.
Substitute independent contractors or sub-contractors for employees.
Reducing capital costs is a form of Bootstrap Capital since that is
money you don’t have to raise.
68. Entrepreneurs often can make a meal from the discards of others.
They might find a large company, often a publicly traded one, and
convince them to sell them an under performing division. It’s hard to
imagine but Bloomberg did this recently to McGraw-Hill when they bought
BusinessWeek for a measly $5 million, well within the range of what
pretty much any entrepreneur could have accomplished. A large US-based
company was closing up shop in Canada recently and it was possible to
buy both its plant and Canadian business for somewhere between 30 cents
and 60 cents on the dollar. Such transactions can lay the foundation for
an entrepreneur’s entire career since they can often operate these
castoffs more efficiently as well as raising sales and revenues faster.
As a result, they can experience outsized returns. For a young person
willing to move around, a good place to look would be in publicly
available documents of a publicly-traded firm.
69. Entrepreneurs can often share resources with larger companies.
They might get office space for free or at a reduced cost, borrow lab
space, get an experienced employee seconded from the larger company to
the startup, get occasional use of specialized equipment, share
warehouse space … Web 2.0 tools are amazing with so many available for
free or practically no cost. These let you set up a website, blog,
social media presence, do basic accounting, make and receive payments,
process credit cards, backup your data, file transfer your data, do your
accounting, what have you for no money or very little money. It is much
easier to start a business in the 21st Century than at any other time
in recorded history.
70. Social Commerce. Lawyers, for example, might be offended if you
went to them and asked them to cut their hourly rate by say ½. But if
you ask them to do pro bono work, an entirely different part of their
brain becomes involved. This is known as social commerce—people will
often volunteer for things or lend you things or give you stuff that
they would never do for money. Again, just ask.
There it is. My list.
Prof Bruce
Prof Bruce @ 9:55 am
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Finding Bootstrap Capital Where You Least Expect It
Posted on
Sunday 12 February 2012
(How one company made $800,000 from their below market office lease)
Entrepreneurs and intrapreneurs work their magic every time they
launch a new company/product or service with little or no funding.
They’re amazingly good at finding niche opportunities and exploiting
them to raise cash.
Here’s one I learned from Rod Bryden who was on the Board of
Directors of a polling firm– they did national polls for major
organizations in Canada and around the world.
They sublet some space from a large multi-national company who had a
lot of surplus space because of the tech downturn in the early 2000s.
They got the space at well below market rates.
Rod saw this as an opportunity for them. They could go back to their Landlord, a major Pension Fund, and offer to pay them more rent. That’s crazy you say? Crazy like a fox. Here’s why.
First of all, Bryden wanted them to price all their inputs at market
rates so that they wouldn’t artificially show a profit not because they
are delivering superior products and services cost effectively but
because they ‘lucked’ into a below market office lease. If they are
profitable, he reasoned, it would be because their pricing and cost
structure are where they should be.
Secondly, he figured that the Landlord would pay cash upfront to them
in return for higher monthly rent. Pen Funds are always looking for
ways to goose their returns so it is in their best interest as well to
do a deal. Also, the polling company needed the dough to fund/develop
some of the new offerings they were working on.
Here are the steps they took:
1. They sublet a total of 15,000 sf.
2. They were paying $11 per s.f. per year triple net.
3. This was below market rate which was $20 triple net at the time.
4. They should have the discipline to charge themselves market rates so
they will make sure that they price their services as if they were
paying market rates.
5. The term of this favorable lease is 10 years.
6. Their Landlord, a large pen fund has a lower cost of capital than they do: 5.25% pa at that time.
7. Their cost of capital was 10.85% pa.
8. Some advisers might have suggested sub-subletting their space at market rates and pocketing the difference.
9. Rod’s solution was much smarter– less disruption to their operations– they would not have to move to create this benefit.
10. They could get paid the capital value of their favorable lease while staying put.
11. The Landlord might do this so they could have posted rates which
were more reflective of market rates. It helps them with other tenant
negotiations; they can point to the $20 lease rate.
12. Here is how they calculated the capital value of their lease. The
difference between $11 and $20 on 15,000 sf of space is $135,000 per
year. So over a ten year period, the difference in rent that they will
pay is $1,350,000.00 at a zero discount rate. But remember, you need to
find its present value using two different discount rates: one belonging
to the polling company, the other to the Pen Fund. This is what they
got:
Year
1 $ 135,000.00
2 $ 135,000.00
3 $ 135,000.00
4 $ 135,000.00
5 $ 135,000.00
6 $ 135,000.00
7 $ 135,000.00
8 $ 135,000.00
9 $ 135,000.00
10 $ 135,000.00
$1,029,893.46 5.25% discount rate
$800,071.85 10.85% discount rate
13. The Landlord then paid them $800,000 upfront for a stream of benefits worth $1.29m to them.
14. So the Landlord made $229,821.62.
15. But the services company got $800,071.85 in upfront capital!
Big win for them/little win for their Landlord.
QED
Prof Bruce
Prof Bruce @ 8:26 am
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Accretive Financing: Disney’s Deal to Buy the Ducks
Posted on
Saturday 11 February 2012
How You can End up with More Cash on Hand after a Deal Than Before
How the Disney Company Ended up Buying the Ducks from the National League for a Negative Amount of Cash
I have been involved in more than 168 startups over the last 25
years—either as a principal or as an advisor. I am happy to say that
most of them are still in operation today.
If an entrepreneur had money they wouldn’t go to a Bank for a loan
or, more importantly, they wouldn’t be starting a business. People with
money are called Investors not Entrepreneurs, and nothing is more
cautious than an Investor.
An acquaintance of mine, a Southam heir, someone I grew up with, I
call him ‘Douglas’, not his real name, was donating some shirts to
charity. He had more than 30 fine shirts, all neatly laundered in their
rectangular wrappings ready to go. I was in my late 20s at that time and
I had just started out in business on my own and, frankly, could have
used those shirts. So I asked him if I could have them instead and he
agreed. Thank you, Douglas.
He was a few years older than me and we got to talking: ‘Why haven’t
you married, Douglas?’ I’ll never forget his answer: ‘Oh, I couldn’t do
that. I have my dogs, my house and my trust fund from Granddad—if I got
married, I’d have to share all that.’
Douglas remains unmarried and childless in his 50s.
Nothing is more conservative than old money investors. You can see
where I am going with this. If you want to be wealthy, want to make a
difference, want to do your own thing, you’ll need some capital to start
with so where are you going to go to get it? In all likelihood, it
won’t be from a Bank and it won’t be from a rich investor.
I am sure that 95%+ of all businesses start with nothing or next to
nothing. That is why we started Exploriem.org—our networking group for
professional entrepreneurs and intrapreneurs—we are talking to the great
majority of people who start things with no money down (or little money
down).
These are Bootstrap Entrepreneurs; Intrapreneurs do the same thing within existing organizations.
When we talk about by-the-bootstrap startups we don’t usually think
about names like the Disney Company but ironically, large companies
understand the bootstrap idea better than many entrepreneurs and most
bankers or accountants.
They have a nicer, more professional sounding name for it, they call
it accretive deal making or accretive financing. That means that they
have more cash after the deal/acquisition/startup than before they
began.
Think it sounds fanciful? Not really.
Some of my readers may know that I served on the National Hockey
League’s Expansion Committee at the time that Michael Eisner and Wayne
Huizinga applied for expansion franchises for Anaheim and South Florida,
both of which were successful applicants.
In the case of the Disney Company, their franchise fee was the same
as the one we had paid the year before: $50m USD. However, the Disney
Company, in founding the Mighty Ducks of Anaheim, had just slightly more
leverage with the NHL than the Ottawa Senators. Not only did both the
Ducks and Panthers get a better entry draft than the Sens and the Tampa
Bay Lightning had the year before (sorry, Espo*), but they could do
creative things with their financings too.
(* Phil Esposito, Hall of Famer, led the Tampa expansion delegation.)
Disney made a deal with Bruce McNall, then LA Kings owner, to pay
half of the franchise fee to the Kings as part of their territorial
infringement fee. So $25m of the $50m did not go to NHL member clubs but
went to the Kings instead; and they didn’t pay it holus bolus (i.e., in
one lump sum)—they paid it $5m a year for 5 years. Now every
entrepreneur and intrapreneur knows that cash is king—collect early and
pay late is part of the code of the entrepreneur, right?
But Disney wasn’t finished yet. Ogden Corporation had built a new
arena in Anaheim without a major (anchor) tenant, a big no-no. So they
gave Disney a $20m inducement to sign a long term lease and they gave
them the naming rights to the arena to boot (so to speak). The naming
rights for the Corel Centre (now Scotiabank Place) in Ottawa were worth
$26m for a 20 year deal so you have to figure that the rights in Anaheim
were worth more.
And at the end of the day, Disney could pledge their $50m asset
(i.e., a NHL franchise) for a commercial loan with a LTV (Loan to Value)
ratio of at least 50% adding a further $25m to Disney’s cash-on-hand.
So it isn’t hard to figure out that the Disney Company could have
ended up with more cash on hand after they paid their expansion fee than
before they became members in the National League.
Prof Bruce
Prof Bruce @ 3:44 pm
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Bootstrapping Your Own ETA Business
Posted on
Monday 6 February 2012
(Executive Travel Apartments Are Not Subject to RTA, Residential Tenancy Agreement)
(Reducing Capital Requirements for Startups)
A former student recently introduced me a new form of Bootstrap
Capital, or at least, one I hadn’t considered before. It seems obvious
to me now but I think it takes some creativity to apply it to any
business model.
She is in the Executive Travel Apartment (ETA) business—those are
extended stay suites that executives use and many prefer to a long stay
in a hotel room.
It is a very capital intensive business: she needs equity to buy her
units, renovate them and furnish them. She can reduce her capital needs
by mortgaging the units using high LTV (Loan to Value) ratios and
leasing (or leasing to own) the furniture she needs for each unit. Still
her equity requirements are non-trivial.
She came up with a very inventive method of expanding her budding
empire without having to bring in a partner or sell her soul to finance
her company.
A form of bootstrapping is to lower the level of capital you require in the first place.
She can charge about $3,500 to $4,500 per month for her ETAs or about
$120 to $150 per night for a one, two or three bedroom unit which is
fully furnished, Internet and TV work, VOiP phones are on and there is a
starter kit (soap, salt and pepper, bread, milk, etc.) on hand. Just
let yourself in using the lockbox combination and key then relax, you’re
home.
Because these are ETAs, she comes under the Innkeepers Act and not
the RTA (Residential Tenancy Act) so she is much less likely to have
trouble with her tenants than a typical residential tenancy where
delinquency is high, collections are tough and getting rid of them
(evicting them) is even tougher.
A typical unit can cost her $200,000 or more to buy (with anywhere
from 5% to 25% equity required), $20,000 to renovate and another $10k or
so to furnish. So each unit can easily consume $70 or $80k of equity or
more. Other ETA operators solve this problem by selling their units to
investors and keeping management in their hands plus a share of
ownership.
She came up with another way—what if she went to residential
landlords and told them: ‘I will lease some (or all) of your units for
repackaging as ETAs.’ From a Landlord’s POV, that takes him or her out
of the purview of the RTA and he or she now only has to manage one
tenant (the ETA operator).
The ETA operator worries about furnishing the units, renting them out, managing and maintaining them, etc.
In the buy scenario described above, she will need at least $80,000
in equity per door. If she rents each unit out for $4,000 per month and
has a mortgage at 6% with a 20 year amortization period, she will be
left with a NOI (Net Operating Income) after deducting a vacancy
allowance, marketing costs, admin and contingencies of about $1,077 per
unit per month.
If she sublets units from a cooperative Landlord at $1,400 monthly,
she is left with less—just $766.49 per month per unit. This is because
she is paying less on her mortgage than she is in rent to the Landlord.
But in the first case, she needs $80k of equity; in the second case, she only needs $30k.
Now her simple ROE (Return on Equity) is 16.2% p.a. when she buys her
own units versus a whopping 30.7% when she rents them instead.
(See the spreadsheet below.)
Now this model ignores the wealth effect of owning your own units
(the annual paydown of your mortgage principal, in effect, by your
tenants) and real estate inflation (that goes solely to the equity
holder).
If I took those factors into account, the ROEs would probably be a
lot closer*. But that doesn’t matter if she can’t afford to expand her
business because equity demands of the first model are too high for her
to handle.
So the obvious choice is to do both—own some units and sublet others.
As her cashflow improves, she should probably be buying relatively more
of her units.
But at least initially, from her POV, her capital requirements have
dropped from the $70 to $80k per door range to $10 to $30k per door and
her ability to grow the business faster has just taken a quantum leap
upwards.
(* If we take into account the wealth effect and the impact of real
estate inflation, the two rates of return (this time measured using the
IRR instead of the simple ROE ratio) are, in fact, closer. In the ‘buy’
scenario, the return increases from 16.2% p.a. to 22.8% while for the
‘sublet’ scenario, the return remains that same at 30.7%. The latter
doesn’t change because, in this model, I have assumed that when she
sells the business at the end of year 7 (an arbitrary timeline, I might
add), she realizes exactly what she put in initially for renovations and
furnishings. Of course, in reality what she gets for the business would
depend on what she and a Buyer agree to which could be greater or less
than this amount. Nevertheless, in order not to bias the comparative
analysis, it seemed reasonable to make this assumption.)
You can examine the spreadsheet below or download it in .xls format from my server at: https://www.ottawarealestatenews.ca/ETAs.xls.
ETAs
Buy the Units
Cost per Unit $200,000
Equity ($50,000) 25%
Mortgage $150,000 75%
Interest 6% p.a.
Amortization 20 years
Monthly Payment ($1,089.81) to Lender
Renovations ($20,000)
Furniture ($10,000)
($30,000)
Interest 10% p.a.
Amortization 7 years
Monthly Payment ($513.51)
Total Cost ($1,603.32)
Monthly Rent $4,000
Marketing ($320) 8%
Vacancy ($480) 12%
Other ($240) 6%
Contingencies ($280) 7%
NOI $1,077 per month
Equity ($80,000)
ROE 16.2% per annum
Year
0 ($80,000.00)
1 $ 12,920.15
2 $ 12,920.15
3 $ 12,920.15
4 $ 12,920.15
5 $ 12,920.15
6 $ 12,920.15
7 $ 167,186.31 $ 12,920.15 $ 124,266.15 $30,000
IRR 22.8% p.a. Assumes the business is sold
and the sale price of the biz
R.E. Inflation 2.75% equals the investment in
Selling Price $ 241,825.90 furniture and renovations.
Agency Fees ($12,091.29) 5%
Legal Fees/Closing Costs ($1,105.00)
Net $ 228,629.60
Principal Repaid
1 ($5,436.91)
2 ($5,763.13)
3 ($6,108.91)
4 ($6,475.45)
5 ($6,863.98)
6 ($7,275.81)
7 ($7,712.36)
Total Principal Repaid ($45,636.55)
Mortgage Balance Due $104,363.45
Net to Seller $ 124,266.15 on completion
Sublet the Units
Cost per Unit 0
Equity 0
Mortgage 0
Monthly Payment ($1,400) to Landlord
Renovations ($20,000)
Furniture ($10,000)
($30,000)
Interest 10% p.a.
Amortization 7 years
Monthly Payment ($513.51)
Total Cost ($1,913.51)
Monthly Rent $4,000
Marketing ($320) 8%
Vacancy ($480) 12%
Other ($240) 6%
Contingencies ($280) 7%
NOI $766.49 per month
Equity ($30,000)
ROE 30.7% per annum
Year
0 ($30,000)
1 $9,197.84
2 $9,197.84
3 $9,197.84
4 $9,197.84
5 $9,197.84
6 $9,197.84
7 $39,197.84 $9,197.84 $30,000
IRR 30.7% per annum
Assumes the business is sold and the sale price of the biz equals the investment in furniture and renovations.
E&OE
Now how will she find cooperative Landlords? Why in a manner very
similar to what Billy Chrystal recommends for people looking for vacant
apartments in Manhattan—check the obits. But instead of obituaries, all
she needs to do is look on Kijiji to watch for Landlord’s that are
having trouble renting their places or their units seem to come up for
rent frequently or maybe they are just too pricey for a general market
but not perhaps for the executive travel marketplace. Then go see them
with an irresistible negative cost selling value proposition: ‘I’ll pay you to hire me.’
Another client recently showed me how he could acquire inventory for
his retail store at a negative cost to him—other retailers are paying
him to feature their products and services in his outlet store. They pay
him a monthly fee for this plus they give him a percentage of each of
their products or services that he sells for them on consignment.
We are now busy applying this philosophy to other types of businesses with great effect.
Prof Bruce
Prof Bruce @ 8:06 am
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More About Curation
Posted on
Monday 6 February 2012
(Curating Sweden: https://www.eqjournal.org/?p=2995)
(Profession to Watch for in the 21st Century: Curator: https://www.eqjournal.org/?p=487)
The proliferation of information in the last Century and this one is
beyond belief. In 2008 alone, 487 million gigabytes were added to the
collection of digital information world-wide according to an IDC study: As the Economy Contracts, the Digital Universe Expands, May 2009.
As part of our on-going study into business models, we are always
trying to distill the essence of any business: the ‘pixie dust’ that
makes it all work. It occurred to me that what has created some
extraordinarily profitable and valuable corporations in the last 18
years is a surprising resurgence of an old profession—the curator.
What do Google, IBM Tech Services, Hotel Concierge, Bloomberg
Financial, Digg, Reddit, Twitter and Hudson Bay Company have in common?
They all curate information, products and services for their
audience—this is, at the nano scale of things, what they actually do.
A curator is a steward, factor, majordomo, butler, MC (Master of
Ceremonies), proctor, guardian, librarian, cleric and custodian of
things (taken from The Original Roget’s International Thesaurus, 5th Edition). But he or she is more than that—an intelligent agent who curates these things on behalf of their stakeholders.
• Google curates information.
• IBM Tech Services helps clients negotiate through the thicket of info
tech infrastructure alternatives and then help them put it all in place
plus run it too. They will spec non-IBM equipment if it better suits the
job.
• The Concierge curates myriad tourist attractions in a city and much more besides.
• Bloomberg LP provides industrial scale data organized into coherent patterns for traders around the globe.
• Digg and Reddit curates tech, science, gaming and some political news for what was originally a mostly male demographic.
• Twitter allows you to follow people who are working for you for free
to provide you with a window into a world of their creation that
interests you.
• Hudson Bay Company is staking its future on curating interesting
merchandise in patterns that it would take an individual much too long
to do on their own. They may bring in co-branders as well as bundle in
extra services interesting to their client base.
I think they are onto something. Why wait until the receiver is at
the door like Nortel did or Blockbuster did? HBC has wonderfully located
central real estate—they just have to figure out what goes into that
space that people actually want.
I think it will help entrepreneurs create more powerful and more
sustainable business models if they look at their enterprises with a new
thought—that they are adopting the attributes of an art
curator—creative presentation of alternatives and intelligent advice to
help them choose.
Amazon’s amazing use of their relational data base (remember: ‘Would you like to see what other people who bought this book also purchased?’)
is a form of curating their incredible number of titles. It tells
people like me what else I should be reading on any particular subject.
Or how about content curation service Paper.li based at the Swiss
Federal Institute of Technology’s Innovation Center in Lausanne,
Switzerland? Their Daily newspaper which they automatically produce for
any subscriber is based on their client’s Twitter followings and
interests. It gives each community that has formed around each of their
clients’ Twitter accounts, a summary of tweets s/he gets every day.
Clients publish fresh e-newspapers daily based on topics they like and
want to share with their readers/followers/friends. It can be a bit of a
strange beast and they will need to keep tweaking their algorithm but
it has possibilities.
Paper.li has used a Mechanical Turk—humans are in the loop because it
is people not machines tweeting/posting and they believe that people
not machines are the ones who should curate content.
Here’s how they summarize their mission on their website: “We love the semantic web, we respect our content creators, we strive for simplicity, and we thrive on feedback.”
Artful, intelligent curating can lead to big businesses like
Digg.com, Paper.li and many more. I suspect someone will successfully
curate the more than 500,000 iPhone apps for a very receptive audience
one of these days. Services that artfully and intelligently guide users
have a great future and they will be hard enterprises to knock off
because their sustainable competitive advantage is the ‘Mechanical Turk’
inside the black box.
Intelligence, artfulness and creativity are not easily outsourced to
low wage nations and once you have embedded them in your business model
as Digg.com, Reddit.com and Paper.li have done and your community has
embraced them, they aren’t easy to replicate. It’s also important to
recognize that these enterprises not only rely on curation and community
but they develop and own the underlying platform and its the people who
own the platforms at Digg.com, Reddit.com, Paper.li, Twitter, HBC or
Bloomberg (think Mark Zuckerberg at Facebook) who make the most money
from them.
Prof Bruce
Prof Bruce @ 6:29 am
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